What Is WETH? How Does It Work?
Whether you are new to crypto investing or have been in from the start of the Bitcoin IPO, you may or may not have heard of WETH. WETH — or “wrapped ethereum” — is a token that is pegged to the price of the cryptocurrency ethereum.
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To get an idea of why you would want to invest in WETH or how you might use it, keep reading. This article will cover questions such as:
How does WETH work?
Is WETH a good investment?
Is WETH cheaper than ETH?
Should crypto investors convert ETH to WETH?
What is the difference between WETH and ETH?
How Does WETH Work?
Unlike ethereum, WETH is “wrapped” — hence the name — in a smart contract, which is ERC-20 compliant. That means WETH can be used in transactions on decentralized exchanges, which regular ethereum cannot.
WETH carries the same value as ETH. When ETH goes down, WETH goes down. When ETH goes up, WETH goes up. This makes it similar to a stablecoin, except that stablecoins are typically pegged to fiat currency, like the U.S. dollar, rather than another cryptocurrency.
WETH is pegged to the price of ethereum on a one-to-one basis. It allows you to convert ETH into a currency you can use on decentralized exchanges and in smart contracts. To create WETH, you would send ETH coins to a smart contract on the Ethereum blockchain. After the ETH is deposited into the contract, it is converted into WETH. This is a process called “wrapping” ethereum.
Using WETH
You can use WETH in many ways, including trading it on decentralized exchanges to trade for other ERC20 tokens. You can also use it to pay for transactions fees and services on DApps.
If you are looking to take out a crypto loan with ETH as collateral, you can use WETH without selling your ETH.
As with other cryptocurrencies, WETH can also be used as an investment vehicle.
Can I Use WETH as ETH?
Wrapped ETH cannot be traded as ETH. For instance, if someone wants to buy ETH from you or accepts ETH in a transaction, they may not accept WETH. However, you can unwrap WETH and convert it to ETH easily and with low fees.
Is WETH a Good Investment?
Keep in mind that WETH is pegged to the price of ethereum. Many investors and crypto enthusiasts believe ETH is still a good investment.
It’s important to remember that the crypto winter is ongoing, with the price of ethereum down roughly 75% from its 2021 peak. However, if you had purchased ETH in 2017, your investment would still be at 482% of the value you purchased. Had you waited until 2018, you’d still yield a 91.66% return this year.
Future Outlook
The Ethereum merge helped increase transaction speeds and reduce the energy used in Ethereum, which could help its value in the future. As the crypto winter ends — which some experts say could happen in 2023 — you may find your ETH, and likewise, your WETH, investment rising.
MakeUseOf lists evidence that the crypto winter could end in 2023, noting that historically, every crypto winter has led to an eventual long bull run for bitcoin and alt-coins, including ETH. Tracking the historical dips, some experts see an end to the crypto winter coming soon.
Additionally, the use of blockchain in the gaming industry, in NFT trading and in many other applications can help crypto recover this time around. The growing acceptance of bitcoin and alt-coins like ETH and WETH as currency for many consumer transactions also points to a crypto recovery.
However, cryptocurrencies are always volatile. You should not enter the transaction assuming that you will gain a return on your investment in WETH.
Investing in WETH
If you are looking to invest, WETH offers additional advantages that ETH does not, such as the ability to use the currency in transactions on DApps or to create, share and store smart contracts. Transaction fees using WETH are always typically lower than transaction fees for ETH.
You can always “unwrap” your WETH and convert it back into ETH by putting your minted WETH back into the smart contract that generated it. You will receive an equal amount of ETH in return.
For now, WETH and other “wrapped” coins have value in allowing interoperability between blockchains for truly decentralized finance. As blockchains are upgraded in the future to allow interoperability beyond using the ERC-20 standard, wrapped coins may become less valuable. In fact, WETH could be phased out once ETH gains interoperability in smart contracts and across DApps. But that isn’t likely to happen soon and, in the meantime, WETH remains a viable and useful investment.
Is WETH Cheaper Than ETH?
WETH typically has the same value as ETH. As of Dec. 27, ethereum is trading for $1,209.24 per U.S. coin. Meanwhile, WETH is trading for $1,205.85.
The two coins are very similar in value, with WETH trailing ETH slightly right now. However, WETH has slightly lower transaction fees, so you may not notice any difference in value when you’re using the currencies.
Should I Convert ETH to WETH?
If you want to make transactions in DApps or trade with other ERC-20 based tokens, it’s worthwhile to convert your ETH to WETH. In essence, WETH is the ERC-20 tradable version of ETH.
You can use WETH to purchase NFTs or engage in auctions on platforms like OpenSea, in crypto lending and in other areas where smart contracts are required. If you’re looking to hold your cryptocurrency as an investment, there’s not a clear advantage to holding WETH or ETH. But if you are looking to get the most use out of your crypto, you may want to convert your ETH to WETH.
WETH vs. ETH: Similarities and Differences
WETH and ETH are both cryptocurrencies that are considered alt-coins — or, any crypto other than bitcoin. Since WETH is pegged to the value of ETH, they are worth roughly the same amount of money if you are investing or trading.
Because it adheres to the ERC-20 standard, WETH has capabilities that ETH does not, including the ability to use it in smart contracts, in DApps and across blockchains.
Final Note
If you frequently buy and trade NFTs or engage in crypto borrowing and lending, converting ETH to WETH would be a necessity. If you are looking for a crypto investment to buy and hold, consider ETH.
This article originally appeared on GOBankingRates.com: What Is WETH? How Does It Work?
