Ethereum is the dominant blockchain for supporting decentralised applications, particularly in the sector known as DEFI – decentralised finance. DEFI includes a whole range of financial services for crypto users, such as lending/borrowing and swapping. Given the problem of blockchain interoperability a significant proportion of the value within the crypto system is locked out of Ethereum-based DEFI applications.
For that reason Ethereum bridges are crucial to growing DEFI, and naturally, one of the first to emerge was with Bitcoin through what is known as wrapped Bitcoin.
One of the most popular Ethereum-Bitcoin bridges is Bitgo, which uses the centralised bridge approach. It acts as a single trusted Custodian bridging Bitcoin and Ethereum through a lock-mint/burn-release approach.
- You send your BTC to Bitgo
- BitGo locks up your BTC & mints a ‘wrapped version’ of Bitcoin called wBTC
- You receive wBTC in an Ethereum supported wallet
- To redeem your BTC send the wBTC back to Bitgo
- Bitgo burns the wBTC & unlocks the original amount of BTC
- You pay a fee to both wrap & unwrap
wBTC complies with the ERC-20 token standard used by Ethereum, so it can be used across its ecosystem.
- See our separate article on wrapped tokens
At the time of writing, there is almost 270,000 wBTC in circulation, mainly used in DEFI applications.
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