Binance is the largest centralized crypto exchange (CEX), far larger compared to competitors such as Coinbase and Kraken. This company made a significant impression in the global crypto industry within a few years. Not only has Binance become the largest crypto trading platform, but its native BNB Coin also has one of the highest market caps in cryptocurrency.
Even if crypto investors don’t use Binance, it’s impossible to ignore the size and impact of the BNB Coin. Learn what the BNB Coin is and how it affects the crypto industry and the Web3 ecosystem.
What is the BNB Coin?
Before explaining the basics of BNB Coin, it’s essential to review what Binance is.
Founded in 2017, Binance is a CEX that offers crypto trading services in hundreds of nations. Computer scientist and early Bitcoin investor Changpeng Zhao (aka CZ) led Binance to become a top-tier crypto exchange. It handles an average daily spot trading volume of $19 billion (at the time of writing), making it the most active CEX.
To raise funds in its early history, Binance issued its “Binance tokens” using the Ethereum blockchain’s ERC-20 standard. In a 2017 ICO (initial coin offering) sale, early investors had access to 120 million Binance Coins, while the remaining 80 million went to Binance’s staff and treasury.
Besides attracting capital from angel investors and venture capitalist firms, the Binance Coin offered incentives to Binance account holders. Anyone who bought Binance Coins could take advantage of crypto trading discounts. Binance Coins also gave holders access to exclusive ICOs on Binance’s central portal.
In 2019 and 2020, Binance released two blockchains on the Cosmos network in its BNB Chain ecosystem. As of 2020, the two blockchains in the Binance network are the BNB Beacon Chain and the BNB Smart Chain (BSC). The primary difference between these two is that the BSC connects to Ethereum through the Ethereum Virtual Machine (EVM), allowing developers to easily create dApps (decentralized applications) with smart contracts. Alternatively, both blockchains use proof-of-stake (PoS) with BNB Coin as their primary cryptocurrency. Traders using dApps on either BNB Chain need to pay network fees with BNB Coin.
Binance re-named the “Binance Coin” to “BNB Coin” in 2020 to highlight the crypto's new application.
What is BNB Coin used for?
BNB Coin gained prominence because of its growing list of use cases. People don’t need to sign up for Binance to use BNB in Web3. And as Binance expands its reach, more investors view BNB as a speculative long-term investment. Here are some of BNB Coin’s applications:
- BNB Chain transaction fees: All dApps built on the BNB Beacon Chain and the BSC charge gas fees (paid in BNB Coin). Also, many of these dApps use BNB Coin as their primary currency. So have BNB Coins in your crypto wallet to use the BNB Chain’s DeFi (decentralized finance) dApps, play-to-earn games, or NFT (non-fungible token) trading sites.
- Staking rewards: Although it’s expensive to become a validator on the BNB Chain, you can delegate BNB Coins to earn staking rewards. People who send BNB Coins to a staking pool receive a portion of BNB rewards.
- E-commerce spending: Since Binance is an influential crypto exchange, it partners with many e-commerce retailers. The company also offers debit card services and a merchant payment portal called Binance Pay.
- BNB trading fee discounts: One of BNB Coin’s benefits is reduced crypto trading fees on Binance’s main website. People who use BNB to trade crypto on Binance typically enjoy a fee discount of at least 20%.
- ICO privileges: Sometimes, Binance offers BNB Coin holders perks such as special access to new crypto projects and ICO advantage on the Binance exchange or within the BNB Chain ecosystem.
- Store of value investment: BNB Coin typically ranks as one of the most valuable cryptocurrencies, and Binance follows a regular coin-burning schedule to remove BNB Coins from circulation. These features make BNB Coin an attractive long-term investment for some crypto “hodlers.”
What makes BNB special?
On the surface, BNB may not differ from other CEX-issued cryptocurrencies. After all, crypto exchanges such as KuCoin, Crypto.com, and Huobi also offer tokens with similar use cases. However, BNB Coin comes with a few unique features, such as:
- Automatic BNB burns: Before the BNB Smart Chain’s launch, Binance spent a portion of its profits on BNB Coins and burned them every quarter. The company still burns BNB Coins, but it now uses an “auto-burn” algorithm, which automatically determines the number of BNB Coins to burn by analyzing the crypto’s current price and the new blocks on the BNB Smart Chain. Binance plans to burn its cryptocurrency until there are 100 million BNB Coins.
- Proof-of-Staked Authority (PoSA) system: The BNB Chain uses a privileged consensus system called PoSA. Instead of allowing anyone to participate in the BNB Chain, Binance screens validators for security and requires them to lock at least 10,000 BNB Coins. While this system makes it difficult for most investors to run a node on the BNB Chain, it increases the speed of the BNB Beacon Chain and the BSC.
- Low gas fees: The PoSA consensus mechanism charges traders just a few pennies as gas fees compared with other consensus algorithms.
- Flexibility for dApp developers: The BSC’s EVM compatibility enables developers building on Ethereum to easily port their dApps to Binance’s ecosystem. Investors looking to store BNB Coins also use Ethereum-friendly services, such as the MetaMask wallet.
Criticisms of the BNB Coin
Despite Binance acquiring the status of one of the most popular trading platforms, it still faces criticism.
- Decentralization: Many crypto enthusiasts question BNB Coin’s lack of decentralization. Binance’s PoSA consensus and 10,000 BNB Coins minimum requirement to run a node make it difficult for average investors to become validators. While centralizing the BNB Chain improves its efficiency, it also makes the platform less democratic and more vulnerable to severe hacks.
- Privacy: Crypto experts have expressed apprehensions over BNB Coin’s privacy. Since this crypto is tied to a private company in the Cayman Islands, some fear Binance’s leadership uses the BNB Coin to track consumer behavior without their consent. This is opposed to the private-centric ethos of crypto and other blockchains.
Where do people buy BNB Coins?
Most people who want BNB Coins buy them on Binance or the company’s U.S.-based subsidiary Binance.US. Also, BNB Coin’s significant growth has made crypto available on competing exchanges, such as Crypto.com, KuCoin, and Gate.io.
BNB Coin is accessible on many decentralized exchanges (DEXs) on the BSC, such as PancakeSwap and 1Inch.
Binance is a powerful force in the crypto market, and the BNB Coin continues to grow a sizable market share. While it’s unknown how BNB Coin will evolve, it’s already playing a major role in markets such as DeFi, play-to-earn games, and NFTs. As more Web3 users search for cheaper “Ethereum alternative” chains, the BSC—and, by extension, BNB Coin—will likely continue to benefit.
At Worldcoin, we aim to educate everyone about the opportunities crypto projects such as the BNB Smart Chain offer. To help more people experiment with crypto assets, we’re putting a share of our crypto in their hands for free. We’re also airdropping DAI stablecoins to anyone who signs up for the Worldcoin app. Subscribe to our YouTube channel to learn more.