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Cardano Bitcoin (cBTC) offer the opportunity to integrate the largest cryptocurrency into the Cardano ecosystem. What opportunities and risks does the new token present in the blockchain, founded by Charles Hoskinson, and its corresponding DeFi ecosystem?
Bitcoin for Other Blockchains: How Does It Work?
The idea behind cBTC is not new, with wrapped BTC (wBTC) having existed on Ethereum since 2019. These tokens are “wrapped” before they get onto the Ethereum ecosystem, which means they are blocked for the Bitcoin network and then released for use on the Ethereum network.
Other blockchains or crypto projects offer similarly-wrapped tokens for other cryptocurrencies. Wrapped tokens act as a bridge between two cryptocurrencies but offer little additional functionality.
The wrapped BTC DAO (decentralized autonomous organization) is the custodian of all wrapped BTC for Ethereum. The DAO ensures that the wrapped BTC maintains a 1:1 ratio with BTC. The DAO is decentralized and continuously evolves.
Nevertheless, crypto community members continue to criticize the project – after all, Bitcoin and decentralized finance (DeFi) should not require third parties for digital asset transactions and custody. This is where Cardano BTC can play a role.
Cardano BTC: First Tests Successful, Charles Hoskinson Reacts
The wrapped BTC DAO is working to dispense with third-party custody.
However, cBTC’s eschewing of a middleman is causes the hearts of DeFi lovers to beat faster. Code in smart contracts and a vault (“safe”) are used to manage users’ BTC.
AnetaBTC created the first cBTC on March 5, 2023, releasing a demo version for the app on April 15. The app allowed Cardano users to transfer Bitcoin to their ADA wallets.
Cardano founder Charles Hoskinson responded favorably with an entertaining meme.
Pending the success of further tests, Cardano users can use the project to access Bitcoin liquidity. Bitcoin’s market cap of around half a trillion U.S. dollars means that the cBTC project presents the Cardano ecosystem with substantial potential. Many decentralized applications could use BTC and benefit from its adoption.
Caution needs to be exercised, though. Token bridges like wrapped tokens pose significant security risks.The project is still in its infancy and needs to overcome technical challenges, including smart contract vulnerabilities and program or update errors.
Still, AnetaBTC has vowed to discover and amend security concerns through two independent auditors.
It remains to be seen whether the project will progress. Still, it offers a tremendous opportunity to transform Cardano and DeFi in a truly decentralized way.