Binance Coin is one of the best-performing cryptocurrencies in 2019. It became the first major currency to reach new ATH price after the long bear market of 2018. So, what is Binance Coin and why is it so popular? This is the ultimate beginner’s guide.
Binance Coin is the utility token of Binance
Let’s first put Binance Coin to the right place in the crypto universe, so it’s easier to understand the purpose of this coin.
Cryptocurrencies can be placed into three major categories: currencies, platforms and tokens. The currency category has popular coins such as Bitcoin, Litecoin and Bitcoin Cash. The purpose of these cryptos is to function as digital cash.
Ethereum and EOS are the most known platform category products. They can be also called ecosystems or operating systems, like iOS and Android. They are platforms for decentralized apps and smart contracts.
Tokens have some utility or value inside a certain program. For example, Basic Attention Token is built to work inside Brave browser. Binance Coin can be also placed into this category. However, it has moved beyond this category during the year 2019.
Binance Coin (using the shortcode BNB) was created during the ICO boom of 2017 as a utility token for Binance exchange. It started its life as an ERC20 token inside the Ethereum platform. However, Binance has expanded a lot since its inception and launched its blockchain in 2019.
This is the reason Binance Coin isn’t a token anymore, but a “proper” cryptocurrency in the Binance blockchain. BNB is becoming more like a platform category crypto, but its main role is still to function as a utility token inside the Binance exchange.
Next, we’ll go through the history of Binance Coin. Why has it become so popular?
The history of Binance Coin is short but very successful
As mentioned earlier, Binance Coin is created by Binance, which is one of the leading exchanges in the cryptocurrency market. The exchange has a very known and popular face: Changpeng Zhao, a.k.a CZ.
Zhao was born in China, but he moved to Vancouver at the end of the 1980s. He attended the McGill University in Montreal and majored in computer science. After this, he worked in Shanghai and Tokyo with different trading platforms.
Binance founder has long experience of cryptocurrencies as well. He joined the industry as early as in 2013. Zhao worked for Blockchain.info 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 the reason Binance was better equipped for the crypto boom of 2017 and didn’t crash constantly like its competitors.
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 multi-billion ICO 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, 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 had a clear utility from the beginning: when you hold BNB in your Binance account, you’ll receive a 50% discount on your trading fees.
The success of Binance has been breath-taking. The exchange became the market leader in just six months. Binance became also the fastest unicorn in the world, which means a startup with a billion-dollar valuation.
Binance founder Changpeng Zhao has also become one of the best-known figures in the crypto industry. People also like his hands-on approach to Binance. Zhao is the first person to report both good and bad news on Twitter.
CZ 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
Binance’s success didn’t end when the altcoin bubble crashed, and the long crypto winter of 2018 started. They have kept building and getting new customers, which has also created demand for Binance Coin. This is the major factor, why BNB held its value better than any other altcoin during the long downtrend of 2018.
In 2019, Binance Coin became the first cryptocurrency to reach new ATH since the previous boom. While BNB was reaching new record valuations, its competitors were still 85-90% down from ATH.
Binance Coin has been a very good investment since its inception.
Binance Chain – the blockchain of Binance
When Binance was founded in 2017, it was just an exchange. This changed in 2019 when Binance launched its blockchain. This was not some secret project since Binance mentioned this in the original white paper of Binance Coin.
Binance Chain MainNet was officially launched in April of 2019. After this, a token swap was completed, which meant that all Binance Coins moved from Ethereum blockchain to Binance blockchain. Binance Coin is now a BEP-2 standard coin and no more an ERC20 token.
Binance Chain is a third-generation blockchain, which can match the capacity of EOS, Tron and other platforms. It can reach up to 1000 transactions per second. New blocks are created every second, which makes transactions practically real-time.
The launch of the Binance Chain has also changed the company strategy. Earlier, Binance was just an exchange, but now they are acquiring projects from other blockchains to Binance Chain. This recruiting process has focused especially on the Ethereum blockchain.
Mithril will be the first project to migrate to @Binance Chain!$MITH token holders on the new @Binance_DEX will be the first to experience increased speed, security, and user friendliness while maintaining full control over their funds.
Learn more: https://t.co/R2jEAlFCqr pic.twitter.com/5zScQGznn4
— VAULT (@VAULT_walletapp) April 18, 2019
Mithril was the first project to move from Ethereum to Binance. There have also been other projects, which have some added benefits when moving to Binance Chain. First, the network capacity is much better. Second, Binance can offer the tokens more visibility in their exchange. This will help to boost the entire project financially.
According to Changpeng Zhao, Binance is trying to create a token economy and it doesn’t try to compete with dApp platforms like EOS and Ethereum. We’ll see how this will turn out in practice.
The most important application of the Binance Chain is Binance DEX, meaning decentralized exchange. DEX is an alternative to traditional exchanges, so why would Binance develop such a product?
The reason is Chanpeng Zhao’s vision of the future of the cryptocurrency markets. He thinks decentralized exchanges will eventually take over a bigger share from traditional crypto exchanges. This is because more and more people want to trade cryptos P2P without any middlemen.
Binance DEX will strengthen the Binance Coin as well and give more utility to it. Binance Coin functions as “digital gas” and transfers value in the Binance blockchain, just like Ether in Ethereum or EOS tokens in the EOS blockchain.
Binance has also received some critic from their DEX. Many analysts have pointed out, that this is not a decentralized exchange. Two key factors differentiate DEX from a traditional exchange:
- Users are always in control of their cryptocurrencies
- The exchange (and its transactions) are not controlled by a third party
Binance DEX fulfils the first condition, but not the second. According to Changpeng Zhao, the word decentralization is seen as too black and white.
“Many people think of decentralization as absolute; you are either decentralized or not. I think that in reality, there is a gradient scale from centralization to decentralized.” (Source)
Binance became quickly the leader of the cryptocurrency exchanges. It’s interesting to see how the Binance DEX will conquer the markets. More success it gets, more utility there is for the Binance Coin as well.
Binance Chain has a centralized Proof of Stake consensus
Let’s look at the Binance chain from a technical point of view. This is, the new home of the Binance Coin and its performance determines the usability of BNB as well.
All 3rd generation platforms are using a Proof of Stake based consensus. The term “3rd generation” refers to blockchains, which have solved the scalability issues of Bitcoin (1st gen) and Ethereum (2nd gen).
Proof of Stake consensus algorithm differs greatly from Proof of Work, which is used by Bitcoin and Ethereum. PoS requires no physical mining machines and the blockchain validators are chosen by staking coins.
More cryptocurrency you lock (or stake) to the blockchain, higher voting power you have when it comes to data validation. This is all logical because the users who have the most to lose have the highest incentive to keep everything working correctly as well.
Binance chain is using a Proof of Stake variation called Tendermint BFT. You can find more information on that from this article. The name Tendermint has become quite well-known in 2019 especially due to Cosmos project. The video below will give you a short introduction.
The blockchain is run by three different nodes: a validator node, a witness node and an accelerated node.
Validators are the never centres of the Binance blockchain. There are only a dozen of them, and each is hand-picked by Binance. This is quite a strong statement against Binance DEX being decentralized as well.
A validator node is validating transactions and collecting transaction fees, which are paid in Binance Coin.
An accelerated node works like a turbo boost:
Accelerated Node is special infrastructure built around Validator to facilitate accelerated transaction routing and provide richer, faster user interfaces. There are always several Accelerated Nodes running at the same time around the world (owned by different organizations) and you are encouraged to choose one of them to use, or allow your Wallet choose one randomly. For rapid API access, you’d better stay with one Accelerated Node to get better performance. (Source)
Witness nodes are like the nodes in the Bitcoin blockchain. Their task is to record the blockchain and pass transactions forward. Witness nodes have no part in block creation.
You can read more of the technical side of the blockchain from Binance’s FAQ.
Binance Coin as an investment
As mentioned earlier, Binance Coin has been the best investment of all major coins since 2018. It held its value well during the bear market and even reached new all-time highs in early 2019.
The future looks also strong for the Binance exchange, which is behind the coin. The launch of Binance chain and their DEX gives them more power and enhances the utility of Binance Coin. One major factor in the BNB valuation is coin burning, which is done after each quarter.
In practice, burning means destroying coins. Binance has announced that it will burn BNB until there are just 100 million of them left. This means, that Binance will destroy 50% of the supply over time.
At the time of this article being published, the coin burn has been done eight times. Over 12 million coins have been destroyed, which is 6.23% of the total supply.
This means there is constant deflationary pressure going on, which is very important in token economics. The laws of supply and demand simply state, that if the demand stays static but supply goes down, the value has no other way but up.
We know that all Binance Coins have been created in the ICO and there won’t be new ones minted.
It’s also important to know, that Binance Launchpad is using BNBs. Launchpad is the IEO platform of Binance, which has become very popular in 2019. You can only participate in IEOs by holding enough Binance Coins.
All this is very good for BNB. The coin has real utility and deflationary pressure on the top.
How to buy Binance Coin
Binance Coin was originally listed only in Binance’s exchange. But, BNB has become so popular, that rivalling exchanges have also listed it recently.
You can buy BNB from Gate.io and KuCoin exchanges as well. The liquidity is quite poor, though. You’ll get always the best price from Binance or Binance Jersey. BNB can be also bought from the Binance DEX, but we recommend that option for only advanced users.
Binance is still a crypto-crypto exchange, which means you can’t make a bank wire deposit and buy Binance Coins with euros. You must buy them with Bitcoins, which must be bought with euros from somewhere else. Coinbase is a good option for newcomers, who want to buy Bitcoins with EUR/USD/GPP or other fiat currencies.
Binance Jersey is also a valid option. This is a sister exchange of Binance, which is much smaller. The advantage is that it supports GBP and EUR deposits.
Even if Binance is the leading exchange and relatively safe, it’s always recommended to store your cryptocurrency outside an exchange. Ledger Nano X, Ledger Nano S and Trezor support Binance Coins. You can also use Exodus desktop wallet or TrustWallet on mobile.
One could argue, that Binance Coin is one of the most solid investments in the crypto market. This is probably true if Binance exchange has its current status. The utility and value of BNB go hand-in-hand with Binance. Should Binance ever get into trouble with authorities, it might crash Binance Coin as well.
This is just to remind our readers, that there are no safe bets or secure investments in the cryptocurrency market. Each coin has its risks.