WHAT IS BANCOR?
Bancor is a decentralized protocol network created to increase the liquidity of coins. It gives other cryptocurrencies, especially the not so popular and upcoming coins the alternative of exchanging and transacting their coins without the use of exchange platforms and other counter parties. It is used to convert other digital currencies directly rather than waiting to be listed on exchange platforms.
Bancor is an ERC-20 token which implies that it is built on the Ethereum Blockchain Technology. The platform provides a new system that allows individuals to develop what is known as smart coins or tokens that can trade and hold different cryptocurrencies. It employs the use of the smart contract technology by connecting it with other ERC-20 tokens to increase liquidity.
Bancor makes use of another kind of trading process that creates a smart token with the smart contract without depending on the existence of another party for a successful exchange.
Smart contracts are a substitute of exchange platforms. The balance of every ERC-20 token is contained in the connector module in the smart contract.
The platform makes use of a formula which they created themselves to determine the prices of these tokens every time. The Bancor platform has its own currency known as Bancor Network Token designated as BNT.
It is the first smart token created to launch the Bancor Network and the standard used for conversion as it serves as a reserve for another token.
The aim of the platform is to give every coin equal chance to compete in the world at large without any sense of inferiority. It aims to remove every form of illiquidity and by reducing the gap between major coins like Ethereum and bitcoin and other coins. To Bancor, every single token should have a marketplace.
What is the problem Bancor solves?
There are over 1000 cryptocurrencies in the crypto market place all seeking for worldwide recognition an adoption.
One major attribute of every one of these cryptocurrencies is that they all depend on people to achieve their goals and objectives. This means that if they are not recognized, all their ideas fade and they lose in the marketplace.
For adoption and recognition to be fulfilled, there is a need for these coins to be traded one for the other. Unfortunately, nobody wants to trade on coins that have no guarantee or solid backing. Nobody wants to lose their money for a project that doesn’t solve a real problem.
This has given rise to the problem of illiquidity of coins and that is what Bancor aims to solve.
The most popular coins like the Bitcoin and Ethereum enjoy a lot of liquidity because they are well known and trusted to last longer. This has created stereotypes in the mind of people hence, not wanting to participate in upcoming or newly created coins.
Most of these upcoming coins spend a lot of money on marketing and advertising their coins for the public to see and invest in but people do not trust them enough to invest in. Once this happens, there is the issue of illiquidity or low liquidity.
Because of the risk involved, most exchange platforms refuse to list these coins on their platform as the liquidity of such a coin is highly dependent on consistent buying and selling.
Since many of these coins are yet to attract such blooming market, the purposes they aim to serve are not actualized hence, they have a low liquidity.
Since they have low liquidity, it means the token is not popular and exchange platforms would not want to be left stranded and run at a loss as the exchanges buy the coins too from the company itself. As such, they pay attention to the kind of coin they invest in.
How does Bancor solve this problem?
Bancor makes use of smart contracts to develop smart tokens that would serve as an alternative to trade with not depending on exchange platforms to interchange tokens.
Using these smart tokens, various ERC20 tokens are converted internally using the Ethereum blockchain algorithm, not depending on any crypto exchange.
The smart tokens carry out the process of converting tokens through keeping the reserves of the different ERC20 tokens inside each of their smart contracts. This way, each of these tokens can be converted forth and back based on request.
These smart tokens are like containers that can hold money. Just like banks have reserves of foreign money and convert their money with the foreign money, so also is the Bancor protocol designed to operate.
The platform allows all tokens issued on as ERC 20 token to perform these operations. All ERC-20 tokens are smart tokens thus, they can easily interact with the different ERC 20 tokens out there.
The platform uses its token, the BNT, as the automatic currency for reserves.
Since the conversion of a smart token to its reserve, its connected token, is very possible that implies that we can have a chain of connected tokens all depending on one and the other which gives room for an automatic and fast conversion.
By eliminating the need for the interaction of buyers and sellers to make an exchange, Bancor has defeated illiquidity of tokens.
Now, conversion can be done at any point in time using the smart contract technology as there is no need to compare a token against another when you can begin exchange and trading immediately.
What makes Bancor better than its competitors?
Bancor has many advantages which make it better than its cryptocurrency competitors but also give it advantage over another traditional exchange-based trading platforms. Some of the numerous advantages are;
- Continuous liquidity: through the use of the smart contract to create smart tokens to hold reserves, liquidity of such token is preserved. If the reserve in question retains its relevance, liquidity of that smart token remains on a high note as its liquidity is not dependent on buying and selling or on exchanges.
- Smart Contract: with the use of the smart contract, every transaction is done on the technology. On the smart contracts, there are varieties of tokens to choose from, giving users a multitude of options to engage in. Since the smart contract automatically carries out operations, it is not possible to manipulate the system.
- No spread: Spread is the difference between the buy and sell price. This is what gives the traditional market the profit it needs. Bancor does not depend on such profit to operate, so rather than this, Bancor’s spreads used are decentralized and are introduced so as to encourage the adoption of the network which in turn benefits the participants.
- Predictable prices: Bancor smart token is transparent and is used to know the price of conversion before the conversions are done. It makes one able to predict the price of the conversions.
- Based on ERC20: Smart tokens are ERC-20 tokens making it easy for them to be integrated into another existing token. Any standard token of such existing can be connected to the Bancor network. Also, the platform has plans to further its benefits to other non ERC-20 token
- Value: unlike platforms like bitcoin which stores value in its coin, the BNT token facilitates value through its token.
How can Bancor be categorized?
There are three categories in which Bancor fits. These are:
- Smart contract: the Bancor platform is highly dependent on the smart contract technology to carry out its operations. The smart contract was created to eliminate the need for a third party and the Bancor network has been able to eliminate the need for an exchange for a coin to achieve liquidity.
Also, the smart contract is used to create smart tokens of one’s choice and in it contains all the necessary information needed for a transaction. The price of the token is also determined by the contract.
Furthermore, smart tokens can be linked up through the smart contract such that there is an interdependence on each token. More so, security is guaranteed as a smart contract works as programmed by the source.
Terminal: the Bancor network creates a means through which one token can be connected to the other for functionality and liquidity. Through the creation of a smart token which hold reserves of other token like the Ethereum for instance, the created token can also serve as a reserve for another token and the chain can continue.
The fact that it is built on the Ethereum Blockchain Technology means that other platforms can be built on it. The number of tokens that can be built on the platform is unlimited as the aim of the platform is that every cryptocurrency has a lucrative market place. Tokens are linked together through the smart contract making them interdependent on one and the other and as such, increasing the life span and liquidity of these coins.
Exchange: the Bancor protocol eliminates the presence and need of an exchange platform for the buying and selling of coins.
The system replaces the role of these exchange platforms by giving every cryptocurrency an equal survival opportunity in the market place. In traditional exchange platforms, developers select the most viable coin for listing so as not to run into any potential loss.
They buy coins and sell it to others at a slightly higher price. If a coin is not lucrative, they do not add it to their exchange so as not to run into a loss.
However, the Bancor platform has created an alternative mode of trading through the creating of smart tokens which would depend on another coin, most preferably an established coin, to act as a reserve. This way, it is automatically valuable and can be exchanged in the market directly between buyers and sellers. Prices are determined automatically by various algorithm and formulas.
What is Bancor’s vision on security?
The network through which the Bancor system operates demands a tight security. This is because a lot of token is built on the network and if anything happens, it would have an adverse effect on the platform.
The fact that the platform is built on the blockchain is a step towards security.
Exchanges are centralized platforms and are prone to hack. There have been numerous instances of such occurrence and as such, it has been tagged as unsafe.
With the implementation of the smart contract, the Bancor protocol eliminates the possibility of such infiltration. Every exchange done on the network is on the smart contract of the smart token in question.
Smart contracts are applications that involves that every action carried out is pre-determined and uploaded in the platform. For action to be completed, it must have been determined before hand on the smart contract. This way, there can be no way an external party can influence any decision.
EXAMPLE OF BANCOR USE CASES/APPLICATIONS
There are three applications of Bancor. They are;
- Scalable and Reliable Token markets: this is when BNT is used as an alternative for other centralized tokens. This occurs with a network that has multiple positive implications. An example of this smart token is the relay token.
- Long tail of small-scale token: examples of this are local commerce, crowdfunding, community collaboration etc. This helps small scale tokens to have liquidity too and save them from lack of a sufficient number of buyers and sellers.
- New token application: this refers to new applications that can be of great aid to the blockchain world. An example is a decentralized token array. Traders use the decentralized token array to hold token without the need of an intermediary. This helps to remove third parties completely from the transaction, putting participants of the transaction in charge of the transaction itself.
- Loyalty Point: since Bancor aims towards providing high liquidity, it is an opportunity for business to develop a smart token that can be employed as a loyalty point. It would be a means for business partners to trade with one another and other establishment in a completely different way.