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Mapping the Rise of Bitcoin on Ethereum: Considerations & Top Projects

Ethereum's rising tokenized bitcoin sector is already joining the ranks of stablecoins, DeFi, DAOs, and NFTs as the top smart contract platform's earliest and brightest stars.
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Last week, I wrote on whether the advance of ERC20 bitcoin token projects was good for both Bitcoin and Ethereum or mainly just Ethereum. That’s an open question for now.

What’s clear, though, is that Ethereum’s rising tokenized bitcoin sector is already joining the ranks of stablecoins, DeFi, DAOs, and NFTs as the top smart contract platform’s earliest and brightest stars.

Major growth ahead seems all but certain because there’s major growth happening in the here and now: in recent months, the amount of activity around tokenized bitcoin efforts has been exploding. As such, new implications and new projects have been coming to the fore in the cryptoeconomy.

Ethereum: Bitcoin’s Top Scaling Solution to Date?

The Lightning Network is a layer-two scaling protocol that’s been proposed as the leading scaling solution for Bitcoin. The system helps take BTC transactions off-chain as a means of decreasing congestion on the Bitcoin blockchain proper.

The advantage of Lightning, then, is that it can work directly with bitcoin. However, after several years of development, the system still has non-trivial UX drawbacks. The system’s not down and out, far from it, but more than a few folks think it should be further along than it is right now.

On the flip side, Ethereum’s scaling scene is starting to heat up. The recent advance of layer-two Optimistic Rollup (ORU) solutions is a major step toward scaling Ethereum 1.0. And in a matter of weeks, the first phase of Ethereum 2.0 kicks off. This will put Ethereum on a direct path to sharding, a powerful scaling technique, in the years ahead.

With all that said, Ethereum as it stands can already power faster and cheaper transactions than Bitcoin. With the rise of ERC20 bitcoin tokens on Ethereum, then, the reigning smart contract platform has already become something of a de facto scaling solution for BTC.

This dynamic is only set to increase as Ethereum continues to mature along its development roadmap and things like ORUs really start to proliferate. This will all make BTC even easier to spend and use, which is why tokenized bitcoin is so interesting in the first place.

Bringing BTC to DeFi

Beyond making bitcoin easier to use, tokenized BTC can also be used in many different productive ways within Ethereum’s growing decentralized finance, or DeFi, ecosystem.

For example, last week the cryptoeconomy celebrated Bitcoin Pizza Day in honor of when developer Laszlo Hanyecz bought two pizzas for 10,000 BTC back in 2010. Of course, Hanyecz made the buy expressly to help kick off the bitcoin market, but the move has also gone down in infamy since sum of BTC would be worth nearly $100 million USD today.

If something like leading DeFi lending platform MakerDAO existed at the time, Hanyecz could have collateralized ERC20 bitcoin to draw out an automated loan denominated in Maker’s dollar-pegged Dai stablecoin. That way, the developer could have paid for pizza with Dai in order to retain 100% exposure to potential future upside in the bitcoin price.

That’s just one example, but all these years later many bitcoiners think the BTC price still has major upside ahead, and presumably some of these folks wouldn’t mind being able to spend against their bitcoin holdings without missing out on any long-term BTC price gains. That’s what DeFi platforms like MakerDAO and Compound can do for users now.

Other opportunities abound for tokenized bitcoin users in DeFi, like earning as a liquidity provider on Uniswap or on other decentralized exchanges.

Understanding the Variety

ERC20 bitcoin tokens are starting to kick off left and right, and more are undoubtedly coming since the sector is still fledgling. The efforts we’ve seen so far have come in  different shapes and sizes.

The most important consideration here is thinking of ERC20 bitcoins as existing at different places along the spectrum of trust.

Some projects, like WBTC, rely on third parties and are thus more centralized. On the flip side, other projects like tBTC are meant to be trustless in practice. Lets quickly review some of the top contenders from both sides of this spectrum.

WBTC

WBTC for “Wrapped Bitcoin” is a tokenized bitcoin in which the project’s underlying bitcoin reserves are custodied by leading cryptocurrency custodian firm BitGo.

WBTC’s been out in the wild for a while now, so anyone can pick some up on decentralized exchanges like Uniswap rather than having to mint their own. However, there have been some really large WBTC mints in recent days, some of which have gone straight into Maker Vaults.

Indeed, the MakerDAO community voted in WBTC as an approved collateral type for Dai loans earlier this month. Things have moved fast since then, too. With the exception of ether (ETH), there’s now more Dai backed by WBTC than any other cryptocurrency (other support Dai collateral types currently include USDC and Basic Attention Token).

tBTC

tBTC has been built by the Keep Network team as a trustless tokenized bitcoin project. This means users can mint their own tBTC without having to go through a centralized third-party like a crypto custodian.

tBTC hit the Ethereum mainnet earlier this month and was only live for a few days before a bug was discovered in the token’s redemption process. Keep deployed an emergency pause and has since charted out a fix and a return for tBTC.

The episode fortunately came early enough in the project’s lifespan that it can still completely actualize from here. I wouldn’t sleep on the talent behind the project, to be sure.

sBTC

sBTC is a synthetic version of bitcoin created by decentralized synthetic assets platform Synthetix.

This particular ERC20 bitcoin is underpinned by Snythetix’s native SNX token, which is used as collateral for the issuance of synthetic assets through Synthetix. In this sense, sBTC isn’t directly backed by bitcoin reserves but exists as a synth supported by Synthetix’s system.

Notably, Synthetix is presently one of the top 3 DeFi projects atop Ethereum, so sBTC is certainly another major tokenized bitcoin offering worth tracking.

renBTC

renBTC is a tokenized bitcoin effort from the Ren project, the team building out the RenVM.

In short, the RenVM can be used to trustlessly mint assets like bitcoin as ERC-20 tokens on a 1:1 basis on Ethereum. renBTC is an early demonstration of what the RenVM can do, then, and it’s also set to be redeemable at any time. Like tBTC, this one can get much bigger going forward due to its decentralized structure.

BTC++

BTC++ is a tokenized bitcoin offering from the new PieDAO group that tracks multiple ERC20 bitcoin tokens for the sake of mitigating risk.

To that end, the BTC++ portfolio is currently weighted as follows: 25% in WBTC, 25% in sBTC, 25% in the Provable project’s pBTC, and 25% in Tokelon’s imBTC. Accordingly, it’s a design the tokenized bitcoin sector hasn’t seen yet and one that’s likely to be emulated by other projects in the future.

Watch This Space

ERC20 bitcoins seem poised to become much more popular in the years ahead. If that happens, the projects mentioned above could prove to be some of the biggest early winners in the ecosystem.

The big related questions will persist for now, too, like whether Ethereum is Bitcoin’s most promising scaling tech or whether ERC20 bitcoin is mutualistic or mostly just good for Ethereum. Only time will tell, but the intrigue is definitely on.



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William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Biticoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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