Cryptocurrencies have gained immense popularity and acceptance over the past few years. The Bitcoin is the most famous cryptocurrency with a market cap of over 200 billion at its peak in December 2017. There are now thousands of cryptocurrencies present on the market, each with their own strengths and weaknesses. However, these cryptocurrencies can be traded using different exchange platforms which brings wrapping in. To trade on an exchange platform, users need to deposit money or cryptocurrency into an account then trade it for another cryptocurrency which is wrapping .

Cryptocurrencies are moving from their infancy stages into a legitimate form of currency that is quickly establishing itself into mainstream use. The array of this still new concept is evolving daily and accepting cryptocurrency presents tremendous opportunities for business owners, investors and those looking to transact or trade goods with alternative forms of money.

If you’ve ever been involved with cryptocurrency, you’ve probably heard the term “wrapped”. If not, you’re most likely wondering what it means. It’s basically a crypto-to-crypto transaction where an exchange wraps BTC with an altcoin before sending it to an exchange in order to convert it into another altcoin.

Wrapping a cryptocurrency, is a digital process that crypto brokerage firms use to convert (or wrap) cryptocurrencies into coins that can be easily traded. Wrapping is an uncommon process that is primarily used by crypto brokerages who want to support the local economy. This process normally occurs after you buy your cryptocurrency, but it might also occur before you buy cryptocurrency if you’re buying from an online trader. It’s an advanced investment option that allows you to put your bitcoin into a smart contract, which will release them to you on certain conditions.

Wrapping a cryptocurrency means that you’re signing the monetary value of your holdings and sending them to another person. This act is possible through the use of blockchain secured private keys, as well as multi-sig technology (check out this article to understand more about multi-sig). Wrapping a cryptocurrency also means that, due to the way Ethereum works, a wrapping transaction will cost you a small amount of Eth tokens. In this article, I’ll explain the steps needed to wrap your Cryptocurrencies.

As countries apply constant pressure on exchanges as well as the Cryptocurrencies, it wasn’t long before an alternative method was applied in order to advertise and wrap Cryptocurrency services. In fact, it was quite interesting to see how wrapping started to be considered as a safer method for advertising. Wrapping basically includes placing many Cryptocurrencies in the website timeline, which basically involves embedding real money in order for the advertisement to look like a timeline.

The wrapping of cryptocurrencies became popular in 2017, shortly before the boom that took place at the end of the year. The aim of wrapping is to diversify investment and reduce risks. Basically, companies are created that offer to deliver a certain number of bitcoins in the future for a set price. There are two types of wrapping:

Wallet wrapping is a type of multisig wallet architecture that offers more security by requiring multiple devices to sign transactions. Depending on the setup and configuration, this can provide some level of (but not complete) protection against malware, browser security holes (such as an SSL attack), and physical theft of a device. The term “wallet wrapping” is sometimes used interchangeably with “multi-device”, “multisig”, or “device-based” wallets.

Vault wrapping is the process of encrypting an online cryptocurrency wallet with a password. Once it’s been wrapped, the person who owns the cryptocurrency can’t access it and neither can anyone else. This ensures complete security of your wealth. There are some cryptocurrencies that offer you the ability to earn additional forms of income. These are called Proof-of-Stake (PoS) cryptocurrencies. A great example of a PoS cryptocurrency is Tether, which allows you to earn far above the value of the amount that you originally owned through the process of staking.

‘Essential Wrapping’. This is when a new cryptocurrency is created by wrapping some of the best and most proven cryptocurrencies, most often bitcoin (and recently, ether). Using these publicly available wrappings, it’s possible to create a new cryptocurrency in an instant – with an existing community and mining support.

Benefits Of Wrapping

The benefits of wrapping are generally the same wherever the currency is being sent. These benefits are typically limited to: A better user experience, and a safer and more secure way of storing currencies. There are several benefits of wrapping, and they include;

  • The ability to trade a coin on an exchange and then buying it at a lower price, effectively profiting from the difference between the prices.
  • Wrapping allows you to convert unsupported cryptocurrencies into other supported cryptocurrencies. This means that you can use your coins on exchanges
  • Wrapping can ensure that online wallets and exchanges remain safe from cyber criminals with an eye on stealing your cryptocurrency.
  • Diversifying your portfolio amongst various types of cryptocurrencies and through investment in alternative asset classes.
  • Wrapping allows you to place your Cryptocurrency in the hands of professionals who make transaction and security their priority.
  • It allows investors to strike a balance between volatility and liquidity;
  • It permits participants to create synthetic positions in assets they aren’t able to obtain.
  • It helps in spreading your risk in case that particular Cryptocurrency isn’t performing well – this will impact any coins wrapped with it. On top of this, there are plenty of new coins being released which investors like to explore and spread their investments equally between these.
  • Most institutional investors are not familiar with the challenges of creating, distributing and storing Cryptocurrencies. By wrapping their tokens, institutional investors can gain access to Cryptocurrency markets. The value of cryptocurrencies is still very volatile. This makes it extremely hard for large groups to access the advantages of digital assets. Wrapping your tokens solves this problem.
  • It keeps a tight wrap on your coins and prevents any damage. This can be passed down in the family.  wrapping allows you to literally wrap your valuable coins in plastic for protection.

Compared with trading by fiat currencies, wrapping a cryptocurrency (Wrap) is really a second process of buying and selling cryptocurrency in the shortest time. This process plays an important role in increasing virtual currency profit. Just as any other industry, in the crypto industry also the demand and supply rule play an important role. The process of wrapping is done manually by some authoritative individuals with a proper strategy.

It was specific for Bitcoin at first, but as the other cryptocurrencies showed up in this field it started to cover all of them. Money earned from this field are sometimes more than 200 percent, practically we can say that wrapping a cryptocurrency is another way to invest in cryptocurrencies. When you buy cryptocurrency, your coins have to be “unwrapped” at a later time when you sell them in order to be exchanged for fiat money. Let’s see below how wrapping works:

How Do Wrapping Cryptocurrency Work?

So, how do wrapped Cryptocurrencies work? To be wrapped, a cryptocurrency must have a custodian that guarantees the same value of the original token as its wrapped counterpart. This custodian might be a set of protocols, such as a smart contract, a multisignature wallet, or a DAO.

Smart contracts are self-executing pieces of code that run on a blockchain to regulate everything that happens in it, including services and transactions. DAO is an abbreviation for Decentralized Autonomous Organization, and it uses smart contracts to execute orders on the blockchain. A multisig wallet (multisignature wallet) is a digital signature signed by many blockchain users to protect the security of their money.

The custodian keeps the original token and “wraps” it in a process known as minting. After the token has been minted into a wrapped token, it is transmitted to the blockchain on which it wishes to function. As a result, one token will become one wrapped token, five tokens will become five wrapped tokens, and so on.

The wrapped token can be “unwrapped” and returned to its original state. A custodian can also achieve this through a method called as burning. After burning the wrapped cryptocurrency, it is transformed back to its original form and delivered to its original blockchain. During the minting and burning procedures, the token and the wrapped token have the same price.

When wrapping cryptocurrency, it may access and function normally (fully supported) on other blockchains.

When you’re wrapping a cryptocurrency, you are performing a process called ‘wallet wrapping’. You will find that most newbie cryptocurrency wallet users make the same mistakes when trying to save a paper wallet. This can cause the loss of your entire wallet and its funds.

When merchants are accepting Cryptocurrencies, whether they be Bitcoin or Dogecoin or whatnot, they cannot always keep their particular coins. In this case they want to exchange them for fiat money. This is where a Cryptocurrency wallet that provides a service of exchanging coins and transferring them to fiat money comes in handy.

Wrapping a cryptocurrency in terms of digital ‘contract vehicles’ enables investors to gain exposure to the price movements of the cryptocurrency. The opposite process is when you unwrap, which returns you the underlying cryptocurrency undelivered.

Rewrapping, also called swapping by some people, is the act of taking an existing cryptocurrency and exchange it for a new one. There are several reasons you might want to do this.

What are the current risks associated with wrapping crypto?

The majority of trust-based platforms offer security problems. According to a PeckShield tweet, the BadgerDAO compromise resulted in the loss of 2100 BTC, which was worth 118 million USD at the time.

Here are a few more hazards and drawbacks:

  • Vendor dependability is still untested.
  • Many wrapped tokens are dependent on the provider platform, which precludes them from becoming decentralized.
  • The coining procedure is costly.
  • Because conversion is frequently done through a central software, there is a considerable possibility of manipulation.
  • Wrapped tokens may only be used in inter-network transactions through trusted intermediaries such as custodial banks or dealers.

 

Final thoughts

Wrapped tokens aid in the construction of additional bridges between various blockchains. A wrapped token is a tokenized representation of an asset that resides on another network. This facilitates interoperability throughout the cryptocurrency and Decentralized Finance (DeFi) ecosystems. Wrapped tokens enable a world in which money is more efficient and apps may readily share liquidity.

Wrapped coins allow you to move your assets between blockchain platforms without fear of interoperability difficulties. They are a part of the crypto world’s ongoing growth as we continue to investigate application and development potential for this innovative technology. To minimize time and expenses when transferring BTC to ETH or vice versa, convert them to wrapped tokens.