What is Bancor?
Economics nerds amongst you might recognise the name ‘Bancor’. Christened after an unrealised supranational currency proposed by post-war Liberal whizz John Maynard Keynes, this altcoin claims to usher in a new generation of cyrptocurrencies known as ‘smart tokens’.
With an innovative system that eliminates counterparties, and reduces reliance on exchanges, the so-called Bancor network aims to create relationships between the multitude of coins on the market and allow any user to instantly purchase, exchange and liquidate coins, giving literally any coin liquidity and a market value from day one – something never before possible on the financial markets, especially given the glut of coins and constant slew of newcomers.
Bancor is designed to support any kind of token, be it a cryptocurrency (so far, just Ether), fiat, physical instruments (like gold) or tokens issued in crowd sales (like Augur or MaidSafeCoin). In effect, this system ushers in a paradigm shift whereby you can quickly monetize tokens rather than hazarding your luck on an exchange. It’s pretty ingenious, and could put paid to tedious trawling through financial news and forums to find the next big coin, but let’s take a closer look under the hood…
How does the Bancor Network Work?
The Bancor protocol is the brainchild of Eyal Hertzog (owner of video sharing site MetaCafe) ‒ an Israeli entrepreneur with a neat concept for how to reinvigorate the crowded (and erratic) financial markets. One of the biggest problems with modern tokens is liquidity: an issue that Bancor seeks to resolve.
The Bancor protocol provides a liquidity mechanism for all kinds of tokens, using smart contract blockchains. As with a normal blockchain, tokens are automatically managed by an immutable ledger. However, unlike a normal blockchain, the smart contract permits tokens to hold balances of other tokens “in reserve”.
These smart tokens thus hold one or more tokens in reserve (say, you purchase Ether but also attach some USD). Then, any party can immediately purchase or liquidate this smart token in exchange for one of the reserve token (in the above example, trading the value of the Ether against the dollar, or vice versa). The price of this swap, rather than going through an exchange, is continually managed and assessed according to a formula on the Bancor network that balances the buy and sell volumes.
In sum: you can immediately sell your smart tokens without having to go through a normal exchange.
Is Bancor Worth Investing In?
To answer the question of whether Bancor is worth your time, you need to understand why it was developed in the first place. The current model for exchanging currencies and assets requires a volume of trading activity to reach a critical mass of market-liquidity. This is why smaller currencies and newer altcoins are difficult (and not very profitable) to exchange for other popular tokens at the market rate.
However, the smart token’s contract instantly processes buy and sell orders, which means they don’t need to be traded on an exchange to become liquid. Also, they are issued when purchased and erased on liquidation, so you can always purchase/liquidate a smart token with/to its reserve at the price calculated.
The exchange rate is based on a Constant Reserve Ratio (CRR), which is set by the smart token creator. The current price is determined by dividing your balance by the supply, multiplied by the CRR. This ensures a constant ratio between the smart token’s market cap and the reserve token balance.
Price discovery sees the price of a smart token increase when purchased at a CRR less than 100 per cent, because both the reserve balance and supply increase, which multiplies the CRR. When they’re liquidated, reserve tokens are transferred back to the liquidator ‒ resulting in a decrease in price.
Because of this, and because new smart tokens are issued to the buyer on purchase, and removed from supply on liquidation, the supply of smart tokens in circulation is kept in check. Unlike the typical model in which the price adjusts in real-time, smart token princes are calculated after every order ‒ over-time.
Because the effective price is calculated as a function of transaction size, buying the same number of smart tokens in single or multiple transactions results in the same price overall, keeping the CRR constant.
The implications of this model are huge, and could add liquidity to every conceivable token on the market. As far as cryptocurrency goes, so far it’s only useable for Ether. However, this idea could be enormous, with extensive long-tail applications. The network only launched in June 2017, so it’s early days, but this could be a very important aspect of the cryptocurrency trading scene as the dominance of bitcoin and problems of liquidity in smaller coins continue to stifle the market. Definitely one to watch.
How to Buy and Sell Bancor Smart Tokens Online - Step-by-Step Guide
Purchasing and selling Bancor Network Tokens is super easy, owing to the unique design of the Bancor network. Everything is done using the functionality of the smart contract itself, as we explain below:
- Visit the bancor network official website (www.bancor.network/bnt), scroll to the bottom of the landing page and hit ‘Buy Through Smart Contract’ or ‘Sell Through Smart Contract.’
- You will be invited to send Ether to a BNT change address, which you can either copy as a line of characters or obtain via QR code. Use this address to send Ether from your wallet.
- Be warned that this contract commits you to purchase the price effective at the time of transaction: there is no way to limit the price with the simple method. To purchase with price limits, you can use MyEtherWallet.
- You are instructed to use a 400,000 Gas Limit or a 24 gwei Gas Price, if required by your wallet.
- To sell up/liquidate your BNT, you will need to use MyEtherWallet, so get the client set up if you haven’t already.
- Plug the BancorChanger contract address in the field labelled “Contract Address”. You can leave “Select Existing Contract” empty.
- Grab the ABI text from a link provided on the Bancor network website and paste into the “ABI / JSON Interface”, then hit “Access”.
- Select the “quickChange” option from the dropdown menu under “Read/Write Contact” and enter the path address provided on the Bancor network website.
- Enter the amount of BNT you would like to change to ETH in the “amount” field, then click “Write”.
- After receiving a warning pop-up, you must set the “Amount to Send” field to zero, or else the transaction will fail.
- The “Gas Limit” can remain at default (or 30000 if none appears).
- Hit “Generate Transaction” and confirm, and your BNT will turn into Ether, which you are then free to convert into fiat and withdraw on any popular client.
Can I Trade Bancor?
One of the unique selling points of Bancor’s smart contracts is that they eliminate the need for a traditional exchange. The market value of your reserve token (held as part of the contract purchased) gives them immediate liquidity and a market value determined by algorithm, so there is no need to take your smart contract to an exchange. If you’re struggling to sell off your Ether, or any other supported token due to issues of liquidity, the Bancor network will give you a means to sell.
However, if you like things the old-fashioned way, you can still trade Bancor Nework Token (BNT) through exchanges like Bittrex by following the instructions below:
- Get over to bittrex.com set up an account. You’ll have to fill in all of the usual fields including your email, name, date of birth, current location and a preferred payment method. If you want to trade at higher limits, the exchange might ask for further identification.
- Go to “Wallets”, selectable from the top menu bar, and make a deposit in fiat or any popular cryptocurrency. After you hit the plus button, copy the address that shows up. You can use this to send cryptocurrency from your wallet to another exchange or wallet on your browser or desktop.
- You can check the markets for how your preferred token is doing against BNT. There are plenty of adjustable fields and other tools to help you trade intelligently: like indicators and trend lines.
- Underneath the chart, you can set limits for buying and selling. By setting a price below the market price and selecting “Good ‘Til Cancelled”, the exchange will make a purchase or sale automatically when the requisite price is met.
- That’s all there is to it: you have successfully begun trading in BNT!
What are the Advantages of Bancor?
There are many touted advantages to Bancor’s smart contract model compared to the traditional exchange model. Firstly ‒ and perhaps most importantly for traders ‒ there are no fees added, because all purchasing and liquidation are conducted via the smart contract. There is also no spread, because price calculation is conducted algorithmically, so the same price applies to both buying and selling.
Also, because the formula for determining current price is transparent, price slippage is predictable based on transaction size prior to execution, so you always know what you’re in for. Similarly, smart tokens have very low volatility, because the percentage of the CRR is comparable to the entire supply of a token at all times, which creates greater market depth.
Finally, the Bancor smart tokens guarantee continual liquidity, irrespective of trading volume, thanks to the smart contract handling purchase and liquidation.
Future of Bancor Network Trading
The real potential value of BNT is in the long tail. We have not yet seen the potential applications of smart tokens come to true fruition. However, they overcome the barrier faced by most altcoins of needing to achieve and maintain liquidity. As such, it is potentially far more viable in the long-term, due to the capacity for purchase or liquidation by a single party ‒ thus circumventing Say’s Law (you don’t need a buyer and a seller ‒ they are one and the same). This permits BNT to be immediately linked to the global economy, which for any new altcoin is an impressive feat off the bat.
Bancor has suggested its product will be especially applicable to crowdfunding, token exchange, network tokens and decentralised token baskets. At the moment, the fact that BNT is based on the Ethereum network limits its potential somewhat, but as a proof of concept it is causing justifiable excitement in the world of cryptocurrencies.
How to Buy Bancor with Credit Card
Various popular exchanges, such as CEX.IO, permit users to purchase Ether on credit card, which in turn can be exchanged for BNT using the method described above. Credit cards are actually required on CEX.IO for any deposits under a daily limit of $300 or a monthly limit of $1000 ‒ so smaller trades necessitate their use.
You can add Ether to your balance with a credit card in precisely the same way as via bank transfer: although please be aware that a small fee will be added (CEX.IO takes a commission of 3.5 per cent). On the plus side, your purchases are quicker than with bank transfers, and you’ll be spared the lengthy waiting periods they entail.
How to Buy Bancor with PayPal
There aren’t any exchanges with a PayPal platform that allow users to trade in Bancor. If you create an account on Coinbase, you may be able to make deposits and withdrawals in Ethereum, which can in turn be traded for BNT.
This functionality is only available to US citizens, who can link their PayPal accounts to the Coinbase platform. You will need to verify a PayPal account with Coinbase, and then add the service as a payment method manually. The PayPayl service is in beta, and Coinbase apparently has plans to roll the provision out to other territories.
Cryptocurrency Guide list
Enjoyed this Bitcoin guide? Then see our other cryptocurrency guides:
- How to buy and trade Bancor
- How to buy and trade Bitcoin
- How to buy and trade Bitcoin Cash
- How to buy and trade Dash
- How to buy and trade Dogecoin
- How to buy and trade EOS
- How to buy and trade Ethereum
- How to buy and trade Ethereum Classic
- How to buy and trade Factom
- How to buy and trade GameCredits
- How to buy and trade Gnosis
- How to buy and trade Golem
- How to buy and trade IOTA
- How to buy and trade Litecoin
- How to buy and trade MaidSafe Coin
- How to buy and trade Monero
- How to buy and trade NEM
- How to buy and trade NEO
- How to buy and trade Peercoin
- How to buy and trade Potcoin
- How to buy and trade Ripple
- How to buy and trade Steem
- How to buy and trade Storjcoin X
- How to buy and trade Stratis
- How to buy and trade Tezos
- How to buy and trade Waves
- How to buy and trade Wings
- How to buy and trade Zcash