What Are Wrapped Tokens?

June 9, 2022

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The different kinds of technology used on the Bitcoin blockchain and the Ethereum blockchain, for example, make securely utilizing between the two an impossibility. However, wrapped tokens provide a way to avoid this limitation and give users the chance to use non-native assets hosted on a blockchain. The origin of the term ‘wrapped’ refers to the original asset being put in a wrapper. In this sense, the wrapper acts as a digital vault that allows the wrapped asset to be created and hosted on another blockchain.

In a similar way to how stablecoins are pegged to fiat currencies to hold value, wrapped tokens are pegged to other cryptocurrencies. Wrapped tokens seek to address the limitation of different blockchains by making it possible to move information freely between them. Like other crypto and fiat currencies, wrapped tokens can be exchanged with other crypto and fiat currencies with relative ease. Wrapped tokens aim to make cryptocurrency more accessible for people who do not want to use the functionalities of a certain blockchain, but do not want to exchange an incompatible asset to another one. Instead, they allow them to hold a single type of token and its wrapped equivalent while still accessing a range of decentralized features.

What Does it Mean When a Token is Wrapped?

When a token is wrapped, it means that it can be present on blockchains that would otherwise be incompatible. Wrapped Bitcoin and Ether are pegged to the value of their respective unwrapped tokens. To help the wrapped tokens hold their value, a custodian holds the equivalent value in BTC or ETH. Wrapped crypto is popular as it increases the functionality of the unwrapped tokens by increasing the number of ways they can be used. Wrapped coins look set to continue rising in popularity as the real-world uses for cryptocurrencies steadily increase. As both Bitcoin and Ethereum increase in popularity and more uses for them emerge in our day-to-day lives, wrapped coins should continue increasing in popularity.

How Do You Unwrap a Token?

To unwrap cryptocurrency, whether that is wrapped BTC, ETH, or even wrapped XRP, you must first send it to an appropriate custodian. Using BTC as an example, the wrapped minting process involves sending BTC to a selected custodian who holds wrapped assets in reserves. The custodian will mint BTC tokens on the Ethereum blockchain before sending back the equivalent amount of WBTC. To unwrap the token, the process simply happens in reverse. Sending WBTC back to the custodian will entitle the sender to receive the equivalent amount of Bitcoin in return and the custodians usually burn the wrapped tokens. This process is similar to other wrapped cryptocurrencies.

It is important to note that holders of wrapped cryptocurrencies cannot unwrap the tokens themselves and instead must complete transactions through custodians. Using an exchange to convert BTC to WBTC is the simplest and safest way of completing this kind of transaction. The Rubix platform facilitates this kind of exchange and many more and is your go-to exchange for wrapped tokens. Trading to and from wrapped crypto is easy with Rubix as we hold significant reserves of a fantastic range of unwrapped and wrapped tokens for you to purchase.

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Is Wrapped Bitcoin the Same as Bitcoin?

In terms of price, wrapped Bitcoin and Bitcoin are the same. The main difference lies in the blockchain technology on which they are used. While Bitcoin is represented on its own blockchain, it is unable to be held on the Ethereum blockchain due to using a different protocol. However, Wrapped Bitcoin is an ERC-20 token. This means it is able to feature on the Ethereum blockchain. This usage allows holders of WBTC to access the world of Ethereum DeFi, decentralized apps, and smart contracts. For people who wish to focus their investments on Bitcoin, WBTC allows them to do so while also accessing other uses for their cryptocurrency, which would otherwise be impossible. As Wrapped BTC is pegged to BTC, the two currencies have an intrinsic link that cannot be ignored.

Should I Buy Wrapped Bitcoin?

Like with any other financial investment, buying Wrapped Bitcoin should be something that you think about carefully. Cryptocurrency is a volatile market with no assurance from federal or commercial entities. Wrapped Bitcoin is a good investment as it is tied to the value of Bitcoin, which is the largest cryptocurrency in terms of market cap. For people who are looking to invest in a cryptocurrency for the first time, Wrapped Bitcoin has a variety of uses that can be an appealing first foray into the world of cryptocurrency investments. Likewise, it is a good investment for those with other crypto assets due to the array of uses that are possible. When you hold WBTC as well as BTC, you increase the opportunities for using your assets in real-world applications.

The proof of reserve system that custodians employ means that WBTC and other wrapped cryptocurrencies are a good investment. As long as these reserves are present, the wrapped cryptocurrency will continue to hold its value in conjunction with its pegged token. These vast reserves of Bitcoin mean that buying Wrapped Bitcoin can present a good investment. The important thing for potential investors to consider is where they are buying their Wrapped Bitcoin from. Using the Rubix exchange is a fantastic choice as the platform is home to world-class security and encryption. Rubix also provides its users with the chance to trade their crypto, both unwrapped and wrapped, and fiat currencies at accurate market prices with minimal transaction fees.

Is Wrapped Bitcoin Better than Bitcoin?

Both Wrapped Bitcoin and Bitcoin have positive features that make investing in them an appealing choice. It is hard to say whether one is better than the other as they are both popular, valuable, and able to be used in real-world applications. Depending on the ways in which you plan to use your cryptocurrency assets, WBTC or BTC will be better suited. There are also several other wrapped cryptocurrencies that you can purchase and trade your Bitcoin for, which increase the functionality of their pegged tokens. In short, both BTC and WBTC are attractive investments despite the uses of the tokens differing slightly. Both wrapped and unwrapped Bitcoin are established cryptocurrencies that have had their validity recognized all around the world by major financial institutions. If you are looking to begin your journey investing in cryptocurrency but are unsure where to start, BTC or WBTC could be the perfect choice for you.

Is Wrapped Bitcoin Safe?

Yes, Wrapped Bitcoin is safe when purchased from a trustworthy source. As the token utilizes the same blockchain technology as the Ethereum token, it is a safe investment, and you are unlikely to find yourself falling victim to bad actors as long as you purchase only using a reputable cryptocurrency exchange. Using a reliable exchange to buy and trade Wrapped Bitcoin is a smart thing that you can do as it keeps your assets safe while also helping you access the best deals possible. One such cryptocurrency exchange that provides the best in security and encryption protocol, as well as up-to-the-minute market prices, is Rubix. Our team works hard to provide you with the most accurate market prices and minimal transaction fees that will help you to make the most of your cryptocurrency purchases.