Binance Coin (BNB) is the native cryptocurrency token of the Binance Chain and performs a wide range of transactional functions on the network. The uptake in global usage of Binance Coin reflects the popularity of the Binance exchange which has become one of the world’s largest cryptocurrency exchanges by trading volume.
The Binance Exchange was launched in 2017 by Changpeng Zhao, who brought a background in high frequency trading and digital asset exchange markets to his role as CEO. The Initial Coin Offering (ICO) of BNB raised $15 million in funding within three weeks; the coin was launched on the Ethereum blockchain but has since moved to its custom chain, the Binance blockchain, with an original cap of 200 million tokens. The Binance exchange scaled from 3 to 6 million users in its first 6 months of operation and is made up of three platforms: the spot market, the futures market, and the decentralized exchange: Binance DEX.
Binance was founded in China but moved to Japan in late 2017 as a result of the Chinese government’s strict ban on cryptocurrency trading. Binance subsequently moved its headquarters to Malta in 2018 as a response to increased cryptocurrency regulation across East Asia. As it has moved its headquarters many times, Binance is aiming to retain the decentralization benefits of cryptocurrency while avoiding some of the regulatory challenges that affect other exchange platforms.
In order to maintain its scarcity and value, Binance Coin goes through quarterly ‘burns’ in which 20% of Binance’s profits are used to buy back BNB tokens – which are subsequently destroyed. Binance will continue regular burns until 100 million tokens (50% of BNB’s 200 million total) have been destroyed.
Binance Coin was created to pay transaction fees on the Binance Exchange but its value and functionality has since expanded beyond the platform to power the developing Binance ecosystem. Practically this means that BNB can be used on-chain, on third-party exchanges, for real world payments, and in a range of research and development projects and the recently released Binance Smart Chain (BSC).
Currently, BNB can be used in the following Binance platform contexts:
● Trading fees: BNB’s initial use was to pay discounted trading fees on the Binance blockchain in much the same way that ETH is used to pay fees on the Ethereum Blockchain.
● Trading discounts: At launch, users that paid their trading fees with BNB received a 50% discount. That discount is currently set at 25%.
● Account tiers: Users that hold greater amounts of BNB and that have been trading for at least 30 days have access to certain ‘VIP’ tiers’ within the Binance ecosystem, including additional trading fee discounts.
● Cryptocurrency trading: BNB is a tradable token and can be exchanged for other crypto tokens at market value on Binance DEX and on third-party exchanges.
● Non-tradable conversion: Users that have amounts of non-tradable cryptocurrencies held in their Binance accounts (known as ‘dust’) can convert those currencies to BNB.
● IEO lotteries: Binance schedules Initial Exchange Offerings (IEO) as lotteries in which users can claim lottery tickets based on the amount of BNB tokens they hold. Each winning ticket awards a certain amount of BNB tokens to the holder.
● Governance: BNB holders have governance rights over the BNB blockchain depending on the amount of BNB they have staked.
BNB Payment Options: BNB can also be used in off-chain payment contexts and is accepted in a variety of markets. In practice, BNB is accepted by merchants around the world as payment for travel services including hotel stays and airline tickets, entertainment services including music and gaming, and financial services such as loans and investment products.
Binance Smart Chain: The Binance Smart Chain (BSC) was launched in September 2020 as a parallel blockchain to the original Binance Chain. BSC is a smart contract platform that is compatible with the Ethereum Virtual Machine (EVM). This means that Ethereum tools, applications and other infrastructure can be ported and used on BSC. Binance Chain and BSC are interoperable as they make use of similar architecture. Hence, asset transfer is possible between the two chains.
BSC implements a variant of Proof-of-Stake, called Proof-of-Staked-Authority (PoSA). PoSA on BSC consists of 21 validators. This is a deliberate design choice which prioritizes scalability over decentralization. In comparison, other networks such as Bitcoin and Ethereum, prioritize decentralization, and consist of many thousands of active nodes which has an impact on scalability.
Binance’s stated vision is to ‘increase the freedom of money’ with the development of BNB products which serve as a ‘foundation’ for growing the ecosystem. To that end, Binance has committed to an Open Platform initiative that will see businesses use the platform as infrastructure for their cryptocurrency projects. Examples of Open Platform projects include the Binance Broker Program which provides order-matching, account management, and settling systems to businesses, and Binance P2P: a peer-to-peer marketplace that is expanding to include a variety of new cryptocurrencies and facilitate trading in new global markets.
Binance also runs Binance Labs: an initiative to identify and invest in promising new blockchain entrepreneurs and start-ups that can benefit and grow the ecosystem.