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Sikh Bitcoin · Expert · Lesson 10 of 21

Native bitcoin and wrapped claims

Follow the asset and the extra trust assumptions.

About 14 minutes with practice. You only need something to take notes with. No real wallet details or payments are part of this lesson.

Course contents · Lesson 10 of 21
  1. Threat model before tools
  2. Design a custody architecture
  3. Entropy, mnemonics and passphrase tradeoffs
  4. Hardware signing and trusted displays
  5. Multisig and independent control
  6. Recovery and continuity across people
  7. Coin control and privacy tradeoffs
  8. Lightning operations and recovery
  9. Payment operations and reconciliation
  10. Native bitcoin and wrapped claims
  11. USDC, reserves and redemption
  12. Identify a Morpho market precisely
  13. Oracles, prices and measurement risk
  14. LTV, liquidation and nonlinear losses
  15. Variable rates and growing debt
  16. Vaults, allocation and exit liquidity
  17. Arc, Base and cross-chain dependencies
  18. Allowances, signing and simulation
  19. Treasury accounting and restricted funds
  20. Incident response with clear human authority
  21. Capstone: a defensible treasury design

What you will learn

  • Explain why a Bitcoin-linked token is not a Bitcoin UTXO.
  • Map issuance, redemption and host-chain dependencies.

Start with the settlement system

Native bitcoin is represented by spendable outputs under Bitcoin’s rules. Lightning uses Bitcoin-based channel arrangements with additional operational assumptions. A token on another chain that references BTC is a different technical object. Its symbol, logo or quoted price does not make it settle directly as a Bitcoin output.

Follow the representation back to its promise

A wrapped or custodial representation needs an explanation of issuance, underlying assets, redemption rights and who can change or interrupt the arrangement. Some designs involve custodians; others involve bridges or other verification mechanisms. Identify the actual product rather than treating all wrappers as identical. A reserve report does not by itself prove every holder’s immediate ability to redeem.

Add the lending layer separately

If that token becomes collateral in a lending contract, the user adds smart-contract, oracle, liquidity and liquidation exposure. Holding the host-chain private key does not remove these dependencies. For a paper comparison, draw native BTC, the representation, the collateral contract and the borrowed asset as distinct boxes. Label each controlling party and exit condition. No specific wrapped asset is approved by this course, and a familiar ticker is not sufficient evidence for a real collateral route.

Practice on paper

A brochure calls a BTC-linked token “bitcoin with extra utility.” Which questions would reveal the omitted dependencies?

Reveal the worked answer

Ask which chain records it, what backs it, who can issue or restrict it, who is eligible to redeem, what evidence verifies reserves and which contracts or bridges an exit requires. If used as collateral, also identify the oracle, liquidation rule and available loan liquidity.

Check your understanding

Choose an answer in your head or on paper, then reveal the explanation. Retry whenever you like. Answers are not submitted or scored; completion marks are your own learning notes.

1. Does holding a wrapped token’s private key eliminate issuer risk?

  • Yes
  • No
Reveal answer 1

No. Key control and the representation’s promise are separate.

2. Is native BTC itself an ERC-20 token?

  • Yes
  • No
Reveal answer 2

No. Bitcoin outputs and ERC-20 contract balances are different systems.

Take this with you

Count each added dependency before calling a design sovereign.

Your learning, at your pace

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