Bridging Bitcoin to Ethereum refers to the process of transferring BTC from the Bitcoin blockchain onto the Ethereum blockchain. This allows Bitcoin holders to access the Ethereum network and participate in decentralized finance (DeFi) applications built on Ethereum.
There are two main methods for bridging BTC to Ethereum:
- Wrapping BTC into an ERC-20 token via services like WBTC, RenBTC or tBTC
- Performing a native swap of BTC directly to ETH via DEXes like RocketXchange or Thorswap
- Using centralized exchanges like Binance or Coinbase to convert BTC to WBTC
Wrapping effectively locks up your BTC and mints a new ERC-20 token to represent your BTC on Ethereum. This allows your BTC to interact seamlessly with smart contracts and dApps on Ethereum.
Swapping refers to exchanging your BTC for ETH directly by utilizing liquidity pools and exchange protocols. This converts your BTC to ETH so you can use the ETH natively on the Ethereum blockchain.
What you'll learn 👉
Wrapping BTC into an ERC-20 Token
Wrapped Bitcoin (WBTC), renBTC, and tBTC are three popular ERC-20 token protocols for wrapping BTC on Ethereum. Here’s an overview of each:
Wrapped Bitcoin (WBTC)
Wrapped Bitcoin is an ERC-20 token backed 1:1 with Bitcoin. The process involves BTC being locked up in a custodial manner and WBTC tokens generated to represent that BTC on Ethereum.
Anyone can initiate the minting process by sending BTC to WBTC’s custodian, BitGo. BitGo will then verify the BTC and signal the minting of an equal amount of WBTC, which is sent to the user’s Ethereum address.
The process is reversed when burning WBTC to unlock the BTC. WBTC is sent to a burning address, triggering BitGo to release the equal amount of BTC from custody.
✔️ WBTC benefits:
- Allows BTC to be used in Ethereum DeFi apps for lending, borrowing, liquidity pools etc.
- Pegged 1:1 to BTC, so maintains equal value
- Backed by full bitcoin reserves, providing transparency
- Integration with major DeFi protocols like Compound, MakerDAO, Uniswap etc.
- Strong legal protections through custodian agreements
- Requires KYC identity verification for minting/burning
- Centralized through BitGo custodianship
- Risk of mismanagement by custodian
renBTC is an ERC-20 token that enables a decentralized, permissionless and trustless wrapping solution for BTC on Ethereum. It uses RenVM, a virtual machine, to facilitate the minting and burning of renBTC.
To mint renBTC, users send BTC to a RenVM Darknode. The Darknode will lock up the BTC and mint an equivalent amount of renBTC tokens to the user’s Ethereum wallet.
The Darknodes earn fees for providing the minting service but also must stake Ren’s native token, REN, as collateral to act honestly. If malicious activity is detected, the staked REN can be slashed.
✔️ renBTC benefits:
- Decentralized, no KYC required
- Non-custodial, users maintain control of keys
- Darknodes provide security through staked collateral
- Permissionless access, anyone can mint/burn
- Integrated with major DeFi apps and DEXs
- Complex system reliant on Darknodes
- Requires overcollateralization with REN tokens
- Low liquidity and market cap relative to WBTC
tBTC aims to bring Bitcoin to Ethereum in a decentralized, permissionless and trust-minimized manner. Users initiate minting by sending BTC to the tBTC protocol smart contracts.
A group of participants called signers then facilitate the BTC to tBTC swap. Signers take custody of the BTC and mint tBTC on Ethereum to the user’s address.
To provide security, signers must stake ETH as collateral. Additionally, “keepers” monitor the system and can trigger slashing of signer bonds if they act maliciously.
✔️ tBTC benefits:
- Decentralized, no KYC needed
- Non-custodial, users control private keys
- Signers and keepers provide security
- Open access, anyone can integrate tBTC
- Growing adoption on Ethereum DeFi platforms
- Complex system with many moving parts
- Security dependent on collateral stakes
- Low market cap and liquidity relative to WBTC
- Best Decentralized Exchanges (DEXes) on Shibarium: Top Shibarium DEX
- How to Get Friend.tech Airdrop: Everything You Need to Know About the Friend.tech Airdrop
- How to Make Money on Friend.tech? How to Buy and Sell Shares on Friend.tech?
Native Swaps of BTC to ETH
Rather than wrapping BTC into a token, another option is to directly swap BTC for ETH using atomic swap protocols. This converts your BTC into ETH so you can interact natively with the Ethereum blockchain.
Popular decentralized exchange protocols for trustless BTC to ETH swaps include THORChain and RocketXchange.
THORChain is a decentralized liquidity network that facilitates native swaps between different blockchain assets using decentralized liquidity pools.
To swap BTC for ETH on THORChain:
- Visit app.thorswap.finance
- Connect your wallet containing BTC
- Select BTC as the input asset and ETH as the output asset
- Review swap details and submit the transaction
- Complete any wallet confirmation prompts
Your BTC will be exchanged directly for ETH using THORChain’s liquidity pools. The ETH can then be used seamlessly on Ethereum without any wrapping required.
✔️ THORChain benefits:
- Direct swap of assets, no wrapping tokens
- Non-custodial, you hold private keys
- No intermediaries or kyc
- Fast, cross-chain trading
- Growing liquidity pools and adoption
- Limited coin availability compared to DEX aggregators
- Complex protocol reliant on validators
- Slashing risks if validators misbehave
RocketXchange is a DEX aggregator that sources liquidity from both centralized and decentralized exchanges to provide the best swap rates across chains.
To use RocketXchange to swap BTC to ETH:
- Visit rocketx.exchange
- Connect wallet containing your BTC
- Select BTC as input asset and ETH as output asset
- Review estimated swap rates across multiple sources
- Execute swap through the best rate
- Confirm any wallet prompts to complete transaction
RocketXchange will automatically direct your swap through the most optimal exchange rate for BTC/ETH. This provides trustless, no KYC swaps between the assets.
✔️ RocketXchange benefits:
- Swaps assets directly, no wrapping required
- Aggregates liquidity across CEXs and DEXs
- Finds best rates to optimize swaps
- Intuitive interface for easy swapping
- Non-custodial, users maintain asset control
- Reliant on external exchanges
- Swap execution can be complex
- Liquidity fragmentation across exchanges
- Limited coin availability
Using centralized exchanges
Another option for bridging Bitcoin to Ethereum is utilizing centralized crypto exchanges (CEXs) as an intermediary. This involves first depositing BTC into a CEX account, trading the BTC for ETH on the exchange order books, and then withdrawing the ETH to an Ethereum wallet address you control.
Major exchanges like Binance, Coinbase, and Kraken allow seamless trading between BTC and ETH trading pairs. The ETH received can then be used natively on the Ethereum blockchain for transactions and dApps.
Alternatively, some centralized exchanges like Binance support direct withdrawals of BTC as wrapped assets like WBTC on the Ethereum network. For example, you can deposit BTC to Binance, and then withdraw those funds as WBTC directly to your Ethereum wallet. This combines the speed and liquidity of a CEX with the interoperability of wrapped BTC in a single seamless transfer.
The benefits of bridging BTC to ETH via CEXs include fast settlement speeds, high liquidity, and simple user interfaces. However, centralization risks and lack of custody mean users must trust the exchange to facilitate the bridge properly. Decentralized bridges offer superior transparency and user control, but may have lower liquidity and slower swap execution.
Bridging Bitcoin to Ethereum can be accomplished through either wrapping BTC into an ERC-20 token or performing a direct atomic swap into ETH. WBTC, renBTC and tBTC are leading wrapping solutions, each with their own merits and tradeoffs. THORChain and RocketXchange allow trustless swapping of BTC into ETH without tokenization.
The optimal method depends on factors like the application you intend to use ETH for, importance of decentralization, and required transaction speed. But overall, BTC to ETH bridges greatly expand Bitcoin’s potential use cases by bringing its liquidity and value onto the Ethereum DeFi ecosystem.
CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com