The idea behind Bancor is to allow anyone to convert between any two tokens, without any counterparty, with an automatically calculated price. Bancor is built on the Ethereum smart contract platform and gives immediate liquidity to any ERC-20 token without using an exchange, regardless of the number of buyers and sellers or trade volume.
As no exchanges are used, there is no counterparty risk. Buying and selling of ERC-20 tokens is done through smart contracts, hence no deposits and no exchanges are needed to make the conversion. No registration is required, and no personal details need to be provided, as the conversion is done directly from your web3 wallet.
The Bancor Protocol is a standard for cryptocurrencies built on the Ethereum blockchain, which the Bancor team calls ‘Smart Tokens’. This system for ERC-tokens to be autonomously and continuously convertible to other tokens in the network at algorithmically calculated rates. The protocol utilizes “connector” modules, which hold balances of other ERC20 tokens within a smart contract. The ‘Bancor Formula’ then constantly recalculates the prices to maintain a balance between Smart Tokens and their connectors.
The Bancor Network Token was launched on June 17th after an ICO was held on the Ethereum blockchain. The Bancor Network Token serves as a reserve token so that any token can be converted to and from BNT, at a rate calculated by the Bancor Formula.
The Bancor Protocol replaces the need of a centralized exchange and makes any ERC-20 token convertible for another. This allows for tokens to be converted without matching two parties with opposite wants. This allows for continuous liquidity regardless of trade volume or exchange listings. This makes it so that any ERC-20 token can be traded for another one and offers price discovery even if a token is not listed on an exchange.
Smart Tokens are a new paradigm in token markets because they incorporate automated and decentralized agents that tirelessly fill conversion orders at prices that reflect mathematical supply and demand, and which adapt to conversion sizes in real time. This introduces multiple advantages over traditional exchange-based trading:
Continuous liquidity: Users can always buy or sell tokens in the network directly through their smart contracts, even when there are only few or no other buyers or sellers in the market. Because prices adjust to conversion size, there is always some price at which a token may be converted. The Bancor Protocol effectively disconnects liquidity from trade volume.
No built-in fees: By default, Smart Tokens do not apply fees to the conversions they execute. The only fees incurred by users are those required to transact with the underlying blockchain (e.g., gas on Ethereum). While Smart Token creators may set an optional usage charge (called a contribution) for conversion via their particular Smart Token, these will likely be very low as the open source nature of the protocol would allow another user to easily create a competing Smart Token offering a similar conversion ability for less. The Bancor Protocol does not require conversion fees for operating profit, but rather benefits from increased adoption as the network of tokens expands and the number of users grows.
Adjustable price sensitivity: The leverage provided by a substantial connector balance and high weight makes the price of that particular Smart Token less sensitive to shortterm speculation or sudden turbulence caused by large orders. For example, a Smart Token with a 10% CW is comparable to an exchange having an order book equal in value to 10% of the token’s entire market cap. This sensitivity can be adjusted via the CW and connector balance to achieve the desired profile of a given Smart Token
No spread: The Bancor Formula applies the same price calculation when handling both buy and sell orders. This contrasts with traditional exchanges where the buy price is always lower than the sell price. The difference between the buy and the sell price, known as the spread, is what allows traditional market makers to earn a profit. As mentioned above, the Bancor Protocol does not require this profit in order to operate, and decentralized spreads may be introduced in order to encourage adoption of the network, benefiting all participants.
As a Smart Token processes conversions, the price will converge toward an equilibrium between buy and sell volumes. For this to happen in a classic exchange model where buyers and sellers are matched to each other, there must be sufficient liquidity for two orders to be reliably matched at any time. This is not a requirement of the Bancor Protocol because Smart Tokens always process buys and sells immediately by converting them via their connector balances, and therefore calculate prices continuously over time. Whereas prices are traditionally calculated for each trade independently (when a buyer and seller are matched), each conversion of a Smart Token progressively and directly impacts its price. This makes Bancor’s price-determination mechanism truly asynchronous.
The Bancor Formula for algorithmic pricing is central to the system’s design and potential because it enables Smart Tokens to consistently determine their own reliable and predictable prices, which is ultimately essential for mass adoption of usable tokens. It is built on the idea, introduced in the previous section, that each Smart Token maintains a ratio between its total value (total supply × unit price) and its connector balance. We call this ratio the connector weight, or CW for short.
Smart Tokens are the heart of the Bancor Protocol. They operate as regular tokens, in compliance with the ERC20 token standard used on the Ethereum blockchain, but include additional logic that allows users to always buy and sell them directly through their own smart contracts at prices that programmatically adjust to reflect supply and demand. Effectively, Smart Tokens come with a built-in liquidity mechanism that ensures they are continuously convertible for other tokens. To achieve this, each Smart Token is configured with connector modules, which hold a balance of another token to which it is connected (for example, the BNT Smart Token has a single connector to ETH, which holds a balance in ETH).
Smart Tokens allow for instant conversion between themselves and any of their connected tokens. This functionality is sufficient for a Smart Token to also become instantly convertible to any number of other tokens which connect to the same network in a similar fashion. In other words, a Smart Token is instantly convertible to any of its connected tokens, and also to any of its connected tokens’ connected tokens, and so on, via the network.
Smart Tokens are the heart of the Bancor Protocol. They operate as regular tokens, in compliance with the ERC20 token standard used on the Ethereum blockchain, but include additional logic that allows users to always buy and sell them directly through their own smart contracts at prices that programmatically adjust to reflect supply and demand. Effectively, Smart Tokens come with a built-in liquidity mechanism that ensures they are continuously convertible for other tokens. To achieve this, each Smart Token is configured with connector modules, which hold a balance of another token to which it is connected (for example, the BNT Smart Token has a single connector to ETH, which holds a balance in ETH).
The Bancor Protocol enables automatic price determination and an autonomous liquidity mechanism for tokens on smart contract blockchains. These Smart Tokens have one or more connectors to a network that hold balances of other tokens, allowing users to instantly purchase or liquidate a Smart Token for any of its connected tokens directly through the Smart Token’s contract, at a price that is continuously recalculated to balance buy and sell volumes
Bancor Network
Buying the BNT token is best done on their very own exchange, the Bancor Network
Bancor works similar to a cryptocurrency exchange, but some differences in its token exchange mechanics make it unique. It came into being in 2016 with an interesting take on the whole process of cryptocurrency exchange. Bancor introduced a new standard called Smart Tokens.
The first and foremost thing you need to know before you start using the BANCOR NETWORK is that the platform doesn’t provide any support for fiat currencies. Before you can even begin converting one token into another, you’ll need to buy a cryptocurrency on your own. You can make use of Coinbase to get yourself sorted.
As far as hardware wallets go, there are two obvious choices- Trezor and Nano Ledger S.
Hardware wallets are also called "cold storage", they are dedicated wallet devices, often in the form of a USB stick. Just plug it in to an internet-enabled device to transfer assets. Even though transactions are made online, the keys are stored offline. Thus, hardware wallets are one of the most secure methods of storing cryptocurrencies, in addition to being portable.
Ledger
As for using the Nano Ledger S, the first step towards setting up your device is unboxing and checking if you have received all the accessories with the device. Once you have unboxed your device, you need to configure it and initialize it before being able to use it. The process is quite simple and will hardly take about 20-30 minutes post which you will be set to use your Ledger Nano S device. This video does a pretty good job at explaining how the setup works.
Trezor
As for Trezor, installing is really simple. To properly install it users should attach the unit to the computer. After that continue with installing the bridge which allows the Trezor to join with the computer. The first step is to connect the Trezor to device’s USB slot with the cable given in the box. After that, go to myTrezor.com and proceed with installing the browser extension. Trezor can also be used on Android or an iPhone, or on a Windows or Mac computer. Now, initiate the extension and myTrezor will direct you to pick a PIN. After this, you will notice nine buttons but the numbers are hidden. After this, users should check the Trezor’s screen to recognize which numbers are in which place because it switches every time. Now set the PIN. Shortly after, Trezor should present a 24-word wallet “seed”. In short, one word at a time. Note down this seed and save it carefully. If your Trezor device malfunctions or is lost, you can utilize the seed to reconstruct the complete wallet. This video explains how to set up your trezor quite well.
Offering integration with both Ledger and Trezor devices, MyEtherWallet is like the de-facto wallet when it comes to storing ERC20 tokens. It is a web-based open source wallet which stores the data on your machine’s browser.
MEW
Simply visit myetherwallet.com and set up your wallet with a method of your choosing, just make sure to store your private key somewhere safe. It's wise to have it written down on paper in case your PC/notebook malfunctions.
The only downside to using an online wallet like MEW is that there are literally hundreds of phishing scams out there to get your coins, so you better double check the address everytime and make sure to watch out for any malicious activity on your browser or PC.
By using the Bancor wallet, users can conduct instant conversions between any two tokens on the Bancor Network without the need for a counterparty on the other side of the trade. This innovative model for automated liquidity, which underlies the Bancor Wallet, allows users to bypass all intermediaries and convert tokens directly from their wallets in a completely decentralized fashion.
Bancor has developed a well-designed interface that incorporates a variety of features expected of a next-generation crypto wallet. These include built-in token conversions, detailed token charts, and free transfers in and out of the wallet. The Bancor Wallet supports 500+ ERC20 and EOS tokens. Bancor also provides users with free EOS accounts and enough EOS resources (RAM, CPU, and NET) to start converting tokens.
The user experience of the Bancor wallet resembles that of Coinbase and other popular custodial wallets in that users can manage and convert tokens in a slick, intuitive app. But behind the scenes, users of the Bancor Wallet transact directly with smart contracts on the blockchain and remain in full control of their funds and private keys at all times.
