multi-chain blockchain ecosystem is risky

[_act_]

When I was reading this, it came from ethereum developer, they started defi project that led to the creation of many bitcoin pegged coins like WBTC and many others. I wonder why they are pessimistic about others but they are right to me, this is why pegged coins are risky than having the real coin.

https://old.reddit.com/r/ethereum/comments/rwojtk/ama_we_are_the_efs_research_team_pt_7_07_january/hrngyk8/

There are many ways people are using altcoins but they think that they are having bitcoin, some are on the ethereum network, some are on binance chain, binance smart change, I might not mention some and some will still come up. These are risky, let people know that they are not using bitcoin, they are using pegged coins, they are pegged with bitcoin which makes them to think they are bitcoin, they are not bitcoin but altcoins.

Some people will be thinking of low fee, exchanges like binance also make this confusing and include all pegged coin chain along with bitcoin for withdrawal. If you want to use the bitcoin which is not the altcoins ones, know that bitcoin address only start from 1, 3 and bc1. Other addresses are not bitcoin address, they are pegged coin address which are altcoins.

[Jawhead999]

In addition don't forget address start with tb1 also Bitcoin address, but it's Testnet (no value and only for testing purposes) while the address you mentioned above is Mainnet. Both of bc1p and bc1q are different, bc1p is taproot address and bc1q is segwit address. Almost centralized exchanges still not adding taproot (bc1p), if you using taproot as receipt address... your coins may be lose.

https://github.com/citizen010/bitcoin-prefixes-address-list

[libert19]

Pegged coins are good as long as they are used for their purpose (minimizing fees, roundabouts between chains) but they can never be true replacement for original, shouldn't be treated as such.

[pooya87]

If you want to use the bitcoin which is not the altcoins ones, know that bitcoin address only start from 1, 3 and bc1. Other addresses are not bitcoin address, they are pegged coin address which are altcoins.

To be clear, address should not be the only criteria you use to determine whether you are on the correct chain since a lot of copycoins have not bothered to change anything so they end up producing the same address. For example base58 addresses starting with 3 are also valid litecoin addresses.
You should be explicit about the chain if you are using a platform that supports multiple ones like an exchange and groups them together.

[mk4]

The likes of WBTC has always been more risky because of the custodial factor, and the fact that WBTC doesn't inherit the security of the Bitcoin blockchain. It's just that having wrapped/pegged versions is the only way to get bitcoin to other chains.

This is really not new information at all, but I guess it's a good heads up for the newbies.

[_act_]

To be clear, address should not be the only criteria you use to determine whether you are on the correct chain since a lot of copycoins have not bothered to change anything so they end up producing the same address. For example base58 addresses starting with 3 are also valid litecoin addresses.

That is true, also if we should compare it like this, the 1tc1 address for litecoin can be confusing people, but I do not know if it will be invalid if someone wants to send bitcoin to the 1tc1 litecoin address, but I heard about the litecoin address that start with 3 before and how people are making mistakes sending bitcoin to the address, but I think people that are having noncustododial wallet can retrieve it? I am not sure.

But what if the bitcoin is sent to a custodial wallet or custodial exchange, the exchange can be able to retrieve it for the person, but many cases like this will lead to the coin to be lost because the custodial exchanges or wallets will have rules that will not favour many people regarding it.

The 3 litecoin address was changed to M which is convertible just for people not to be making this mistake that can cause coin to be lost, I am not sure but I think the M litecoin address is also invalid if someone wants to send bitcoin to it. Many wallets and exchange ls using the 3 or M type of the address will prefer to use M type of the address instead, I will advice people not to use the type of exchange that have not changed from 3 litecoin address to M litecoin address, likely such exchange will not even support bc1 for bitcoin.

People will choose the coin first before sending to a particular chain, I do not think there will be a chance that this will occur but you are true, all possible mistakes that can occur should be known.

[Pmalek]

...people are making mistakes sending bitcoin to the address, but I think people that are having noncustododial wallet can retrieve it? I am not sure.

If you have the private key of the address you mistakenly sent your Bitcoin to, yes you can recover those coins by exporting and importing that private key into a Bitcoin wallet such as Electrum, for example.

But what if the bitcoin is sent to a custodial wallet or custodial exchange, the exchange can be able to retrieve it for the person, but many cases like this will lead to the coin to be lost because the custodial exchanges or wallets will have rules that will not favour many people regarding it.

The exchange can do it if they want to, but many of them wont bother. It also depends on the amount. For a significant amount, some exchanges will recover your coins and request a fee for the service. Others will just tell you that the coins are gone and you should be more careful next time. It's free money for them.   

[hugeblack]

The reason for using wrapped tokens is often the cheapness of fees, but it is a useless argument since the Bitcoin fees are currently low and the risks are high:

 - You need a gate to convert those coins back to Bitcoin.
 - Centralization of these networks is either as easy of double-spending (Ethereum classic^[1]) or all nodes are centralized (Binance smart chain^[2].)
 - Not all platforms and sites are accepted them.

Therefore, there is no theoretical reason to use it now, nor if there is a necessary reason, you should not use WBTC on Ethereum blockchain


[1] https://www.coindesk.com/ethereum-classic-attacker-successfully-double-spends-1-68m-in-second-attack-report/
[2] BSC has 21 active validators which making it too centralized.

[Beparanf]

Having a pegged tokens is the only solution for blockchain interoperability limitations. There's no way to connect to blockchain and transfer freely same coin on different blockchain. I'm sure user buying pegged Bitcoin is fully aware on that fact. They are just buying it to save fee since most of the traders are only trading on a single blockchain like Ethereum, BSC, Solana and many more. The only way for them to buy Bitcoin is to transfer there Altcoins to CEX and withdraw again to move to a non custodial wallet. Imagine how much you will spend for doing it rather than buying a pegged BTC tokens with same value and same use as money transfer.

I understand how Bitcoin maximalist think but most the traders here are just buying Bitcoin for the possible profit on its volatility.

[pawanjain]

Even I don't like the idea of wrapped coins. Although it serves the purpose of bringing the coins to other chains, I personally don't like giving up my coins to a 3rd party.
Although it might sound safe that the 3rd party is holding our funds safely but there's never a guarantee and obviously "Not your keys not your coins".

[Bttzed03]

The reason for using wrapped tokens is often the cheapness of fees, but it is a useless argument since the Bitcoin fees are currently low

I agree for the most part. It's strange that some people are still outdated about the Bitcoin transaction fees.

There are some cases where I find it more convenient though. Sometimes I used alt networks such as BSC for BTC withdrawal from centralized platforms when I want to buy something from Pancakswap or other AMMs. It's a cheaper method than withdraw BTC directly to my wallet/exchange > sell BTC for BNB > send BNB to my BSC wallet.

[mk4]

The reason for using wrapped tokens is often the cheapness of fees, but it is a useless argument since the Bitcoin fees are currently low and the risks are high

When talking about the likes of WBTC, it's actually mostly used to trade, get yield, or to use as collateral on DeFi protocols. I definitely wouldn't hold WBTC for more than a few days, but it's definitely useful when talking about on-chain trading.

[hatshepsut93]

If I couldn't own my coins on Bitcoin blockchain, I would rather put them into some centralized service like PayPal or a bank than some shitcoin blockchain that could implode in the next few years or suffer a major hacking incident (remember the DAO?) or 51% like mentioned in the OP. At least with centralized custodians there will be someone who can be brought to answer if something bad happens.

[Charles-Tim]

If I couldn't own my coins on Bitcoin blockchain, I would rather put them into some centralized service like PayPal or a bank

There could be some banks offering bitcoin custodial services, but they are all centralized and have the full control.

The last that I remembered about PayPal is that people using its crypto services can not send and receive bitcoin, they can only buy and sell, this is beyond not having the full control, but that users are not having any control over their own coin at all, the little control which is not also complete that PayPal users have is the fiat in relation to bitcoin price while PayPal will hold all the coins involved. This is the reason I can never use PayPal at all. Or, are PayPal users now able to transfer (send or receive) bitcoin and other coins they are supporting to other users onchain?

[hatshepsut93]

There could be some banks offering bitcoin custodial services, but they are all centralized and have the full control.

The last that I remembered about PayPal is that people using its crypto services can not send and receive bitcoin, they can only buy and sell, this is beyond not having the full control, but that users are not having any control over their own coin at all, the little control which is not also complete that PayPal users have is the fiat in relation to bitcoin price while PayPal will hold all the coins involved. This is the reason I can never use PayPal at all. Or, are PayPal users now able to transfer (send or receive) bitcoin and other coins they are supporting to other users onchain?

That's my point, I would rather trust centralized institutions than coders who make those crosschain protocols and other smart contracts that are so prone to hacking and "hacking". But since nothing stops me from owning Bitcoin in my own wallet, I will keep doing just that, and almost everyone else should too.

[pooya87]

Or, are PayPal users now able to transfer (send or receive) bitcoin and other coins they are supporting to other users onchain?

Last I checked they were talking about letting users deposit bitcoin but still were no talk of allowing withdrawals. In fact their shady behavior is the reason why many people believe that PayPal didn't even own any bitcoin in first place, they just sold air to the users of their platform.

[cryptoaddictchie]

Somehow I agree. But for traders, who uses wbtc for defi purposes is merely a gimmick to escape gas usage especially when you are using ethereum network since btc isn't compatible on eth chain and there's now way to trade btc with eth except centralized exchange. But I'm sure those guys are not aware of this information. Hope they can at least be wary of the risks involve.

[webtricks]

The likes of WBTC has always been more risky because of the custodial factor, and the fact that WBTC doesn't inherit the security of the Bitcoin blockchain. It's just that having wrapped/pegged versions is the only way to get bitcoin to other chains.

This is really not new information at all, but I guess it's a good heads up for the newbies.

The intention of Vitalik's post quoted in the OP is not to highlight the lack of decentralization in pegged coins but the risk associated with the increasing use of cross-chain applications. Due to the network consensus, blockchains are immune to fund stealing even if the chain is under 51% attack, the best they can do it put censorship on the new transactions. But if funds are locked in bridging contracts, attacking any one of the chain would help the attackers to steal the funds by arbitrarily settling the contracts.

Although the problem is not serious at present but if DeFi applications continue to add more and more PoS-based good-for-nothing chains in the mix, at one stage it will become cheap to exploit the cross-chain applications because attackers only need to exploit one of the chain to disturb the settlement contract.

The Reddit post quoted in OP is good read for multi-chain enthusiasts.

[_act_]

Even I don't like the idea of wrapped coins. Although it serves the purpose of bringing the coins to other chains, I personally don't like giving up my coins to a 3rd party.

What pissed me off most is that many people are just using bitcoin, they do not know many things about bitcoin, some people are using the other chain which is not bitcoin chain and they think they are using bitcointhey do not know they are using altcoin. Exchanges are easy to let people think the altcoins are bitcoin as they include them for withdrawal along bitcoin withdrawal.

[hugeblack]

Although the problem is not serious at present but if DeFi applications continue to add more and more PoS-based good-for-nothing chains in the mix, at one stage it will become cheap to exploit the cross-chain applications because attackers only need to exploit one of the chain to disturb the settlement contract.

This is a good point, a lot of people are looking for APY rather than the real value over ROI.
Bitcoin is POW, which means 1 bitcoin will still be 1 bitcoin but the value will be higher than currencies that generate money from money with very low value.

I think the recent Polygon hack^[1] is proof that multi-blockchain platforms, and a lot of DeFi are really decentralized and worse than centralized platforms.

[1] A Hacker Stole $1.6M After Exploiting a Polygon Bug