What is tBTC?
The Beginner’s Guide
Built as the first application on the Keep Network, tBTC operates as a bridge between Bitcoin and Ethereum, where bitcoin holders can deposit their BTC funds to a smart contract and receive tBTC, an Ethereum token of equivalent BTC value.
Each minted tBTC is backed 1:1 by bitcoin cryptocurrency held in a reserve and safeguarded by signers, nodes who manage bitcoin deposits and redemptions.
Any node can become a signer provided they agree to bond ETH, Ethereum’s cryptocurrency, as collateral, thus ensuring that they act honestly. Of note, signers are chosen at random by the protocol.
Using tBTC allows BTC holders to take advantage of Ethereum’s DeFi applications, including ones that produce yield, without needing to sell their bitcoin.
Who Created tBTC?
tBTC is an application on the Keep Network that was developed by the software firm Thesis, who previously created the Keep Network.
Thesis was founded by Matt Luongo and Corbin Pon. They previously co-founded a company called Fold in 2014 that aimed to allow users to spend bitcoin in mainstream retailers, and to trade in old gift cards for bitcoin.
How Does tBTCWork?
In order to keep its network running, tBTC relies on a group of users known as signers who are charged with managing BTC deposits and redemptions.
Nodes wishing to become signers must deposit an amount of Ether worth 150% of the BTC being deposited as collateral to ensure good behavior. Signers are then rewarded with KEEP, Keep Network’s native cryptocurrency, for their services.
In this way, tBTC signers are incentivized to act honestly and competently.
Signers are randomly selected from a pool of candidates through a cryptographic technique known as the “random beacon”, and operate as groups of three.
In order to receive tBTC, users must send their bitcoin to a signers group, who are tasked with holding the deposited BTC, and, once received, can retrieve 1 tBTC for every 1 BTC sent to the group.
Of note, these transactions can be easily reversed when the users wish to exchange their tBTC for BTC.
Why does tBTC have value?
tBTC derives its value from mirroring the bitcoin price, as each unit is fully backed by a similar unit of bitcoin. Importantly, when users choose to retrieve their original BTC from the application, the software destroys the tBTC deposited.
A major advantage of tBTC is that it allows bitcoin holders to interact with the vast suite of decentralized finance apps present on Ethereum without having to sell their assets.
tBTC offers users the ability to access DeFi protocols for savings, lending, and investment services, in a way that may offer advantages over existing options. As opposed to processes in which credit is evaluated by a financial institution, tBTC users can put their bitcoin to work.
When they decide to stop using these services, they only pay a small, additional fee to retrieve their bitcoin from the signer group.
Kraken's Crypto Guides
- What is Bitcoin? (BTC)
- What is Ethereum? (ETH)
- What is Ripple? (XRP)
- What is Bitcoin Cash? (BCH)
- What is Litecoin? (LTC)
- What is Chainlink? (LINK)
- What is EOSIO? (EOS)
- What is Stellar? (XLM)
- What is Cardano? (ADA)
- What is Monero? (XMR)
- What is Tron? (TRX)
- What is Dash? (DASH)
- What is Ethereum Classic? (ETC)
- What is Zcash? (ZEC)
- What is Basic Attention Token? (BAT)
- What is Algorand? (ALGO)
- What is Icon? (ICX)
- What is Waves? (WAVES)
- What is OmiseGo? (OMG)
- What is Gnosis? (GNO)
- What is Melon? (MLN)
- What is Nano? (NANO)
- What is Dogecoin? (DOGE)
- What is Tether? (USDT)
- What is Dai? (DAI)
- What is Siacoin? (SC)
- What is Lisk? (LSK)
- What is Tezos? (XTZ)
- What is Cosmos? (ATOM)
- What is Augur? (REP)
Why Use tBTC?
Users may be interested in purchasing tBTC in order to put their idle bitcoin to work and seek access to yield-generating instruments built on Ethereum.
Investors may also want to consider adding tBTC to their portfolio should they believe in decentralized solutions for converting BTC to Ethereum-compatible tokens, or if they wish to hold BTC as an Ethereum token.
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