Quick Guide to Bancor: Network for Converting Tokens With No Counter-Party

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Bancor is a network that lets users convert between two tokens like an exchange. The network lets you convert between two tokens of your choice without any counter-party. You can do this while taking advantage of an automatically calculated price. The system also incorporates built-in liquidity for added convenience.

Bancor Website

What Is the Bancor Protocol?

The Bancor Protocol aims to be a new standard that ERC20 tokens follow. It lets smart contracts connect with a liquidity network for continuous liquidity on the chain throughout the network. Because of the protocol and this liquidity, there is no requirement to match sellers and buyers.

The Bancor Protocol takes advantage of what it calls “connector” modules. They hold the balances of different ERC20 tokens in a smart contract. The Bancor Formula recalculates prices constantly as a way to maintain the balance between connectors and smart contracts.

Bancor Protocol

The protocol is revolutionary because of its ability to make it possible to convert tokens without any need to match two parties whose desires work together. Instead of each buyer requiring a seller and vice versa, the simple formula behind the Bancor Protocol balances sells and buys to ensure that each token within the network keeps up its formulaic relationship with other tokens. It is this relationship that leads to the continuous liquidity without concern for exchange listings or trade volume.

What Are Some Key Features of the Bancor Network?

The Bancor Network is what allows all of these token conversions to take place. There is no spread, so users get low-cost conversions courtesy of the automated market maker of a non-profit nature. The prices are transparent thanks to the Bancor Formula. It incorporates transaction size and doesn’t require an order book. The system also has continuous liquidity so you can convert a token whenever you want, regardless of whether you are a buyer or seller or your chosen trade volume.

Bancor Network

Since all the buying and selling takes place via smart contracts, there are no deposits to make and no exchanges or third-parties to trust. You don’t even need to register to use Bancor since the on-chain conversions take place right from your own web3 wallet. Finally, the system is backward compatible, letting any current ERC20 token integrate with the network without any fees or changes to the code.

What Is the Bancor Network Token?

The Bancor Network Token, or BNT, is the hub network token. It activated in June 2017. Users can convert any token within the network to BNT or vice versa. They can use it is an intermediary to convert tokens between each other. The Bancor Formula calculates the rate for these conversions.

Bancor Network Token

You can always get BNT by sending Ethereum to the appropriate address. After that, you instantly get BNT tokens back. The same method also makes it possible to liquidate BNT into ETH. The amount of BNT in circulation always changes. Tokens are created as users send ETH to the smart contract. Destruction of tokens happens when users sell their BNT to the contract.

How to Buy BNT Bancor Network Tokens

You are not able to purchase BNT with “Fiat” currency so you will need to first purchase another currency – the easiest to buy are Bitcoin or Ethereum which you can do at Coinbase using a bank transfer or debit / credit card purchase and then trade that for BNT at an exchange which lists the token. Read on to see how to purchase it.

Register at Coinbase

For first time buyers of crypto currency, we recommend that you use Coinbase to make your first purchase – its easy to use, fully regulated by the US government so you know it is one of the safest and most reputable places to purchase cryptocurrency from. Coinbase offers the ability to purchase Bitcoin, Litecoin and Ethereum with a credit or debit card or by sending a bank transfer. The fees are higher for cards but you will receive your currency instantly.

You will have to carry out some identity verification when signing up as they have to adhere to strict financial guidelines.

Coinbase Website

To get started, click the “Sign up” button where you will be taken to a registration form where you will need to enter your name, email and choose a password.

Purchase Ethereum

In Coinbase, visit the “Buy / Sell” tab at the top, select “Ethereum”, choose your payment method and enter the amount you wish to purchase – you can either enter a US Dollar amount or a number of Ether.

Buy Etherum

You will then be asked to confirm your transaction, if paying with a card you might have to complete a verification with your card provider. Once that’s complete, your Ethererum will be added to your account.

Purchase BNT at Binance

You can now send your Ether over to Binance to make your purchase of BNT take a look at our review of Binance here to see how to signup and purchase on their exchange.

Binance Wallets

BNT is also available on the following exchanges

  • Bancor
  • Bittrex
  • HitBTC

What Are Smart Tokens?

Tokens that are compliant with the Bancor Protocol have a non-profit, built-in market maker. There are two different types of these compliant tokens. Smart Tokens have a single connector (or BNT) that are at a user-configured weight. Users who launch new tokens will make them Smart. The Bancor Formula always works to maintain the same ratio between the value of tokens connected to a Smart Token and that of the Smart Token itself. To do this, it adjusts prices for sell and buy volumes in real time. It is these Smart Tokens that allow conversion without the need to match parties. Therefore, there is no counterparty risk, and liquidity is not coupled to exchange listings or trade volume.

The other option is a Relay Token that holds two connectors. These include any ERC20 token along with BNT, each bearing 50 percent weight. This allows for the backward compatibility for existing tokens that users want to convert on the network.

How Does Bancor’s Automatic Pricing Work?

One of the key elements of the Bancor Network is the automated pricing. This comes from the Smart Tokens’ built-in automated market makers. These automated market makers mean that the tokens’ smart contracts always buy or sell Smart Tokens from or to any user in exchange for any connector token (as well as any token found in the network).

Pricing

The price comes from the Bancor Formula. This formula that is responsible for balancing a Smart Token’s demand and supply while also maintaining the ratio between the token’s total value with the connector token balances. The creator of the Smart Token configures these ratios, known as the connector weight. The creator can adjust them with the goal of decreasing or increasing the liquidity level of the token. The connector weight indicates price sensitivity, or how much sells and buys affect the price movement. Any time the prices no longer syncs with prices listed on external exchanges, the arbitrageurs will quickly balance the gaps.

What Are Some Use Cases for the Bancor Protocol?

The team behind the Bancor Protocol outlines several use cases for the protocol, tokens, and other portions of Bancor. The Smart Tokens that are part of the protocol can improve functionality for any cryptocurrency, whether or not it is new, both on the Ethereum blockchain and in other situations.

Because of the automated liquidity, community tokens and other types of complementary currency can thrive. Users can choose to issue a token for their city, group, or neighborhood and use it for collaborations.

Thanks to the liquidity, businesses can create a token to use as a loyalty point. This token can then allow members of the loyalty program to trade amongst themselves and with other businesses in an entirely new way.

Conclusion

The Bancor Network and Bancor Protocol allow users to convert tokens without having to trade them with another user thanks to the high liquidity of the market. The protocol has already proven popular and effective thanks to its ability to eliminate counterparty risk and streamline the entire process of converting tokens. Since it is possible to add tokens to the network, the usefulness of the Bancor Network should only expand in the future.

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