Bitcoin is the most popular cryptocurrency in the world, and it plays a central role in an industry that spans multiple blockchains.
But Bitcoin has some limits when it comes to transactions. Even though the Bitcoin blockchain is home to the most valuable coin, it is slow to add new features. This means that smaller transactions take longer and cost more to complete.
In order to get around these problems and give investors on different blockchains a chance to use and profit from Bitcoin, the Threshold Network and the Threshold DAO have created tBTC, the first “tokenized” version of Bitcoin. This new idea made its debut on the Solana blockchain on Tuesday.
Now, let’s look at the idea of a tokenized version of a cryptocurrency and the unique benefits of tBTC, which could make decentralized finance (DeFi) on the Solana network even better. Matt Luongo and Maclane Wilkison, who were both important in making the tBTC protocol, are here to help us explain it.
What is tokenized crypto?
Luongo says that you can keep your original Bitcoin in a hardware wallet or a software wallet, or you can send it to someone else. But there are limits to how it can interact with smart contracts, even with the Lightning Network, a layer-2 protocol that speeds up smaller Bitcoin transactions.
Someone who wants to make tBTC on the Solana blockchain starts “wrapping,” which safely stores their Bitcoin. This involves a distributed review process. 51 of 100 Threshold Network nodes have verified the cryptocurrency wallet. These nodes verify your crypto.
After that, you can make tBTC, a Solana blockchain-specific Bitcoin worth the same. This tBTC confirms your Bitcoin balance. A simple tBTC exchange can return you to your original Bitcoin. You can get your first Bitcoin back if 51 of 100 validators agree.
Luongo made it clear that the best thing about this system is how safe it is. It doesn’t depend on the financial problems of a single entity or the disappearance of a single actor. To stop you from getting to your money, a large number of people—51, to be exact—would have to work together, making it very strong and reliable.
Why is this useful?
Luongo, who is also the CEO of Thesis, the company behind the Threshold Network, says that Bitcoin, the first cryptocurrency, is still hard to use. He pointed out that there are limits to how the Lightning Network works. Luongo also said that platforms like Solana and other layer-2 solutions in the ecosystem serve as alternatives to Lightning and help make Bitcoin more scalable.
In simpler terms, Luongo says that Bitcoin is still important, but it may not be very useful. Even though the Lightning Network is meant to make it work better, it has its own limits. In this situation, alternatives like Solana and other layer-2 technologies offer new ways to make Bitcoin more useful and scalable.
If you want to borrow money with Bitcoin, you usually have to go through centralized lenders like BlockFi, especially on the Ethereum network. Luongo made it clear that, in his opinion, wBTC, which is another tokenized version of Bitcoin, might not be as safe as tBTC. This is because, with wBTC, you give your cryptocurrency to a single custodian instead of putting it in a wallet that is controlled by a group of validators, as with tBTC.
The Threshold initiative has brought tBTC to more blockchains than just Solana. These include Ethereum, Arbitrum, Optimism, and Polygon. According to Dune, the total supply of tBTC across these blockchains is about $29 million. This is much less than the $4.2 billion worth of wBTC.
When you want to borrow money against your Bitcoin, you usually have to go through a centralized lender like BlockFi. Because there are multiple validators protecting tBTC instead of just one, in Luongo’s opinion, it is a safer option than wBTC. tBTC is available on several other blockchains besides Solana, such as Ethereum. Its total value is about $29 million, while wBTC’s value is $4.2 billion, which is a lot more.
Solana has been working hard to fix its reputation after it took a hit last year because it worked with Sam Bankman-Fried’s FTX and Alameda Research, which had financial problems in November. But Luongo is hopeful that on-chain Decentralized Finance (DeFi) will come back.
“I think the start of a new era for DeFi on Solana will come with the introduction of tBTC,” he said.
In the past, Alameda Research was a big part of the Solana blockchain’s ability to buy and sell Bitcoin. Wilkison says, however, that tBTC could help fill this gap. He also said, “Reintroducing Bitcoin to Solana in a way that doesn’t expose it to the vulnerabilities that come with centralized risks is an important part.”
Solana has been trying to repair its reputation after FTX and Alameda Research. Luongo thinks tBTC will revive DeFi on Solana. Solana relied on Alameda for Bitcoin liquidity, but tBTC may compensate. Wilkison stressed that the goal is to bring Bitcoin back to Solana in a way that avoids the problems that come with centralized risks.