Scroll down
Close -

RBTC vs WBTC: A Comparative Guide for Bitcoin Developers

Published on: 23 October, 2024

Wrapped Bitcoin (WBTC) is facing challenges due to Bitgo’s plan to transfer management to a venture involving Justin Sun’s Tron, sparking fears in MakerDAO about transparency and service interruptions. 

Investors are reacting by reconsidering WBTC’s role, potentially triggering a sell-off if removed as collateral for DAI, impacting both WBTC and broader crypto markets reliant on DeFi. This situation warns DeFi protocols about risks of integrating centralized entities, potentially reshaping how crypto assets are managed in decentralized systems, crucial for market stability and governance in the future.

With those risks becoming more visible, it’s important to consider alternative wrapped Bitcoin assets in the DeFi ecosystem that maintain decentralization; such as RBTC.

The Significance of Wrapped Bitcoin Assets in DeFi

Bitcoin remains the first and most enduringly popular cryptocurrency, but it wasn’t designed to natively support smart contracts or DeFi functionalities. WBTC and RBTC solve this problem by effectively creating an environment in which the Bitcoin ecosystem can use the smart contracts found in the Ethereum and Rootstock environments

Wrapped Bitcoin assets allow Bitcoin holders to participate in DeFi, dApp ecosystems, and decentralized exchanges (DEXs), unlocking a range of possibilities for lending, borrowing, and trading.

What is WBTC?

WBTC is a tokenized form of Bitcoin that functions on the Ethereum network. It’s pegged 1:1 to the price of Bitcoin, making it possible to use Bitcoin within the Ethereum DeFi ecosystem and beyond.

However, WBTC isn’t exactly how most people naturally envision a decentralized token operating, largely because WBTC is issued by a regulated custody service called BitGo, which holds the actual Bitcoin backing the WBTC tokens.

So, when a user wants to mint WBTC, they deposit an equivalent value of Bitcoin with BitGo, which issues the corresponding amount on the Ethereum blockchain. Of course, this system also introduces several fresh issues.

Custodial Challenges with WBTC

The custodial nature of WBTC is an inherent challenge. It relies on a 2-out-of-3 multi-signature security model, which means that for every mint and burn, at least two of the three private keys must be signed off.

Historically, all three keys were held by BitGo, which meant the security of the entire ecosystem relied solely on the safety and compliance of one service. Recently, however, there’s been and understandable growing concern about custodial changes and regulatory pressures on BitGo.

To directly combat this pressure, BitGo announced changes earlier this year aimed at increasing decentralization and decreasing regulatory intervention. It’s planning to achieve this by shifting one of the three private keys to a regulated Trust and Company Service Provider based in Hong Kong called BiT Global. The other two keys, however, will remain with BitGo (one in the U.S. and the other in Singapore)​.

While these changes are intended to mitigate the chance of regulatory enforcement by literally spreading the wealth across multiple jurisdictions, eyebrows have already been raised and WBTC still faces criticism for being overly susceptible to regulatory pressures compared to fully decentralized alternatives.

What is RBTC?

Rootstock Bitcoin (RBTC) is the native token of the Rootstock network, the first and longest-lasting Bitcoin sidechain. Rootstock’s main strength lies in its utilization of Bitcoin’s security via merged mining and Ethereum’s programmability to enable developing dApps on Bitcoin. 

Like WBTC, RBTC is pegged 1:1 with Bitcoin, but serves as a “smarter” version of Bitcoin, allowing holders to interact natively with dApps, DeFi protocols, and smart contracts in the Rootstock ecosystem.

Rootstock’s Decentralized, Trust-Minimized System

The key difference between RBTC and WBTC lies in their approach to security and decentralization. WBTC relies on BitGo’s centralized custody model, but RBTC uses a completely decentralized two-way peg mechanism called PowPeg.

This is secured by Bitcoin’s Proof-of-Work (PoW) consensus and minimizes the need for trust in a single custodian. As Rootstock’s network is powered by Bitcoin miners, it also inherits Bitcoin’s robust security model.

EVM Compatibility and Developer Tools

RBTC’s native compatibility with the Ethereum Virtual Machine (EVM) is a major benefit for developers. Rootstock provides a familiar environment for Ethereum developers by supporting the most popular smart contract programming language – Solidity. This makes it far easier for developers to transition from Ethereum to Rootstock without having to go through the hassle of learning a new programming language.

Rootstock also offers comprehensive support for developers through grants, mentorship programs, and extensive documentation. This cultivates an ecosystem that’s naturally more conducive for building and deploying dApps, DeFi protocols, and other blockchain solutions.

Security and Decentralization

WBTC’s Custodial Risks

We’ve already discussed how WBTC’s centralized custody model lends itself to potential regulatory issues and external pressures. Its reliance on a centralized entity, however, also makes it vulnerable to single points of failure, making it inherently less reliable than RBTC’s decentralized model.

RBTC’s Trust-Minimized Approach

In contrast, RBTC operates on a decentralized model that doesn’t rely on a single custodian. Not only that, but Rootstock’s use of Bitcoin’s hashing power to secure its network dramatically reduces the risk of centralized failure, making RBTC a more attractive option for developers that prioritize both stability and security.

Developer Ecosystem: Why Build on Rootstock?

Rootstock’s EVM Compatibility

Rootstock’s compatibility with EVM allows developers to quickly and easily port their Ethereum-based applications, taking advantage of Bitcoin’s security without losing access to Ethereum’s existing infrastructure.

Native DeFi Integration with RBTC

RBTC’s native integration with DeFi protocols on Rootstock lets developers create dApps for Bitcoin lending, borrowing, and trading without centralized intermediaries or custodians.

Comprehensive Developer Support

Rootstock offers a great deal of practical support for developers, making it the most logical platform for developers looking to build scalable, secure, and decentralized applications with a little positive reinforcement.

Understand why builders are choosing to build on Rootstock in this comprehensive comparison to Ethereum.

RBTC vs WBTC – Which is Better for Developers?

Ultimately, the difference between WBTC and RBTC, while seemingly insignificant on the surface, are rather profound the deeper you delve into not only how they operate but how and why they were designed in the first place.

WBTC remains ideal for developers wanting nothing more than immediate access to Ethereum’s DeFi protocols with no bells and whistles. It is, in essence, the easy option. But the easy option is rarely where rewards are reaped.

For all those looking to maintain security without sacrificing programmability, however, RBTC and the Rootstock network is a more secure, decentralized option that builds a unique bridge between Bitcoin and Ethereum’s development ecosystems. It’s the tool that will provide developers with the most powerful, decentralized platform upon which they can work together to build the future of DeFi.

Explore what developers can do in the Rootstock ecosystem