In the last 2–3 years, we have witnessed the birth of various DeFi projects created specifically to bring Bitcoin to the Ethereum blockchain. While until a while ago this task might have seemed impossible, lately it has been gaining more and more ground, reaching levels of liquidity never seen before.
Bitcoin is a truly innovative coin that has changed the world since its birth, but its classic version has several weaknesses that have been subsequently improved in the new blockchains. To quote an industry expert, Vitalik Buterin (founder of Ethereum): “Think of the difference between something like a pocket calculator and a smartphone, where a pocket calculator does one thing and does one thing well, but really, people want to do all these other things. And if you have a smartphone, then on the smartphone you have a pocket calculator as an app”.
BTC is a p2p coin, while Ethereum is a blockchain that can contain both p2p coins and other features (smart contracts, dApps etc.).
That being said, it is immediately clear why bringing Bitcoin on the Ethereum network is a smart move and requested by the public. Before revealing all the advantages of Bitcoin on the Ethereum network, let’s talk a bit about the projects created exclusively for this purpose.
The best projects bringing Bitcoin on Ethereum
Different projects propose these novelties: pBTC, wBTC, tBTC, imBTC, BTC++, renBTC and so on. Some of the projects are only just getting started (or on the testnet), while others already have very good liquidity and are available on the mainnet. It is important to follow all of them as there will be a lot of talk about BTC on Ethereum, considering these are the best products coming from the DeFi community at the moment. To understand their importance, just remember that Bitfinex will soon introduce pBTC (by ptokens.io) on its exchange.
Why is it convenient to bring Bitcoin on Ethereum?
1) To bring liquidity to decentralized exchanges (DEXs). Considering that in the past many traditional exchanges were hacked or their founders escaped with user funds, the arrival of DEXs was inevitable. On DEXs, users are the only ones who have access to their funds and cannot be unfairly exploited by the founders or other programmers behind the project. Unfortunately, however, DEXs have very little liquidity and trade only ETH and erc20 tokens. By transforming BTC into pBTC (or some other similar currency) it is possible to use DEXs for trading bitcoin with Ethereum or other erc20 tokens.
2) Speed of transfers from wallet/exchange to wallet/exchange. We all know that transferring Bitcoin is not as fast as it used to be. It can also take a few hours to complete a transfer from wallet to exchange or vice versa. However, using bitcoin on the ethereum network solves this problem and transfers become ultra-fast. The only delay will be when the user wants to turn back his erc20 bitcoin into classic bitcoin.
3) Smart contracts for Bitcoin. Transforming Bitcoin into erc20 Bitcoin allows taking advantage of the best functionality of the ethereum blockchain: smart contracts. It will be possible to create smart contracts in which Bitcoin transfers can be included. In short, a powerful function that has never been imagined in the past.
4) Possibility to keep Bitcoin in hundreds of Wallets compatible only with Ethereum and its token. Although there are many secure and well-programmed wallets for Bitcoin, it is safe to say that the Ethereum network currently has many more compatible wallets. By transforming your bitcoin into ethereum tokens it is possible to store bitcoin in these wallets, thus avoiding the need for 2 wallets (one for ethereum and its tokens, one for bitcoin).
5) Possibility to use Bitcoin in DeFi. Nowadays there are many DeFi projects that allow earning annual interest. And in order to get some of these tokens, such as MakerDao DAIs, it will be necessary to swap them with ethereum or other erc20 tokens. By having bitcoin on the ethereum network, this operation can be done without too much hassle.
The only problems with these projects at the moment are low liquidity and security. Teams will have to prepare for a wave of new users and new liquidity, so they will have to increase their investment in security a bit more. Some users on twitter, obviously ethereum maximalist, are even speculating about a future in which Bitcoin could exist only on the Ethereum network! Could this become a reality?