Wrapped Bitcoin (WBTC) is the Wrong Approach to Bitcoin on Ethereum
Today, a representative from Kyber Network announced Wrapped Bitcoin in a blog post. WBTC is an ERC20 token that is 1:1 interchangeable for Bitcoin. For every one WBTC token created, one BTC is locked by a custodian. The WBTC can be burned, allowing for the release of BTC in a proportional quantity. The goal of this, according to Kyber, is to solve the issue of low liquidity on decentralized exchanges and allow Bitcoin to be used in smart contracts.
Indeed, the ability to use Bitcoin on Ethereum is important for a couple of reasons:
Bitcoin’s Need to Adapt: Bitcoin has become the de facto reserve cryptocurrency, making up most of the world’s cryptoasset trading volume. Unfortunately, Bitcoin is not nearly as programmable as Ethereum based assets. Ethereum, which remains the most ubiquitous decentralized smart contract platform, is a great environment for building the future of money. Interdisciplinary teams are using Ethereum to create decentralized financial products and derivatives, while many companies and governments are looking into the tokenization of traditional assets. If Bitcoin is to remain relevant as a cryptocurrency, it naturally follows that it must be made compatible for these emerging use cases.
Bitcoin’s Advantages vs. Ether: In addition to being important due to its market cap, institutional recognition, and first mover advantage, Bitcoin has qualities that make it a superior currency to Ether, the native currency on Ethereum. Unlike Ether, which had a massive premine and ICO, Bitcoin has been trustlessly and transparently distributed since its first block. With the upcoming transition to a Proof of Stake algorithm, Ether will cease to be mineable.
What the creation of WBTC demonstrates is that there is a real desire for a decentralized, pure mined currency on Ethereum. Fortunately, this asset already exists as 0xBitcoin. As the first pure mined ERC20 token on Ethereum, and the first implementation of the EIP918 standard, 0xBitcoin is scarce, deflationary, and trustlessly distributed through mining. It’s the first adaptation of Satoshi’s whitepaper to reside natively on Ethereum, which allows it to be immune from 51% attacks and death spirals.
Unfortunately for the Ethereum community, WBTC is nothing more than a trust-based and centralized stopgap measure. As described by the Kyber blog post, WBTC is an “ERC20 token fully backed by real BTC and stored by regulated custodians.” For the system to work, BTC deposits must be held by a “qualified custodian” for the duration of the life of the WBTC token. The custodian wallet is audited by a Decentralized Autonomous Organization (DAO), consisting of “reputable projects in the blockchain space.”
The process of setting up a custodian system to bring Bitcoin to Ethereum is over complicated and ignores the simple solution, which would be to use 0xBitcoin in place of WBTC in applications that would benefit from a Bitcoin-like currency. Since WBTC relies on a relatively small number of entities to maintain its value and usefulness, long-term building cannot safely progress using WBTC in the same way that long-term building cannot happen using any one specific centrally backed stablecoin. Decentralized and natively built stablecoins like Dai are increasingly being adopted by developers since they avoid the need to trust a central group of entities, so why are we jumping through hoops to bring BTC onto Ethereum when a similar alternative already exists?
If the we in the Ethereum community truly value decentralization and believe in the future of the network, then we should stop kicking the can down the road by creating surrogates. 0xBitcoin possesses all the economic benefits of a scarce and PoW distributed token, while being entirely trustless. The need for an implementation of a mineable Bitcoin-like token on Ethereum is apparent now more than ever; 0xBitcoin is the answer.
The white paper for 0xBitcoin is located at https://github.com/0xbitcoin/white-paper.