You've probably heard about the Bancor ICO, which managed to raise $153 million in 2.5 hours.
- But why did so many people invest so much money in this project?
- What is the value they saw?
1. It serves a real need
So what is Bancor? It is a technology that democratises the issuance of digital currency. That means people like you and me, and every other non-technical person out there, will be able to create their own currency and use it freely.
Who would want to issue their own currency? Lots of people want to do it, and have been doing it already. But Bancor will allow even the non-technical to do it. I'll do another piece with use cases and link it here.
2. It captures the long tail of the market
Remember before YouTube? Who was publishing video? The TV stations, right?. They had writers, anchors, producers, videographers, editors, etc. Those were, and still are, the big players. You can compare them to Bitcoin, Ethereum, Ripple, etc. in the cryptocurrency world.
But when YouTube came to the scene, everyone suddenly was able to create and publish video content to the world. Everybody could start a channel. And nowadays everybody can even broadcast live to a global audience. These are the small players.
The long tail means that the small players' cumulative views are orders of magnitude higher than the big players'.
So the market is in the long tail. Bancor by being a platform aims to capture that long tail of digital currencies.
3. Their technological solution is genius
If so many people create their own currency, it's safe to say that the vast majority will be really small tokens, used in restricted communities.
That poses a new problem...
Many of the tokens will have zero liquidity at a particular time, which means that if only a few people use coin X, and I have coin X and want to sell it, I might not find anybody to buy it. This disincentivizes token creation and lowers a token's value.
Would you buy a token that you would get stuck with?
So the Bancor team figured out a way to liquidate a token without the need to find a counterparty to buy it. It is done through a smart contract on the Ethereum network, that holds a reserve at all times. That reserve is in a different currency.
When you want to buy token X with ETH you send the ETH to the smart contract, which keeps it in reserve and issues you the X token. When you want to sell token X for ETH, you send it to that same smart contract, which liquidates it and returns ETH to you.
Based on these buy & sell dynamics, the price of X would rise or fall similarly to the way it would behave on an open exchange.
So bancor solved the liquidity problem for the small tokens in the long tail. Even foreseeing this problem is genius, let alone solving it.
4. Great premise for a network effect
There have been a lot of voices criticising Bancor's use of a new token, the BNT, as the reserve for tokens created on their platform. "Why not just use ETH?" people are asking.
They could have used ETH to serve the same function. But so could every other Dapp on Ethereum. So why don't they?
Because the use of their currency brings value to their project and investors. And you need happy investors to fuel the project.
The more smart tokens that use BNT tokens in reserve (which will be the default setting), the more valuable and more in-demand the BNT token becomes. As the value of BNT rises, so too does the value of every smart token holding BNT in reserve. This is called the network effect.
5. They have the money to fund the development
Believing a project will fail because it has some flaws, is really short sighted. Of course it has flaws, it's pioneering tech!
But don't forget the team has more than ETH 300K to fund the project. That is a lot of leeway.
6. Some of the best and most clearly written Solidity code
Nick Johnson - Core developer for the Ethereum Foundation had this to say about an article criticising Bancor:
"While I disagree with a lot of what's written there, the one point that struck me as legitimately unfair was the criticism of the quality of the code. I don't know what code they were reading, but the Bancor code I audited is some of the best and most clearly written Solidity code I've seen."
7. Good branding
A lot of dapps are coming out... And most of them have really bad design, bad copy and bad overall branding. Bancor is one of the few that have it together.
Good name, based on a real historic concept. Professional design language that creates trust. Clear articulation of the technology, that makes it easy to understand, despite its high level of complexity.
8. Experienced team
The team behind Bancor is built of serial consumer Internet technology entrepreneurs with decades of experience working together, raising venture capital, growing companies to Internet scale, bringing products to market, reaching critical mass, mergers and acquisitions, and even a few wind downs.
Some of their companies included Contact Networks (one of the first social networks), MetaCafe (the largest user-generated video sharing site before YouTube with over 50 million active users), Mytopia (the first developer of multiplayer games for PDAs and Smartphones), Particle Code (a cross-platform development environment for mobile and web applications) and AppCoin (a pioneer in digital community currencies with over a million real item transactions logged.)
So the person issuing the token on selling it doesn't get any of the value? It all goes into the smart contract, reserved for buying it back?
Why would a company use bancor for their ICO if all their required capital is locked up in a smart contract permitting their investors to cash out?
What am I missing?
They do get value. If your ICO has a 10% BNT reserve, the other 90% of value captured is actually credit created. So basically you add 1 BNT to the reserve but the market cap of the project is 10 BNT.
Thanks Paul. A few weeks too late d:
But others will no doubt benefit from this answer :)
Thanks for sharing, but fundamentally if it's 40 lines of code any copycat can duplicate the effort.
That is only the smart contract. They have a pretty cool platform. You can test it out: https://app.demo.bancor.network
The concept seems interesting, because the average Joe can feel the power to have it's own currency. If it is backed up ETH it is good, else it will have the liquidity problem, because to be honest who wants to keep a coin where the total value is in a couple of satoshis.
I'm still curios , if you trade back your token, will Bancor keep it or take it out of use? And how the scams can be prevented? Because lately with the heath coming from the market, not only enthusiast will join, but also wrongdoers. Okay, the market will self regulate it.
I might buy BANCOR, but will wait for 2 months to see how it behaves. Maybe I'm to conservatory for this new market.
Thank you for the info
If you liquidate the token, the smart contract destroys it. Scams can't be prevented... the same way fake news can't be prevented on blogs. That doesn't mean blogs are a bad idea, does it?
Of course not! Thanks for the info.
Honestly, I see this as a great idea. When people think about cryptocurrency, they imagine Bitcoin, Ether, Ripple, etc. But fail to think about the long tail. Yes, it's important to have Bitcoin, as it's to have the USD or Euro, and others. But think small here, think of a westside market for example. People selling their own goods, straight from the farmer to the consumer, because they want you to enjoy fresh out of the land products.
They could create a token to trade these products. Let's call it MRK Coin.
And you can think, well, but why would I get MRK when that coin can only be used in the Westside market?
That's where Bancor solve the liquidity problem and the ability to use a decentralized platform to exchange MRK into any other token (coin) or to simply sell back the MRK you didn't use at the Westside Market. How? Simple; because each token created will have a reserve in another token. Like BNT or ETH etc. So, think of this as an insurance where you won't simply buy a new token that nobody knows of and that has no value. Instead, new tokens have their liquidity problem solved. Therefore, you know that you are investing in a token that will guarantee you products from the Westside market, but also that you can exchange, or sell back and have your money back.
Bancor idea is innovative, and as such, it's difficult for some people to comprehend and even to adapt to it. But think of Tesla for example, how many people believed in them when they started? To the point that they almost disappeared, yet look at them now. Leading the cause into renewable energy. Bancor comes to solve a problem that we are having in cryptocurrency today. The max explosion of new coins that offer virtually no value, and that many times only the developers end up making real money. How many people are investing in coins that have no concept or use at all? Other than, hey, here I am, buy me, I am the new Bitcoin. Bancor idea is a genius one, and will attract the average investor to the ecosystem, you know, those who are not programmers or tech savvy.
Well said @willsann! Thanks for the detailed comment.
How do you manage to keep an eye on so many thuings happening in cryptocurrency world? I feel like I'll never be able to understand things in due time, until new stuff get into pole position:)
I'm passionate about this stuff, so I read about it 😀
I understand their perspective and value them, as classic examples of how they arose
Google, Apple, Microsoft, etc.
But.
I believe that being able to: "create our own currency", is a fact that
Sounds crazy, uncontrolled and unnecessary as easy as it sounds even with
The support of BANCOR. Currencies must have a specific purpose valued and
Accepted by most of the miners. I just hope that the FINAL PLAN of BANCOR,
Do not get to facts like the MODERN CAPITALISM, that we want so much to detach ourselves
Of the current.
The decision is in each of us, our freedom is in our hands.
Create your own currency sounds no more crazy than create your own news oultlet (blog) or craeta your own TV channel (YouTube).
Money is a tool that facilitates commerce, and it should be democratised.
I agree that money is a tool that facilitates trade and must be democratized.
Precisely against that, BANCOR is born, we must inform ourselves to investigate very much before making any type of inversion (you can check its source code to verify it).
Thanks sounds like a good idea to invest in Bancor
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I don't see any usefulness for every Tom, Dick and Harry creating their own currencies. It will give rise to a lot of scams and ponzi schemes.
Also Emin Gun Surer seems to disagree that the code is well written http://hackingdistributed.com/2017/06/19/bancor-is-flawed/
His article is a blatant display of ignorance. Check the comment section of his article to see the discussion I had with him.
to be onest, I don't have a good feeling about that idea, but ... who knows...
I have a great feeling about it 😀
If you don't put money in Bancor, you're really gonna miss the boat. It should be obvious to us as early adopters/innovators of crypto that a system of easy transactions will bring in the normies (general public). Forget the "create your own currency" part; what do you get? Bancor is THE means of decentralized exchange, and its reserve asset (BNT) will increase in value as more people use/ move money into the network. Net effect: crypto transactions are cheaper (arbitrage reduction), easier to send/receive and as the market cap of the ENTIRE crypto space comes into Bancor, exchanges will pull the rug out from under current investors and the value of Bancor (BNT) will rise with the tide. Buy! Buy! Buy! It's like living in the mid-80's all over again! (Just with bigger food lines). http://demonocracy.info/infographics/usa/food_stamps/food_stamp_nation-SNAP.html
It is an interesting idea for sure but I'm curious as to who exactly would want to create their own token? Wouldn't you want to use a cryptocurrency that everybody is using so you have a larger customer base? I can see it in a corporation that has basically an entire town for their staff or something, to have their own private economy so to speak but generally I can't imagine it for the normal Joe. Kindly enlighten me on this.
Thanks,
https://steemit.com/bancor/@danizaharie/smart-tokens-the-next-step-in-cryptocurrency
Solid article. Interesting to see I'm not the only one that is thinking about this. The future is in blockchain. Crypto prices might be inflated now but the market will find it's way just like it did with the Internet boom. We really need more insights in the market and previous investment results (even though they don't deliver any guarantee for the future). I was wondering if anyone of you uses: https://www.coincheckup.com They give great insights in the team, the product, advisors, community, the business and the business model and other techincal insights. Check for example: https://www.coincheckup.com/coins/Bancor#analysis For the Bancor Detailed report.
Hey,
We've just finished reading your article "Why Bancor Will Work?" and thought it was great! We'd love to share this through our channels and also wanted to offer you to submit this to our bounty program. Our BNT Content Creation bounty is a great way to share your articles directly with us and get rewarded as well! You can check out the program here:
https://app.bancor.network/communities/598316484a9337220fb7b88d
If you decide to submit your article, please add a note that you spoke with someone from the team and the bounty manager will immediately approve and award your submission!
Thanks for sharing,