30s Summary

Bitcoin has limitations in decentralized finance (DeFi) applications and so, wrapped Bitcoin tokens like WBTC, renBTC, cbBTC, and tBTC were created to allow Bitcoin’s value to be used on faster platforms. However, concerns have arisen over the reliability of these “bridged” tokens due to issues such as centralization and financial instability. Each solution takes a different approach to security, decentralization, and efficiency, varying from single-entity control to group-managed transactions. As such, users should conduct their own research and assess risks before investing.

Full Article

So, you know that Bitcoin is the big dog of cryptocurrencies. But did you also know that it has some limitations when it comes to decentralized finance, or DeFi, applications? Don’t worry, there are solutions like Wrapped Bitcoin tokens that allow Bitcoin’s value to be used on platforms that are faster and more “expressive.”

However, recent events have raised some questions about the reliability of these so-called “bridged” Bitcoin tokens. For instance, renBTC, which was a popular Bitcoin bridge, had some financial issues and got shut down in 2022. And the most widely used bridged Bitcoin token, WBTC, is facing scrutiny as well due to concerns about centralized control and the involvement of a controversial figure named Justin Sun in the project.

Given these issues, there’s a lot of interest in understanding how these Bitcoin bridging solutions work. To help with that, the folks at Cointelegraph Research took a close look at four of these solutions: WBTC, renBTC, cbBTC, and tBTC. They’ve got the deep dive on these strategies, their market performance, recent events, and what the future might hold.

When it comes to these Bitcoin bridging solutions, they each have a different approach to the balance of security, decentralization, and efficiency. Some, like cbBTC, are fully under the control of a single entity, which makes them easy to use but also vulnerable to failure or interference. There are also methods to reduce this centralization using groups of keyholders.

Some of these groups require a certain number of keyholders to approve transactions. For example, the WBTC system uses a two-out-of-three system managed by the BitGo group. However, despite this, it’s still seen as pretty centralized because of the small number of custodians and their close connections.

You’ve also got options like the Liquid Federation, which has a wide group of independent companies that manage Bitcoin reserves and approve transactions. They use an 11-of-15 approval system. And there are more advanced options that use complex key-sharing strategies and extra cryptography, like tBTC v2. However, even this approach has some limitations currently.

Take note this information is for general awareness and isn’t meant for legal or investment advice. Every investment has risk and it’s essential to do your own research before making decisions. Also, remember that any views or opinions mentioned here are of the author only and don’t necessarily reflect those of Cointelegraph. Cointelegraph also doesn’t endorse the content or any product mentioned here. It’s really important that you do your homework before deciding anything.