BNB Chain is a blockchain launched by the cryptocurrency exchange Binance. It was recently re-branded from Binance Smart Chain to BNB Chain. This article is the BNB Chain beginner’s guide. It goes through the project’s history, technology, and potential as an investment.
BNB Chain is a popular smart contract platform
First, we should place BNB Chain in the correct cryptocurrency category. We like to divide cryptos into three main categories: currencies, platforms, and tokens.
The most popular currency is Bitcoin. This category has also coins such as Litecoin and Bitcoin Cash. The purpose of currencies is to act as digital cash and transfer & store value.
Platforms operating systems for smart contracts and decentralized apps. You can think of them as Android and iOS. The best-known platform is Ethereum. It is competing with other platforms like Terra, Avalanche, and Cardano.
Tokens are usually utility or governance tokens of a certain dapp. They are always issued on existing blockchains (platforms). Popular tokens include Aave, Uniswap, and Chainlink.
BNB Chain belongs to the platform category. It is also one of Ethereum’s biggest rivals.
This was not always the case. At first, there was just Binance Coin, which started its life as a utility token inside the Binance exchange. Binance launched its blockchains in 2020 and 2021 with BNB as the native token.
In 2022 there was a re-branding to BNB Chain. The name Binance was removed from the blockchains and from the Binance Coin. The official name of the Binance Coin is now BNB, which has been also the ticker in crypto exchanges. BNB is the native token of the BNB Chain. It is used for paying transactions and staking.
The history of the BNB Chain
The Binance exchange is the main contributor to BNB Chain’s history. Binance is best-known through its founder and front figure, Changpeng Zhao a.k.a CZ.
Zhao was born in China, but he moved to Vancouver at the end of the 1980s. He attended McGill University in Montreal and majored in computer science. After this, he worked in Shanghai and Tokyo with different trading platforms.
Zhao has lots of experience in the crypto industry as well. Zhao worked for Blockchain.com and he was the CTO of OKCoin exchange for several years.
Zhao left his post at OKCoin in 2017 to build Binance. He has told in various interviews that the idea behind Binance was developed for many years. This is why Binance was better equipped for the crypto boom of 2017 and didn’t crash as its competitors did.
“CZ” is nowadays one of the richest people in the world. His net worth is estimated to be more than 100 billion dollars.
Binance organized an ICO in the summer of 2017 and raised 15 million dollars. This is quite a small amount when you compare it to a multi-billion ICOs like the one of EOS.
Binance Coin was born as a result of this ICO. It was first launched as an ERC20 token on the Ethereum platform like almost all ICO-born tokens at the time. There were 200 million BNB coins created: 100 million was sold to ICO investors, the Binance team had 80 million and angel investors had 20 million.
Binance exchange opened its doors quickly after the ICO was completed. It gained popularity fast in 2017 and hit the mainstream at the peak of the altcoin bubble. Binance had millions of new customers due to the fact it was the only major exchange functioning properly.
Binance Coin has had a clear utility from the beginning: when you hold BNB on your Binance account, you’ll receive a 25% discount from trading fees.
The success of Binance has been breathtaking. The exchange became the global market leader in just six months. Binance also became the fastest unicorn in history. A unicorn means a startup with a billion-dollar valuation.
Changpeng Zhao even made it to the front page of Forbes in February 2018.
It’s a real honor to be on the cover. (I just wished the #binance logo wasn’t ps’d out). it is a team effort (not just me), 20 years (not 6 months) in the making. Many thanks to Forbes team though. https://t.co/pg7jtmQQxf pic.twitter.com/OTqxVtnorL
— CZ Binance (@cz_binance) February 7, 2018
The first step towards the BNB chain was taken in April 2019. This is when Binance launched the Binance Chain. Two significant things happened next.
Binance’s influence started to grow in the crypto industry. Prior to 2019, Binance was just an exchange. Now it started to challenge other smart contract platforms. There was also a token swap, which made Binance Coin the native token of the new blockchain.
Binance Chain had limited features and it failed to make a big impact. This wasn’t the case with Binance Smart Chain, which was launched in September 2020. BSC was a fully-functioning smart contract platform. It reached a significant market share of the DeFi sector in the spring of 2021.
A decentralized exchange called PancakeSwap contributed massively to Binance Smart Chain’s success. It was a place for millions of traders who wanted to get the latest meme and moon tokens. Ethereum was not an alternative due to extremely high transaction fees.
Binance Smart Chain’s popularity took a hit in late 2021. It lost a lot of market share in the DeFi sector to newcomers such as Terra, Avalanche, and Solana. At the time of writing this article, BSC is still the third-largest DeFi platform in terms of TVL.
As mentioned earlier, a re-branding took place in February 2021. Binance Chain and Binance Smart Chain were merged together and re-branded to BNB Chain. This is when the Binance Coin was also re-named just to BNB.
The idea behind the re-branding was to drop the Binance brand out. Binance wanted to underline the independence of the BNB Chain and the BNB token.
BNB (Binance Coin) price performance
Let’s focus next on BNB’s price performance. The old name Binance Coin might still be in use on some exchanges.
BNB’s ICO was held in summer 2017 and it became available for trading at a price of around $0.1. In January 2018, BNB reached a price of $22.5, which means an increase of over 200x in less than six months.
BNB collapsed by 80% during the 2018 crypto winter, which is less than Bitcoin. The token also set a new ATH in April 2019. At the time, most other altcoins were still down 80-90% (or more) from the all-time highs.
The reason for the BNB’s was the IEO boom of 2019. Binance’s Launch Pad was the most popular IEO platform on the market. BNB was needed to participate in the IEOs. However, this boom fizzled out pretty fast. The following 12-18 months were pretty poor for the BNB. Even the stunning success of Binance did not boost its price.
BNB finally rallied in February 2021, thanks to the popularity of the Binance Smart Chain and the aforementioned PancakeSwap. BNB jumped from around $50 to $690 in a month. This is still the ATH price.
Since then, the token’s price has followed the general market trend. BNB collapsed in the summer of 2021 in line with other cryptocurrencies. It also rose with the rest of the market to a new high in early November but could not quite make a new ATH.
The crypto bear market that started in November 2021 resulted in a price fall of BNB. At the time of writing, BNB is down 45% from its ATH, the same as Ethereum. Almost all of BNB Chain’s rivals have fallen more than that.
BNB Beacon Chain and Smart Chain
The BNB Chain is composed of the Binance Chain and the Binance Smart Chain. The rebranding to BNB Chain is only a cosmetic change. Technically, everything works as before.
The Binance Chain will be referred to as BNB Beacon Chain. If this sounds familiar, the name Beacon Chain is also used by the Ethereum 2.0 blockchain. The BNB Beacon Chain includes staking.
The new name of the Binance Smart Chain is BNB Smart Chain. This is an EVM-compatible blockchain that runs BNB Chain’s decentralized applications. The Smart Chain will also act as a multi-chain hub in the future, which basically means a link to other blockchains.
EVM stands for the Ethereum Virtual Machine. It is a virtual processor that runs smart contracts on the Ethereum platform. The EVM compatibility means that decentralized applications (dapps) developed on the Ethereum platform can be easily cloned (transferred) to the BNB Smart Chain.
The decentralized exchange SushiSwap is one example of a DeFi application that has also been cloned to the BNB Chain.
BNB is the native token of both the BNB Beacon Chain and the BNB Smart Chain. It should be noted that the Beacon Chain and the Smart Chain use different token standards. The Beacon Chain uses the BEP-2 standard and the Smart Chain uses the BEP-20 standard. This has not changed since the rebranding.
According to the official Binance press release, the goal is to increase the capacity of the BNB Chain and focus on multi-chain development. This is made possible by the underlying technology, which is discussed in detail in the next chapter. On-chain governance, which means the possibility to vote on the development of the project, will also be introduced.
BNB Chain technology
BNB Chain is built using the Cosmos SDK. In addition to BNB Chain, Terra, Crypto.com’s Cronos, and of course Cosmos have been built in a similar way. The Cosmos SDK provides tools to create a scalable blockchain while its IBC protocol enables blockchains to be linked together.
BNB Chain uses a Proof of Stake consensus algorithm. BNB Chain’s version is called Proof of Staked Authority. The PoSA is a hybrid of the popular Delegated Proof of Stake (DPoS) and Proof of Authority (PoA) consensus algorithms.
The PoSA consensus has only 21 validators. The BNB Chain uses theoretically 41 validators, but 20 of these only act as candidates. Staking takes place on the BNB Beacon Chain. You can see the list of active validators from here.
Active validators are currently staking from 800,000 to 900,000 BNB tokens per validator, which translates to an investment of over $300 million. A total of 18.3 million BNB tokens have been staked, which represents about 11% of the coins in circulation.
BNB Chain’s governance is more centralized than the ones of its competitors. For example, Ethereum 2.0 has more than 300,000 validators. Polkadot has 300, while Avalanche has more than 1200 validators.
BNB Smart Chain runs smart contracts and decentralized applications (dapps) on the BNB Chain. It has a block of about three seconds. The BNB Smart CHain has a capacity of about 170-180 transactions per second. At best, it has processed well over 15 million transactions per day.
BNB Chain as an investment
BNB Chain is Ethereum’s biggest challenger by many measures. At the time of writing this article, the market cap of the BNB token is almost twice as big as Terra’s, which is the third-largest platform. BNB Chain and Terra are also the biggest players in the DeFi sector.
The BNB token has changed as an investment over the years. BNB was initially just a utility token of the Binance exchange, but the launch of the Binance Chain changed its role. Of course, BNB is still used on the Binance exchange. You can use BNB to pay trading fees and benefit from a 25% discount. Even at the basic level, the trading fees are then just 0.075%.
When looking at the BNB price performance in 2020, it is clear that the role as a utility token was not enough. Despite Binance’s huge success, the price of BNB still stagnated. BNB became a top-five currency after the Binance Smart Chain was launched. Staking and trading fees brought so much new demand.
Will the rebranding change anything? Watch the video below from The Defiant. They have taken a critical view of the BNB Chain.
For an investor, the question arises as to what Binance’s role will be in the future. In October 2021, Binance announced a billion-dollar funding package for the development of the BNB Chain. Furthermore, the connection of the validators to Binance is not exactly known.
Of course, there is no such thing as a perfect blockchain. All projects have some weaknesses. The support of Binance can also be seen as a huge asset, as the world’s largest crypto exchange is not running out of resources. In any case, BNB Chain is a clear attempt to create distance between Binance and its blockchains. Time will tell how decentralized BNB Chain will ultimately be.
What is the potential of the BNB token as an investment? At the moment it seems somewhat limited due to two clear problems: the market cap and the trend.
The market value of BNB is more than three times higher than Polkadot or Avalanche. It is double compared to Solana and Cardano. The biggest threat is Terra, which is still about 50% smaller than the BNB Chain. Doubling the price of BNB requires a lot of capital compared to its competitors.
The trend refers to BNB Chain’s development in the DeFi sector. BNB Chain benefited in early 2021 from the fact that its EVM-compliant blockchain was so much better known than any competitor. Nobody knew much about Fantom, Solana, or Avalanche at that point. BNB Chain was the only real alternative to Ethereum for small investors. The integration with the popular Trustwallet wallet (also owned by Binance) was also a significant step.
Now the situation is different. BNB Chain’s market share in the DeFi sector has fallen from over 21% to less than 6%. Competitors gained momentum in 2021, and their application development seems to be progressing at a rapid pace. BNB Chain’s most popular apps are ranked at 10th (PancakeSwap) and 19th (Venus). TVL of these projects has dropped by more than 50% from the ATHs.
The potential of the BNB Chain looks weaker than other smart contract platforms. It is worth following what happens during the next bull market. Will PancakeSwap be the number one DEX for small investors again?
BNB price and How to buy BNB
If you want to invest in BNB, you’d buy it from Binance. There are literally hundreds of crypto pairs and many fiat trading pairs as well.
Even if Binance is the leading exchange and probably one of the safest out there, it’s always recommended to store your coins in an external wallet for the long term.
Note. Be careful when withdrawing BNB from Binance. As mentioned earlier, BNB is the native token of both the Beacon Chain and the Smart Chain. However, they are using different token standards (BEP-2, BEP-20). If you withdraw BNB to an external wallet, make sure you are using the correct token format.