Tokenized Bitcoin Growing Faster Than the Lightning Network, is Ethereum the Second Layer? – Trustnodes

Tokenized Bitcoin Growing Faster Than the Lightning Network, is Ethereum the Second Layer?


WBTC and LN growth, Sep 2019

Ethereum based tokenized bitcoins have been growing considerably this year, jumping in July from about $3.4 million to more than double near $7 million as pictured above.

The very new project launched only in October 2018 at the depth of the bear market, with it working pretty much like Tether, but for bitcoin.

Here there’s ostensibly a Decentralized Autonomous Organization (DAO) in a mini consortium of a number of primarily eth projects.

The idea of a Wrapped BTC (WBTC) however is pretty much the same as that of a stable coin like USDT.

You hand over your bitcoin to a custodian, and you receive an ERC20 token, WBTC, corresponding 1:1. At any time you can return this token and get bitcoin, with additional transparency here because there’s a blockchain auditable on both ends.

Initially it looks like there wasn’t much uptake, but gradually and especially since May there’s a fairly straight up line as crypto prices went up.

The Lightning Network (LN) in contrast took a lot longer to gain traction, almost a year, with its growth thereafter a bit slower.

LN stats, Sep 2019
LN stats, Sep 2019

LN too reached a peak of $12 million in June, to then fall to $8 million as it stands in part perhaps because one of the main LN liquidity provider was burning money while providing LN related services.

While with WBTC there’s no additional cost as it’s basically like bitcoin, but tokenized on ethereum’s blockchain, unlike LN which is a completely new system and concept with its own security considerations and payment routings.

Both however can potentially extend bitcoin’s capacity within the timeline of about 18 months, which is apparently how long it will take for LN to get better at what it is meant to do.

In 18 months, sharding hopefully will be out too and in theory that can increase ethereum’s capacity by 1024x.

At that point it isn’t too difficult to see WBTC becoming a sort of replacement for bitcoin because it would track price somewhat 1:1 and can in addition be used in Decentralized Finance (DeFi) for lending and borrowing, decentralized margins, futures, other derivatives, and of course on decentralized exchanges or to buy other tokenized synthetics.

Since ethereum would have a lot more capacity than bitcoin, it arguably can also be used to make payments.

You’d have to trust the DAO, however, but on LN you’d have to trust the Watchtower to ensure you don’t get double spent, in addition to requiring some liquidity provider unless you want to take a masterclass on the technicalities of LN.

So the question would be why bother with WBTC instead of cutting off the middleman and just deal in eth, but people apparently like bitcoin, so they can have it wrapped on eth.


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