In the stiff competition of cryptoverse, it’s easy for big-name cryptocurrencies such as Bitcoin and Ethereum to hog nearly all the limelight and market activity, leaving lesser-known projects scrambling for half the attention.
That also means the projects’ intended purpose might get lost in the peripheries – to the detriment of the blockchain and crypto sphere.
Bancor is a blockchain project that seeks to provide liquidity for illiquid cryptos by providing an instant conversion platform where users can obtain their desired tokens at little or no fees. Also, the conversion needs no second party, eliminating counterparty risk.
This piece is an in-depth exploration of the Bancor platform, as well as its native token, BNT.
What is Bancor?
Bancor is a blockchain-powered protocol that facilitates the direct and instant exchange between different cryptocurrencies. This kind of exchange would remove the need for centralized exchanges such as Coinbase.
Bancor aims to solve the problem of illiquidity that characterizes the current cryptocurrency market. With popular coins like Bitcoin and Ethereum, illiquidity is not an issue since there’s always a ready market looking to acquire or exchange them. However, for thousands of other coins and tokens that are yet to attract as much attention – a market is definitely an issue.
A cryptocurrency’s liquidity is determined by the lack of or the presence of a ready market. A crypto with high liquidity is one that you can easily buy or sell at any time, and the reverse is true for one with low liquidity.
The Bancor team believes that the vast majority of cryptos that have low liquidity are being excluded from the internet of value. As such, it has created a protocol that can integrate those tokens and make them more accessible. It envisages a future where millions of cryptocurrencies are effective – and readily tradable.
How Does Bancor Work?
#1. Smart Tokens and the Bancor Protocol
Bancor employs smart contracts to create ‘Smart Tokens’ to achieve an alternative to the usual way of trading. A standard paper transaction involves two parties exchanging tokens. By contrast, the Bancor protocol utilizes a trading mechanism based on smart tokens, and a transaction does not have to involve a second party.
Bancor’s protocol is designed to convert directly between different ERC20 tokens – without the need or involvement of a second party or third-party vendors like crypto exchanges.
This is how it works: smart tokens are linked to smart contracts that act as the reserves of other ERC20 tokens. The smart tokens then process conversions internally, depending on currently held reserves and the volume of exchange requests.
You can think of smart tokens as coins that hold the monetary value of other tokens. On the Bancor network, they play much the same role as that of a Central Bank that holds foreign currency reserves and oversees conversions between them as and when required.
The Bancor protocol supports all cryptos that are Ethereum/ERC-20 compatible. Any single token created on Bancor is ERC20 compliant, and hence it is compatible with all other tokens on the network.
#2. Bancor’s Liquidity
Bancor enables liquidity for tokens by eliminating the need for transacting parties to match so that an exchange can take place. Instead, you can make conversions at any time on the network.
The network utilizes a Constant Reserve Ratio (CRR) in smart contracts to ensure liquidity. CRR is a mechanism that makes sure the smart tokens are holding reserves at any time.
As tokens go through various smart contracts (from a user request to conversion, to receiving), transactions are calculated through a complex mix of algorithms. These algorithms are designed to oversee conversion between different currencies without depleting the reserves.
#3. Converting Tokens
Users can access Bancor and convert between available tokens through the network’s web application.
A standard token conversion would follow more or less of this process: After selecting the tokens, you want to exchange, click “convert.” The protocol will kick off a series of requests to various smart contracts. The first request converts the token you’re holding to a smart token that holds reserves for that token. The smart token is then dated for another that holds reserves for the token that you want to acquire. When these conversions are through, you receive your desired token.
The Bancor Network Token
Bancor has its own native currency called the Bancor Network Token (BNT). BNT is the default reserve currency held as a reserve by all smart tokens. As such, BNT reduces the number of conversions that are needed to arrive at the end token.
What Are Some Use Cases for the Bancor Protocol?
The Bancor team provides several use cases of the protocol. Let’s take a look at some of them.
- The smart tokens can improve the functionality for any cryptocurrency
- Community tokens get a chance to thrive, allowing the group, institution, city, etc. to use it for collaborations
- Businesses can create high-liquidity tokens to power loyalty systems
The Bancor Team
The Bancor Team comprises a core team of five based in Zug, Switzerland: Bernard Lietaer, Eyal Hertzog, Guy Benartzi, Guido Schmitz-Krummacher, and Tim Draper.
Bernard Lietaer is an economist and civil engineer who believes that communities should be able to create and possess their own local currencies.
Eyal Hertzog is the lead architect of the project and co-founder of video-sharing company Metacafe, as well as Appcoin, a project that utilizes user-generated marketplaces and community currencies.
Guy Benartzi is the founder of the gaming company Mytopia and co-founder of Israel-based development studio Particle Code.
Guido Schmitz-Krummacher is a notable figure in the crypto space and is a member of the executive board of the crypto project Tezos (XTZ).
Tim Draper is a venture capitalist and founder of venture capital firm Draper Associates.
What’s the Market Look Like for Bancor (BNT)?
As of June 10, 2020, Bancor is trading at $0.769842, while ranking at #106 in the crypto market. It has a market cap of $53, 233, 437, a 24-hour volume of $26, 330, 312, a circulating supply of 69, 148, 554 add a total supply of the same volume. It has an all-time high $10.00 (January 10, 2018) at an all-time low of $0.117415 (March 13, 2020).
Where to Buy and Store BNT
You can acquire Bancor tokens directly by converting it from another supported token on the Bancor web app. If not, you can obtain it from a BNT-supporting exchange such as OKEx, Binance, HitBTC, Bittrex, Liqui, Upbit, AEX, and Tidex.
You can store BNT on any ERC20/Ethereum compatible wallet, including MyEtherWallet, MetaMask, ethaddress, Parity, Guarda, Trust Wallet, imToken and others.
Final Words
Bancor is about bringing utility to thousands of cryptos so they can carve out a place in the global crypto market. With Bancor, users have a secure, trustless platform where they can obtain and liquidate relatively illiquid tokens. With this novel and crucial purpose, the Bancor network is only set to expand on the future.