What is Bancor (BNT) – The project offers a network, which we will discuss later, which aims to provide liquidity to the majority of tokens who lack a constant supply/demand on trading platforms. This network is built on smart contracts and a new class of cryptocurrencies that the team calls “Smart Tokens”.
What is Bancor?
Bancor is a blockchain protocol that allows the user to directly convert different tokens instead of trading in cryptocurrency markets.
What is the problem that Bancor aims to solve?
Bancor seeks to provide support for the illiquidity that currently exists in the cryptocurrency market. Illiquidity is not so much a problem for high profile currencies like Bitcoin or Ethereum because there are always buyers and sellers looking to trade these currencies. This is certainly a problem, however, for the thousands of other tokens that can be used for legitimate decentralized purposes, but that have not attracted enough attention to the market to be liquid.
The liquidity of a token is determined by the constant presence of buyers and sellers. A high-liquidity token is a token that you can easily acquire or sell at any point in time. The opposite is true for tokens with low liquidity.
The Bancor team argues that since the majority of tokens are difficult to trade, they are excluded from the internet of values. Their protocol aims to integrate these tokens by helping to establish their liquidity.
The team envisions a future that involves millions of tokens that are highly effective at the local level while being marketable globally.
Smart Tokens and the Bancor Protocol
The Bancor protocol uses smart contracts to create Smart Tokens, which serve as an alternative mechanism for trading. A key feature of the protocol is that it does not require the exchange of tokens with a second party, as in the case of cryptocurrency exchanges. Instead, he uses smart tokens to convert the different ERC-20 tokens internally. These conversions are done through the blockchain protocol and completely outside the cryptocurrency exchange platforms.
Smart tokens treat in-house conversions in-house while retaining other ERC20 tokens as part of their smart deal. They can then convert between these reserves as users request them.
You can think of Smart Tokens as money that contains money. They hold reserves in the same way that a central bank holds currency reserves and converts them.
The Bancor protocol supports all tokens according to Ethereum’s ERC-20 standard. Each Smart Token created is ERC-20 compliant and therefore compatible with all other ERC-20 tokens. We already know that a Smart Token can be instantly converted to any of its connected tokens (reservations). But, it can also be converted into any of the tokens connected to its tokens, and so on. This creates a network of linked tokens that enables fast, automated conversions.
Bancor Network Token (BNT)
The Bancor protocol has its own native currency, the BNT. BNT is the very first Smart Token on the Bancor network and is kept by all other Smart Tokens . This connectivity allows BNT to dramatically reduce the number of conversions needed to reach the final token.
The Bancor Network token was activated on June 17, 2017 and serves as a hub token for the Bancor network. All tokens in the network can be converted from and to BNT, and therefore each other, at a rate calculated by the Bancor formula.
Cash from Bancor and BNT coin
Bancor brings liquidity to the tokens by eliminating the need for buyers and sellers to match for an exchange to take place (as in the case of cryptocryptographic currency exchanges). However, you can convert at any time directly through smart contracts on the network.
The Bancor protocol guarantees this liquidity by programming a constant reserve ratio (CRR) in all Smart Token contracts . The CRR effectively prevents Smart Tokens from depleting their reserves.
As tokens go through different smart contracts, conversion prices are calculated by a set of formulas and algorithms (available in the project white paper). These formulas are specially designed to ensure conversion rates while avoiding burnout.
Convert tokens on the Bancor network
You can access the network and perform conversions between its supported tokens via the Bancor web application.
Let’s review what a conversion of tokens might look like. Let’s say you want to convert an ERC-20 token like DragonChain to another, for example, EOS.
On the web application, you only need to select these two tokens and click on “convert” (assuming you have attached a portfolio that provides you with a DRGN token to exchange). After clicking on “convert”, the Bancor protocol initiates a series of queries to different smart contracts. The first request converts your DRGN into a Smart Token that holds the DRGN in its reserves. This Smart Token is then liquidated for another Smart Token that holds EOS in its reserve. Once the conversion chain is complete, you receive the EOS.
Use case in the real world
Suppose, for example, that Dutch Airlines and American Airlines start using crypto and their respective air miles credits are modeled as ERC-20 tokens. The Bancor protocol would therefore allow a user to redeem Dutch air miles for American Airline loyalty points without the need for someone to do exactly the reverse trade at that time.
The Bancor team
The Bancor team consists of a Board of Trustees and its Advisory Board. The Board of Trustees consists of four people based in Zug, Switzerland.
Bernard Lietaer is a Belgian civil engineer, economist, author, and professor. Lietaer specializes in monetary systems and promotes the notion of communities that create their own local currencies.
Eyal Hertzog is the project’s product architect and is known for co-founding the video-sharing company Metacafe. Hertzog also co-founded Appcoin, a similar project to Bancor that uses user-generated markets and private currencies.
Guy Benartzi is a co-founder and is known for having founded the Mytopia gaming company. Benartzi has also co-founded Particle Code, a development studio based in Tel Aviv, Israel.
Guido Schmitz-Krummacher is a leader of the Bancor Protocol Foundation, which deals with various business ventures in Switzerland. His involvement in the crypto space includes that of Bancor and a management position in the crowdfunding network, Tezos (XTZ).
Tim Draper, a well-known venture capital investor and founder of Draper Associates, sits on the advisory board with 9 other people.
Money supply and sustainability
Smart Tokens can be created or liquidated at any time, adding or removing total cash in circulation. As a result, the symbolic offer fluctuates with conversions on the Bancor network.
As we mentioned, BNT is Bancor’s native currency and the first Smart Token powered by the Bancor protocol. BNT has a total supply of 74,319,827, but as it is a Smart Token, the amount of BNT in circulation also fluctuates.
BNT transactions are processed at a separate level from the Ethereum Casper Proof-of-Stake primer layer.
Where can you buy and store BNT?
You can obtain BNT tokens directly through the Bancor Smart Agreement by converting it from any other ERC-20 token supported on the Bancor Web application .
Alternatively, you can find BNT on the following exchanges: Binance, Bittrex, Gate.io, HitBTC, OKEx, Liqui, Upbit, LATOKEN, COSS, AEX and Tidex.
You can also store BNTs on most popular portfolios such as MyEtherWallet, Parity and imToken.
Conclusions – Should I Buy Bancor?
The Bancor Protocol ultimately exists to provide liquidity to niche tokens so that they can gain a foothold on global markets. Bancor facilitates the acquisition or liquidation of tokens with low transaction volumes while helping them to establish a market price.
If the cryptocurrency space moves towards a system involving a large number of locally effective tokens, Bancor could very well become a major player in the exchange of these currencies.
Key points to remember
- Smart Tokens are user-generated assets created by smart contracts on the Bancor network .
- Smart Tokens serve as a conversion medium between different ERC-20 tokens.
- Bancor converts tokens through smart contracts rather than trading them with a second party.
- The conversion mechanism through intelligent tokens has been introduced to help bring liquidity to under-represented tokens.