On the cryptocurrency market, liquidity can be a concern for those less widespread tokens, of which there are thousands. Liquidity issues occur when the number of buyers does not match that of sellers for a specific amount of a given token. High liquidity assets, such as Bitcoin and Ethereum, can be purchased or sold very easily and at any time. With low liquidity assets, though, the opposite is true, often making them difficult to exchange.
According to the founders of Bancor, this reality negatively impacts the development of most cryptocurrencies because it forces them to remain outside of the Internet of Value. This is why they decided to build a blockchain protocol which provides a means of integrating these smaller assets thanks to a smart contract-based protocol and a one-of-a-kind token: Bancor (BNT). Our Bancor guide tells you everything you need to know.
Bancor Network Token – Introduction and definition
The Bancor Protocol describes itself as a “new standard for cryptocurrencies called Smart Tokens”. Bancor’s objective is to become a new standard for ERC20 tokens to follow, allowing smart contracts to eliminate liquidity risk (when a buyer cannot find a seller for their set amount of tokens or vice versa). To achieve this, they make liquidity continuous throughout the network. The Bancor (BNT) network offers an inexpensive and convenient solution to convert between two tokens with no counterparty, and prices being calculated automatically each time. What makes the system so special is its built-in liquidity, which supports a wide array of tokens.
In practice, the Bancor Protocol relies on “connector modules” which use smart contracts to hold the balance of various ERC20 tokens. What makes these modules so intelligent is their ability to process conversions without requiring for a buyer and a seller to be matched in the currencies and amounts they are willing to exchange. Instead, thanks to Bancor (BNT), a formula balances purchases and sales and ensures the maintenance of the formulaic relationship between tokens, which means that liquidity remains constant within the network.
How does the Bancor (BNT) Network work?
Currently, the Bancor (BNT) network operates on the EOS and Ethereum blockchains but, theoretically, it could be adapted to just about any blockchain. Any application that enables value exchange could support its implementation, which is open source and permissionless.
The system relies on smart contracts called “liquidity pools”. These hold token reserves and play the role of automatic market makers for traders, providing a simple and straightforward alternative to order-book exchanges. Liquidity pools guarantee constant liquidity for the tokens they cover because all liquidity is stored directly on-chain.
Another benefit of Bancor is its transparent and deterministic pricing, set by a bonding curve formula. It implies that the price of a token unit is determined by the size of the order. The larger the order, the higher the price. On the other hand, the price per unit decreases as the size of the liquidity pool goes up.
In practice, the system uses a natively liquid token to function: Bancor (BNT) or Bancor Network Token.
What is a Smart Token?
What makes the particularity of Smart Tokens is that, in a manner of speaking, they hold within themselves many other currencies. These special tokens can indeed be exchanged for any ERC20 token instantaneously. Self-executing smart contracts ensure smart tokens always contain reserve tokens. To put it simply, Bancor makes sure there is a “safety net” to back tokens up. Smart contracts store token-related information and issue an equivalent amount in a different token whenever required.
This means that if a user wishes to liquidate all their BNT, they are guaranteed to receive an equivalent amount of reserve tokens, which sets the Bancor system aside from traditional exchanges. As explained above, Bancor (BNT) unit prices vary based on orders and purchases, and the tokens themselves are able to determine their own prices and to maintain a Constant Reserve Rate, or CRR.
Natively liquid, BNTs are not affected by liquidity risk, which implies that no third party is required for token holders to carry out transactions, since there is no need to get buyers and sellers connected.
Why use Bancor?
Beyond the convenience of having the option to exchange tokens at a moment’s notice, which is a very useful feature for traders, there are other applications where the Bancor (BNT) system can be useful.
As more and more companies begin to integrate cryptocurrencies into their business models, having the possibility to modelize them as ERC20 coins would allow end customers to make much better use of each individual token. They could then exchange them seamlessly and with no restrictions. For instance, loyalty points collected from a travel agency could be exchanged for the same value in a given airline company’s own token whether somebody else is looking to exchange that exact amount at that exact moment or not. Even under-represented tokens may be exchanged easily. In a world where niche cryptocurrencies could soon become the norm, an actor such as Bancor could emerge as truly invaluable.
The main drawbacks of Bancor include a relatively minimalistic interface which does not support trading of any kind as it is entirely dedicated to token conversion. It is therefore not a one-stop shop.
Finally, fiat currencies are not supported by any smart contracts within the Bancor (BNT) environment. This means that using the network requires the purchase of either a smart token-supported cryptocurrency or actual BNT.
How to buy Bancor (BNT) on Bitit?
Fortunately, purchasing Bancor on Bitit is just as easy as buying anything from an online shop. Create an account through a very simple process and access Bitit’s Dashboard where you get to select your own currency and the crypto asset of your choice by entering your amount. Instantly, Bitit displays how many tokens you can obtain for the amount you are looking to spend, or how much you will need to pay to get the number of BNT that you want.
Once your order has been processed, your Bancor is sent to the storage solution of your choice.
How to store Bancor (BNT)?
Several options are available to store your Bancor (BNT) as securely as any cryptocurrency demands. The Bancor network offers its own solution in the form of a mobile app which acts as a non-custodial wallet for multiple blockchains. The convenient application supports over 8700 tokens and allows immediate conversions.
BNT compatibility often goes hand in hand with Ethereum wallets, since Bancor is an ERC20 token which utilizes the Ethereum blockchain. As ever, you will want to choose one that gives you full control over your own private keys and shows a great track record in terms of overall security.
Software options include Exodus, Jaxx and MyEtherWallet, all very satisfactory possibilities, though they do not match the levels of security physical wallets can offer.
The Ledger Nano S or the Trezor, for instance, provide exceptionally reliable storage and should always be preferred if you wish to store a large amount of Bancor (BNT).
As one of the most innovative solutions to have launched on the crypto market in recent years, Bancor holds the potential to become a very important service, as illustrated by the popularity of its BNT, which is in the Market Cap’s top 100. In the years to come, the system could perhaps contribute to the general tokenization of our economy, forever changing the face of cryptocurrency.