What is Binance Coin (BNB)
- Real Vision
- December 8, 2021
- 2:32 PM
Binance Coin (BNB) is the native cryptocurrency of the Binance Chain and the Binance Smart Chain. The Binance Coin powers the Binance ecosystem and is used to pay for transaction fees on the Binance exchange and as gas for the Binance Chain and the Binance Smart Chain (BSC). Holding large quantities of BNB also qualifies traders to profit from discounted trading fees. At the time of writing (August 2021), Binance Coin is among the top ten cryptocurrencies with a market capitalization in the billions.
Who created Binance coin?
Binance Coin was created in 2017 by Binance, which is currently the leading cryptocurrency exchange worldwide. The name ‘Binance’ has a simple origin, it is simply a combination of the words ‘Bitcoin’ and ‘Finance’. The company was founded in 2017 in Hong Kong, but soon after moved its operations to multiple locations around the world such as Malta and the Cayman Islands in response to China’s tightening regulations on cryptocurrencies.
Binance Coin was first launched as a token on the Ethereum blockchain during an initial coin offering (ICO) in July 2017. The token sale offered 100 million tokens, which represents 50% of the total BNB supply, for a price of around $0.11 USD per coin. The other half of the coins were sold to angel investors (10%) or remained with the founding team (40%).
Although initially launched on the Ethereum blockchain as an ERC-20 token, in April of 2019 the tokens were swapped on a 1:1 ratio onto the newly launched Binance Chain. From then on, the BNB coin was Binance Chain’s native cryptocurrency.
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Why Was binance coin launched?
Initially, BNB was launched as a utility token for the Binance exchange. It allowed users to get a 50% discount on trading fees when paying with BNB (currently 25%). Moreover, traders were incentivized to buy and hold BNB by granting further discounts on fees for holding large quantities of the cryptocurrency. Soon after, Binance also launched collaborations with multiple service providers to allow BNB holders to pay for hotels, flights, virtual gifts or credit card payments with the cryptocurrency.
the purpose of Binance coin
After the launch of their own blockchains, Binance Chain in 2019 and Binance Smart Chain in 2020, BNB now has an additional, fundamentally different use case as gas. Like Ether for Ethereum, BNB is now the native asset of two interlinked blockchains and has to be spent for every transaction made on these blockchains. Consequently, its price is now in large parts dependent on the success of these underlying blockchains.
Especially the launch of the Binance Smart Chain (BSC) in April 2020, which allows for smart contract functionality similar to that of the Ethereum blockchain, proved to be an enormous success. Since fees for DeFi applications on Ethereum grew significantly higher than on the Binance Smart Chain, many new DeFi projects launched on BSC. In just a year’s time, BSC had overtaken Ethereum in terms of daily transactions by a magnitude of 5x-10x. This enormous growth is also reflected in the BNB price, which has exploded by 10x since the beginning of the year 2021.
Today, according to Binance, the Binance Coin has a multitude of uses cases, among which are:
- Trading fees for Binance exchange
- Trading fees on Binance Decentralized Exchange
- Transaction fees on the Binance Chain and the Binance Smart Chain
- Paying for goods and services for both online and in-store purchases (e.g., using Binance Credit Card or Binance Pay)
- Participating in token sales hosted on the Binance Launchpad
Therefore, as long as the Binance product offering retains existing user and DeFi projects as well as attract new ones, the demand for BNB can be expected to remain strong, which allows investors to participate indirectly in the company’s success.
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Coin burn
Although BNB was launched through an ICO, it does not provide holders with a claim on Binance profits, nor does it represent a stock or investment in Binance. Its price is simply based on the supply and demand of the coin, which again is linked to the above listed use cases. Nevertheless, the founders of Binance and creators of the Binance Coin decided to let BNB holders participate in the success of Binance. This is done through a mechanism called ‘Coin Burn’.
A coin burn is the process of permanently removing coins from circulation, thereby reducing the circulating as well as the total supply. Binance has committed to burn (destroy) BNB coins every quarter based on the trading volume performed on the Binance exchange within a 3-months period. After each quarter, Binance performs a BNB burning event destroying the respective quantity of coins.
During the last coin burn in July 2021, 1’296’728 BNB coins with a value of $393’673’654 were destroyed, which amounts to 0.65% of the total coin supply. In total, 16% of the 200 million coins have been burned so far. Binance will continue these burns until 50% of the coin supply (100 million coins) are burnt, leaving only 100 millions coins in circulation.
For BNB holders, this mechanism has similar benefits as a company’s stock buyback for its shareholders. As the total coin supply is reduced, the price of a single coin rises all things equal. BNB holders thereby benefit from and participate in Binance’s success, even though they technically don’t have any claim on profits or dividends.
Binance Chain vs. Binance Smart Chain
In conclusion and to avoid confusion when handling BNB, we are going to take a look at the basic differences between Binance Chain and Binance Smart Chain. BNB can be sent, received and stored on both blockchains. But why are there two chains and what distinguishes them?
The Binance Chain was launched to run and transact the Binance Coin. The design is optimized for fast transactions on the Binance Decentralized Exchange and to create digital assets. In order to meet these requirements, the structure of the Binance Chain was configured in a highly specific way, only allowing for limited smart contract functionality. Binance Chain uses the BEP2 token standard.
The Binance Smart Chain (BSC) was built for smart contracts, decentralized applications and cryptocurrencies. It runs parallel with the Binance Chain, but is not considered a second layer solution or sidechain, as it can operate independently from the Binance Chain. It is Ethereum Virtual Machine (EVM) compatible, which allows for a simple migration of Ethereum projects onto BSC. BSC uses the BEP20 token standard.
When transfering BNB from the Binance exchange, a user has the option to send it over the Binance Chain (BEP2) or the Binance Smart Chain (BEP20). Depending on which blockchain the recipient’s wallet is, users either have to send it to a Binance Chain address or a Binance Smart Chain address.
To help users distinguish between the two blockchains, they use a slightly different logo. Binance Chain uses a white icon over a yellow circle, while Binance Smart Chain uses a yellow icon over a black circle. To avoid confusion, which worst case could result in a loss of funds, it is strongly recommended to double-check the blockchain and recipient address before transfering BNB coins.