If you scroll down the list of cryptocurrencies by market cap, you find tokens like Wrapped Bitcoin and Wrapped Ethereum. These are called wrapped tokens, and they were designed to promote interoperability and exchange with other blockchain networks.
How does it do that? Well, while Bitcoin was designed as an alternative to traditional currencies and as a way of exchanging and storing value, Ethereum is a ledger technology that companies are using to create new programs, including DeFi, smart contracts, and NFTs. Both blockchain networks don’t talk to each other because their language is different. In short, you can’t send Bitcoin to Ethereum – there needs to be a way to send your Bitcoin onto the Ethereum network in a way the network can recognize.
So, instead of selling your Bitcoin, you could “wrap it.” The earliest implementation of wrapped assets was Wrapped Bitcoin ($WBTC), which allows people to send their Bitcoin to a custodial address. The protocol holds your Bitcoin from the Bitcoin blockchain and gives you an equal amount of the Ethereum-denominated Wrapped Bitcoin. For all intents and purposes, it’s backed by Bitcoin and costs the same.
In the years since the launch of Wrapped Bitcoin and Wrapped Ethereum, interchain bridges have become commonplace – interoperability is now a massive staple of both EVM-compatible chains (which borrow from the tech that forms the basis of Ethereum) and other v3 blockchains such as Solana. And though they are not without their occasional shortcomings, the wrapping of assets – and their movement across chains – has never been so consequential.