WETH vs. ETH: Major Differences Explained

Whether you’re a seasoned veteran or new to the crypto game, the chances are you’ve heard of both WETH and ETH. So, WETH vs. ETH, what’s the difference between the two, if there is any at all?

The answer is: both WETH and ETH have their own specific uses, advantages, and disadvantages. Understanding these is crucial when deciding which version of the token to get.

Although it might seem confusing at first, don’t worry—you’ve come to the right place! In this article, we’ll go over both of these ever-so-popular tokens, break down the differences, and show you how to wrap ETH and unwrap WETH!

Let’s get straight into it!

What is Ethereum (ETH)?

Ethereum was conceived in 2013—the same year its whitepaper was published—by Vitalik Buterin, a programmer who still works on its development. The network was developed in a series of prototypes in 2014 and 2015 and has been having constant protocol updates via hard forks since then.

Simply put, Ethereum is a network made up of many communities and various tools that allow users to send cryptocurrency without the need for a middleman. It’s programmable due to its smart contract functionality and represents the heart of many financial services, games, and other applications.

Smart contracts were first proposed in the 90s, and they are intended to automatically execute actions if a certain condition via code is met. When a condition is met, smart contracts reduce the need for enforcement and arbitrations and eliminate malicious and accidental exceptions.

Ethereum’s native cryptocurrency is called Ether (ETH). ETH is 100% digital, meaning that you can send it to anyone in the world in an instant. Most importantly, ETH isn’t controlled by governmental agencies or any companies, which makes it fully decentralized and transparent.

What is Wrapped Ethereum (WETH)?

Short for “Wrapped Ether,” WETH is a version of ETH that’s compatible with ERC-20 tokens. All tokens that are conceived on Ethereum follow the ERC-20 protocol, ironically enough, except for ETH itself. And that’s where smart contracts come to save the day again.

Smart contracts make ETH more accessible by allowing users to turn ETH into WETH. This process is called wrapping, and it results in the creation of WETH tokens.

The main purpose of WETH and other wrapped tokens is that they can be used on other chains that Ethereum—the main token—is not compatible with. This means that WETH can be used on decentralized exchanges and allows you to purchase goods and services that accept WETH as a form of crypto payment.

One of the biggest advantages of WETH is that it allows you to hold ETH in a more compatible token format.

How to Wrap ETH

Now that you’re familiar with WETH, let’s take a look at how to get this wrapped form of ETH.

First, you send the native token to the WETH smart contract. The smart contract holds the original tokens as locked collateral as it mints an equivalent amount of the wrapped token. From a user standpoint, the whole process looks like this:

1. The user connects their web3 wallet with ETH tokens to a DeFi exchange (e.g., Uniswap)
2. Once they connect the wallet, the user enters the amount of ETH they want wrapped into WETH and swaps them via a dedicated function.
3. After the transaction has been confirmed on their wallet, the user receives the equivalent of the swapped ETH in WETH.

When wrapping ETH, keep in mind that the process will come with gas and transaction costs. However, the swap ratio is always 1:1, and you can exchange a different token directly for WETH using a MetaMask wallet.

WETH vs. ETH: How to Unwrap WETH

The process of unwrapping is essentially burning the wrapped token until it reaches the original form it was in before wrapping. Therefore, when unwrapping WETH, the token is converted back into ETH and deposited into your wallet.

There are several ways you can unwrap your WETH, namely:

• Manually interacting with a smart contract. This method requires you to approve a smart contract to get ahold of your WETH. You can do this by using the Ethereum blockchain’s approval function, which allows a third party to access your account and perform actions in your stead.
• Exchanging ETH for WETH with Uniswap or Binance. Both Uniswap and Binance are efficient ways of unwrapping your ETH for WETH because they automate the whole process. All you have to do is visit these exchanges and follow the prompts given to you.
• Using MetaMask on OpenSea. Lastly, you can unwrap WETH with MetaMask just by going to OpenSea and signing in to your account, clicking on the wallet icon in the top-right corner and the three dots next to your ETH, and finally clicking on the ‘Unwrap’ option.

WETH vs. ETH—Main Differences

Although they have the same value of a 1:1 ratio, WETH and ETH are different in several aspects.

Firstly, as previously mentioned, ETH is the native token of Ethereum. This means that you need to pay for gas fees, which you don’t have to do with WETH because it’s a tokenized form of ETH you use for paying for certain items on Ethereum Decentralized Applications (dApps).

Another difference is that, unlike WETH, ETH doesn’t abide by the ERC-20 rules. This is key, as the ERC-20 is a standard for dApps and is convenient and more practical for use in most cases.

Advantages of Using WETH

Using WETH instead of ETH in certain applications comes with several benefits, such as:

• Liquidity. Providing liquidity for ERC-20 tokens on decentralized exchanges, WETH directly improves market efficiency.
• Compatibility. WETH can be used in exchanges and dApps that only accept ERC-20 tokens, as it’s compatible with them.
• Accessibility. You can interact more easily and efficiently with Ethereum’s ecosystem with WETH tokens, as they are essentially a more accessible ETH version.

Disadvantages of Using WETH

Although it has its advantages, using WETH also has several disadvantages you should consider. Namely:

• Complexity. Using WETH adds complexity to specific applications and requires additional crypto-related knowledge.
• Security. Being an ERC-20 token, WETH is susceptible to various security risks, just like other Ethereum network tokens.
• Conversion. Some users might find wrapping ETH to WETH inconvenient, as it’s basically an extra step you have to take when handling this token.

Future of WETH and ETH

As ETH and WETH are tied together, how WETH will fare in the future mostly depends on the development of the Ethereum ecosystem and the demand on the cryptocurrency market. The demand for both tokens will most likely increase, as the adoption of Ethereum is constantly growing.

There’s also room for growth for WETH regarding decentralized finance (DeFi) protocols. These rely on liquidity providers to supply their platforms, and they can use ERC-20 tokens for this, as these are compatible with ERC-20 tokens.

Most importantly, DeFi will certainly continue to grow, meaning that the demand for WETH is going to be ever-increasing.

One more thing to note is that the crypto winter might end in 2023, which means that both your WETH and ETH will increase in value. A crypto winter is an extended period of decline in a cryptocurrency’s value and depressed asset prices, especially when compared to previous peaks.

Lastly, you should also consider that blockchain and crypto are becoming more popular in the gaming industry, NFT trading, and various other applications. All of these help cryptocurrency assets rise in value, especially ETH and WETH, which are used for numerous consumer transactions.

Key Takeaways

At the end of the day, there are certain differences between WETH and ETH that might seem minor at first, but everyone should know them because they’re crucial for navigating the Ethereum ecosystem.

Both tokens have their unique uses, so whether you’re an investor or trader, consider them wisely before opting for one. But, as a rule of thumb, if you want to buy and hold certain crypto, consider ETH, and in case you need to use smart contracts, go for WETH.

WETH vs. ETH FAQ

• Should I use WETH or ETH?

  There is no definite answer to whether you should use WETH or ETH, as it all depends on your needs. The former is mainly used for DeFi and token trading on DEXs, whereas the latter is more convenient for everyday transactions, investments, ICOs, etc.

  If you’re interested in DeFi and ERC-20 tokens, then go for WETH. On the other hand, you should opt for ETH for more general purposes.

• Why would I use WETH?

  You can use WETH to swap between tokens on decentralized apps and trade currency for ERC-20 compatible tokens. This can be incredibly convenient if you’re trading in the sphere of NFTs.

• Is converting WETH to ETH taxable?

  Although it depends mostly on your cost basis, you should always have a gain or loss when converting WETH to ETH, as it’s a taxable event.

• Can I convert WETH to ETH?

  Yes, you can convert WETH to ETH by unwrapping WETH manually, interacting with smart contracts, exchanging the two tokens with Uniswap or Binance, or using MetaMask on OpenSea.