WTF is WETH?
The distinction between ETH and WETH is one of the most confusing elements of the NFT space for newcomers. We break it down.
Recently, I wrote about SHL0MS, who is currently auctioning off 888 fragments of a charred Lamborghini. I also wrote about how to get an NFT for newcomers. However, I’ve had a hard time helping the interested newbies I’ve brought on through the ducks try to take part in his drop. The main reason is confusion around WETH, which stands for, unhelpfully “Wrapped Ether.” But what is it and why does it exist?
Ether (or just ETH) is the built-in, native currency of the Ethereum blockchain. This is the currency in which transaction costs on the blockchain are paid and those who validate transactions are rewarded. However, Ethereum, like many blockchains, supports the creation of custom tokens that reside on the chain as well. NFTs — non-fungible tokens — are among them. However, regular, fungible currency can be custom-made too.
Special behavior can be coded into these custom tokens using their “smart contract” — which, despite sounding very legal, is essentially an open source app that lives on the blockchain. As you might have guessed, WETH has a smart contract with special functionality that makes it appealing for certain situations.
Ether, when in its regular, unwrapped form, cannot automatically be billed later through any sort of pre-arranged authorization. The wallet holding the Ether must authorize the payment at the time the transaction goes through. Thus, for use cases from placing bids on NFTs to authorizing recurring payments, this vanilla form of Ether, despite being quite valuable, is useless.
However, Wrapped Ether uses what is known as the “ERC-20” standard. This gives you, among other things, the ability to authorize later payments with it to be automatically deducted from your wallet. Additionally, the 1-to-1 relationship of ETH to WETH is enforced in an unbreakable manner by the blockchain.
“Wrapping” provides a convenient mental model to understand the behavior of Wrapped ETH, conjuring images of a special extra layer on your digital coin that gives it new powers. However, it is, in reality, a separate currency. The smart contract — the code living on the blockchain — ensures it maintains a 1-to-1 relationship, though.
The only way to create “new” WETH is locking up an equivalent amount through the smart contract. No one can take the regular ETH out of it — that is, unless they send an equivalent amount of WETH back to the smart contract. This creates a system where every single WETH is backed by the same amount of ETH that can be redeemed at any time.
Though the United States dollar is now fiat currency not backed by anything — which personally is not an issue to me — it used to be backed by an equivalent amount of gold stored in places like Fort Knox. Many other paper currencies used to work this way. One can almost think of WETH as an “ETH bill” in a way akin to a currency backed by precious metal, with Ether taking the place of gold or silver here.
In the case of SHL0MS’s new collection, CAR, the people who place the top 888 bids get an NFT. This is done with WETH, so that the user does not have to fork over the money when making the bid — it’s collected at the end of the auction. Those who made losing bids never even have that money withdrawn from their wallet at all.
Obviously, this is a bit confusing and overwhelming for many newcomers. For basic use cases, such as just buying or minting an NFT, you can avoid using WETH altogether. But if you want to participate in auctions or make an offer on someone’s unlisted NFT, you’re going to need WETH, so you can let someone bill you later. And, even if you’re a beginner, soon you’ll be beginnin’ to feel like a wrap god.
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