Bancor Network is a decentralized exchange on Ethereum’s blockchain. Its token — Bancor — was among the first tokens to be released in the DeFi industry. DeFi is short for decentralized finance –– DeFi replaces traditional banking operations with code on the blockchain.
This code, called smart contracts, can hold cryptocurrencies on Ethereum’s blockchain. The terms of the smart contract are set in code, allowing a secure and trustless transaction without a 3rd party.
Bancor offers a new and innovative way to exchange cryptocurrencies without the need for a centralized cryptocurrency trading platform. Using a Dex (decentralized exchange) can be more secure, liquid and less expensive than a traditional cryptocurrency exchange.
What is Bancor Network?
Bancor Network is a series of smart contracts on Ethereum’s blockchain. These smart contracts are what allow you to exchange your crypto without using a centralized exchange.
Bancor Network’s smart contracts are used to provide liquidity for investors that want to exchange their tokens. Anyone can put ERC-20 tokens into a liquidity pool on Bancor and earn interest on their deposit. This interest is generated by transaction fees on Bancor’s exchange.
Traditional crypto exchanges use order books to match buy and sell orders between users. This works well for large market cap coins that are highly liquid, but this kind of market making creates it hard to exchange less liquid cryptocurrencies.
With Bancor liquidity pools, there is always a constant liquidity for all supported ERC-20 tokens. Since Bancor is a smart contract protocol on Ethereum, you can only exchange Ethereum-based tokens on the network. To trade bitcoin on Bancor, you need to purchase Wrapped Bitcoin (WBTC) which is just bitcoin on Ethereum’s blockchain.
Bancor has an in-depth explanation of how liquidity pools work on its website.
Brief History of Bancor
Bancor released its initial coin offering (ICO) in December 2017. As one of the most promising ICOs of the year, Bancor raised $153 million in capital in the first 3 hours of its ICO. Bancor was founded by Eyal Hertzog, Guy Benartzi, Yudi Levi and Galia Bernatzi.
Bancor Network got its name from the idea of a supranational currency proposed by John Meynard Keynes in 1944. Keynes proposed the idea of a supranational currency to be used as a measure for international inflows and outflows of assets.
How to Buy Bancor Network Token (BNT)
Bancor Network Token (BNT) is an ERC-20 token built on Ethereum’s blockchain. BNT has 2 main functions: to provide liquidity and govern the protocol. Currently, BNT is trading for $3.52 with a total market cap of $446 million.
Because Bancor is decentralized, no single entity owns the protocol. Instead, Bancor is used as a governance token to vote on upgrade proposals on Bancor’s network. Users who own BNT have voting rights proportional to the amount of BNT they own.
Bancor Network Token is paired with other ERC-20 tokens in liquidity pools. BNT acts as an intermediary currency, similar to Keynes’ idea of a supranational currency. If you want to exchange Ethereum for Wrapped Bitcoin, for example, the smart contract would sell your Ethereum tokens for BNT, then buy Wrapped Bitcoin with the newly purchased BNT.
Step 1: Open an online account.
You don’t have to use Bancor’s exchange to buy BNT. Some centralized exchanges like Coinbase, Binance and Bittrex support Bancor. Centralized exchanges are easier to use, especially if you already have a crypto brokerage account. Most investors that don’t want to use Bancor’s decentralized exchange choose Coinbase to buy BNT.
When you make an account with a cryptocurrency brokerage you need to give them your personal information. Typically, exchanges will want a record of your address, Social Security number, phone number and email address. If you choose to use a decentralized exchange like Bancor or Uniswap, all you need to do is connect an Ethereum wallet.
Step 2: Buy a wallet (optional).
No matter which exchange you choose to buy Bancor on, it’s a good idea to store them in a cryptocurrency wallet. You could keep your tokens on the exchange you purchase BNT on, but this is less secure than storing your investment in a cryptocurrency wallet. Software wallets like Coinbase Wallet and Metamask are good choices for many investors, but hardware wallets offer the highest security.
If you’re investing a significant amount of money into cryptocurrency, you should purchase a hardware wallet. Hardware wallets are physical devices that store your cryptocurrency offline, so there’s no way for hackers to access your funds.
Best Hardware Wallet: Ledger Nano S
The Ledger Nano S is a small USB-shaped device that stores bitcoin and several other cryptocurrencies. Holding your cryptocurrency on this and holding it in a safe is just as safe as holding precious metals or cash in a safe, as your cryptocurrency will be inaccessible to hackers.
Ledger offers a variety of hardware and software products, but the Ledger Nano S is the best wallet for the price. If you want the best Ledger wallet on the market, look to the Ledger Nano X. No matter what Ledger wallet you use, they all offer industry leading security features. All Ledger products can be used with Ledger’s app which you can use to easily track your crypto holdings.
Best Software Wallet: Coinbase Wallet
Coinbase Wallet is a software wallet app made by Coinbase. Coinbase Wallet is a great choice for investors who use Coinbase’s exchange, as they have similar user interfaces.
Using Coinbase wallet is more secure than storing your funds on an exchange, and the wallet allows you to interact with decentralized applications (dApps) to earn interest on your crypto holdings.
Step 3: Make Your Purchase
Once you choose a software or hardware wallet to store your crypto on, you need to purchase your Bancor Tokens. You can either use a centralized exchange like Coinbase or Binance, or you could use a decentralized exchange like Bancor or Uniswap.
The benefit of centralized exchanges is their ease of use. All you need to do is make an account with the brokerage and then place a buy order. To use a decentralized exchange, you need an ethereum wallet extension on your google browser. The most popular wallet extension is MetaMask.
Just like purchasing a stock on the stock exchange, you can place your order as either a limit order or a market order. When you place a limit order for BNT, you set the price you want to buy BNT at, and if a sell order is placed at that price then your order will be filled. Alternatively, you could buy BNT with a market buy order, which buys BNT at its market price
Trade or Sell Your Cryptocurrency
Your Bancor tokens will be credited to your account shortly after your buy order is filled. Once you see your funds in your account, you can send your BNT to any Ethereum wallet using your wallet’s address.
If you’re planning on actively trading your BNT, you may just want to keep it on the exchange you purchased it on. Every time you transact on Ethereum you have to pay a transaction fee called ‘gas’. With more people transacting on Ethereum’s network, gas prices are commonly over $10 per transaction.
If you’re investing in BNT for the long term or with significant amounts of money, you should use a hardware wallet to keep your funds safe. There have been several cryptocurrency hacks throughout history, and your funds are at risk if they’re kept on an exchange.
Current Crypto Prices
You’ll want to familiarize yourself with the cryptocurrency markets before purchasing BNT. Cryptocurrency markets are generally much more volatile than the stock market, and most cryptocurrencies move up and down together. Even just watching Bitcoin will give you a general idea of how the cryptocurrency market is doing.
Here are some of the top cryptocurrencies to give you an idea of how the markets are moving:
Bancor Network’s Competition
Many other decentralized exchanges have entered into the market since Bancor Network’s release in 2017. Uniswap is the largest decentralized exchange by market volume, doing more transactions on some days than Bitcoin. More people use Uniswap than Bancor because of Uniswap’s competitive fee structure.
Other competitors like 1inch have taken some market share from Bancor. 1inch is a DeFi protocol that aggregates liquidity from different decentralized exchanges to find you the best rate to exchange your tokens at.
Bancor Network’s niche is small market cap and less liquid tokens. These coins are often inefficient to trade on exchanges, as buy and sell orders affect the price of the coins too drastically, and many exchanges don’t support these smaller coins.
With Bancor, users can make their own liquidity pools, so any Ethereum-based token can be supported on the platform. And you don’t have to worry about exchanges de-listing your coin, like U.S. based exchanges have done with Ripple (XRP) following the SEC filings.
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