The name Bancor was inspired by economist John Maynard Keynes. Keynes had an idea in the 1940s of a unit of account that could be used to track the flows of assets and liabilities. The Bancor Network expands on this idea, allowing for the exchange of cryptocurrencies without the need for an exchange. You can convert your coins without the need for a buyer or a seller. Bancor can act as a reserve token for the rest of the tokens in the industry. In doing so, the Bancor Network hopes to ease the interoperability of cryptocurrencies as well as increase their liquidity.
How does the Bancor Network work?
Bancor envisions a world quite dissimilar to that of Bitcoin maximalists. Even the name Bancor would irk some BTC maximalists as it is derived from Keynes, who himself has never been a pin-up boy for the largely Austrian School of economics that many Bitcoiners follow. The Bancor Network anticipates a world of thousands of different cryptocurrencies. Through its network, it hopes to add much needed liquidity to many of these coins.
With the use of smart contracts, one can exchange an ERC-20 token such as BAT for a smart token through the Bancor protocol. This means that there is no need for an exchange to help with the process or even another person to be involved.
If in the future there were numerous such tokens but not many buyers or sellers, the Bancor Network could fill in the gap and do the trade for you using its platform.
The Bancor Network has recently released a new mobile wallet that will allow for the conversion of EOS tokens as well. It hopes the new wallet will allow for increased interoperability between different blockchains and their relevant tokens.
The Bancor ICO
The Bancor Network ran an ICO that finished in June 2017. The token price at the time was $3.92, and the ICO raised $153 million. Bancor’s token, BNT, is available on some of the biggest exchanges including Binance, Bittrex, and Poloniex. BNT is an ERC-20 token running on the Ethereum blockchain. This means that it is not possible to mine the token, but as it is an ERC-20 token, it means that it can easily be exchanged with other ERC-20 tokens, which is ideal for the aim of the Bancor Network.
Bancor had some big hitters involved in the company from the get-go. Tim Draper, the venture capitalist and cryptocurrency evangelical, was one of the early investors in the network.
Recent price action
At the end of the 2017 bull run, BNT reached an all-time high of over $10 – much more than the initial ICO price. However, like every other cryptocurrency since, it has been in a downward spiral. The price currently sits at $0.59, with a total market cap of $37 million. The coin has reached prices as low as $0.48. Should another bull run occur, it would take a lot for Bancor to reach the highs of January 2018, although stranger things have happened.
Criticisms
Bancor has received its fair share of criticism. Firstly, critics argued that Bancor doesn’t necessarily need to use a blockchain to achieve its goals. Criticism also arises from the belief that Bancor works like a decentralised exchange.
These issues were brought into the spotlight when a hack took place in June 2018. According to the team, “a wallet used to upgrade some smart contracts was compromised”. In the hack, Bancor lost around $20 million – some of this was Ethereum and some of it was Bancor’s own token BNT. Projects on Ethereum are not immune to hacks. The complexity of the Ethereum network has shown this many times in the past.
The hack highlighted other key issues though. As it turned out, Bancor was/is able to freeze customer funds as well as lose them. The idea of Bancor being decentralised was therefore questioned more than ever. Bancor argues that in a state of emergency, these abilities are “necessary to protect the network and token holders”. The issues have been highlighted by prominent members of the industry including Litecoin creator Charlie Lee. In essence, if Bancor was truly decentralised, then it would not be able to have the ability to freeze customer funds.
A Bancor wallet got hacked and that wallet has the ability to steal coins out of their own smart contracts. 🤦♂️
An exchange is not decentralized if it can lose customer funds OR if it can freeze customer funds. Bancor can do BOTH. It's a false sense of decentralization. https://t.co/22UYygIhEF
— Charlie Lee Ⓜ️🕸️ (@SatoshiLite) July 10, 2018
Conclusion
Whether you like or dislike Bancor will depend on how you see the industry evolving in the years to come, as well as your view on the attack it received from hackers. For many Bitcoin maximalists, the future is of very few cryptocurrencies – ideally just Bitcoin. However, if the future turns out to be one of many varieties of cryptocurrencies, then Bancor could be a useful tool in providing liquidity.
The fact that Bancor has the ability to freeze customer funds though goes against the decentralised nature of cryptocurrencies. If you choose to buy some BNT, then you have to be willing to accept this compromise.
Like any cryptocurrency investment, risk management and doing your own research is key.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.