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.
Tokenized Bitcoin on Ethereum Explained
About Lesson


These make up a significant portion of the currently tokenized bitcoin supply. The most amount of value locked is in Wrapped Bitcoin (WBTC). How does it work? Users send their bitcoin to a centralized custodian who keeps them in a multisignature cold storage wallet and mints WBTC tokens in return. It’s worth noting that this process requires proving their identity to comply with KYC/AML regulations. This method requires trust in the entity that is minting the token but also brings some security benefits.
Binance also has a tokenized version of BTC called BTCB. It’s a BEP-2 token issued on the Binance Chain. If you’d like to try it out, you can trade it on Binance DEX.


Non-custodial solutions work completely on-chain, without any involvement from a centralized custodian. In simple terms, you could think of them similarly as Wrapped BTC. However, instead of a centralized custodian, it’s a smart contract or a virtual machine that’s keeping the funds safe and minting the tokens. Users can deposit their BTC and mint their tokenized bitcoin in a trustless and permissionless way.
Some of these systems will also require overcollateralization, meaning users have to deposit more value (collateral) than they aim to mint. They do this to prepare the system for black swan events and large market crashes. Even so, if the collateral value decreases significantly, these systems may not be able to handle it.
The most popular non-custodial implementation is renBTC. The bitcoins are sent to the Ren Virtual Machine (RenVM), which stores them using a network of decentralized nodes. It then mints ERC-20 tokens according to the amount of bitcoin sent. 
Other notable examples are sBTC and iBTC, which are synthetic tokens collateralized by Synthetix Network Token (SNX) instead of bitcoin. What makes iBTC especially interesting is that it inversely tracks the price of Bitcoin. This makes it one of the few non-custodial ways to short Bitcoin.

It’s worth noting that these are highly experimental technologies. It’s no wonder that centralized, custodial solutions are more popular – they tend to be more secure. Naturally, there’s also a greater risk of bugs and user error, potentially leading to loss of funds. Even so, these could ultimately be the future of tokenization once the technology is improved.

Since these non-custodial solutions are governed by automated processes, using them is only recommended for advanced users. But, if you’d like to play around with these tokens without worrying about the minting process, you can buy and trade them on cryptocurrency exchanges.

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