Course Content
Tokenized Bitcoin on Ethereum Explained
Explain Like I'm Five (ELI5) Tokenized Bitcoin is a way to use bitcoin on other blockchains. But wait, isn’t Bitcoin great already? Indeed it is! It has a solid use case, and it already acts as a kind of public good. At the same time, its purposely limited features leave little room for further innovation. What else could we do with Bitcoin? Some Bitcoiners say we shouldn’t do anything in particular, and that’s reasonable. Then again, others believe we should find ways to use Bitcoin on other blockchains. And this is where we arrive at tokenized BTC on Ethereum. Why tokenize Bitcoin? Does this even make sense? How is tokenized Bitcoin created? Can you get your hands on tokenized BTC? Read more below if this interests you.
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Tokenized Bitcoin on Ethereum Explained
About Lesson

This is a difficult question to answer. Let’s try to consider both sides of the argument.

So, how can this be good for Bitcoin? Well, it arguably increases the utility of Bitcoin. While many will argue that Bitcoin doesn’t necessarily need more functionality, it could maybe use some. As we’ve discussed earlier, the benefits could be increased transaction speeds, fungibility, privacy, and decreased transaction costs. With the launch of ETH 2.0, we may expect transactions on Ethereum to be faster and cheaper. This could also help the case of tokenized bitcoin on Ethereum. 

On the other hand, some argue that this is potentially dangerous for tokenized Bitcoin holders. Tokenizing BTC also entails giving up the strong security benefits of Bitcoin – some of its most sought-after properties. 

For example, what happens if the tokenized bitcoins are stolen or lost due to a smart contract bug? There would potentially be no way to unlock the locked bitcoins on the Bitcoin blockchain.

One another thing to consider is fees. Some argue that if a high number of users start transacting tokenized BTC on the Ethereum blockchain, the transaction fees on the Bitcoin network could drop. Over the (very) long-term, Bitcoin is supposed to be supported by transaction fees only. If most of those flow into the Ethereum ecosystem, the security of the network could be compromised. However, this is a long way off and isn’t a pressing issue for a long time.

How can it be good for Ethereum? Well, if Ethereum captures a lot of Bitcoin’s value, that could increase the utility of Ethereum as a global network for value transfer. According to research by Etherscan, a considerable portion of the previously-mentioned 15,000 BTC sum is locked in the Ethereum DeFi ecosystem. 
Tokenized bitcoin could greatly increase the utility of DeFi on Ethereum. How? There could be decentralized financial services based on tokenized bitcoin. BTC-based DEXes, lending marketplaces, liquidity pools, and whatever else exists in DeFi could all be denominated in BTC. The success of tokenized bitcoin could also encourage other types of assets to migrate to the Ethereum network.

Most of the projects are still in very early stages, and the technology behind them has a lot of room to improve. Still, there are certainly exciting developments to come on this front.

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