BNB Chain is a blockchain platform developed by the cryptocurrency exchange Binance. The history of BNB Chain began in 2017 when Changpeng Zhao founded the Binance Exchange. The first step towards the BNB chain was taken in April 2019. The BNB Chain consists of two blockchains: the BNB Beacon Chain and the BNB Smart Chain. BNB Chain is built using the Cosmos SDK. BNB Chain is Ethereum’s biggest challenger by many measures.
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What is BNB Chain (BNB)?
BNB Chain (BNB) is a blockchain platform developed by the cryptocurrency exchange Binance. It was created to provide a scalable and efficient infrastructure for building decentralized applications and executing smart contracts. BNB Chain is one of the biggest smart contract platforms in the market. It is competing with the likes of Ethereum, Solana, Cardano, and Polygon.
BNB Chain utilizes a dual-chain architecture, which operates in parallel with BNB Beacon Chain and BNB Smart Chain. BNB Smart Chain is where the smart contracts and dapps are run while staking is done in the BNB Beacon Chain. The structure is similar to how Ethereum is built.
BNB is the native coin of the BNB Chain. BNB is used for transaction fees, participating in token sales, staking, and accessing various services and applications on the BNB Chain. BNB also has several use cases in the Binance Exchange.
Here is basic information about BNB Chain:
|Max supply||153 million BNB|
|Circulating supply||153 million BNB|
|All-time high (date)||$690.93 (May 10, 2021)|
|All-time low (date)||$0.09611 (Aug 1, 2017)|
Follow the live price of BNB from this page: BNB price.
It is important to note that the supply of BNB is shrinking due to quarterly token burns. Binance will use some of the company’s profits to buy BNB out of circulation. After this, they will be burned (destroyed). These token burns will continue until there are 100 million BNB left.
One of the key features of BNB Chain is its compatibility with the Ethereum Virtual Machine (EVM). This compatibility enables developers to easily port their existing Ethereum-based dApps and smart contracts to BSC with minimal modifications.
BNB’s advantage over Ethereum is better scalability and extremely low transaction fees. However, these advantages have started to be outperformed by Ethereum’s Layer 2 solutions in recent years. As a result, BNB Chain is increasingly competing with Ethereum Layer 2 blockchains, such as Arbitrum and Optimism.
The History of the Binance Exchange
The history of BNB Chain began in 2017 when Changpeng Zhao founded the Binance Exchange. Zhao was born in China but moved to Vancouver at the end of the 1980s. He has lots of experience in the crypto industry after working for Blockchain.com and being the CTO of the 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.
“CZ” is nowadays one of the richest people in the crypto industry. His net worth is estimated to be more than 10 billion dollars.
Binance organized an ICO in the summer of 2017 and raised 15 million dollars. Binance Coin (ticker: BNB) was born due to this ICO. Like almost all ICO-born tokens, it was first launched as an ERC20 token on the Ethereum platform. Two hundred million BNB coins were created: 100 million were sold to ICO investors, the Binance team had 80 million, and angel investors had 20 million.
The 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 because it was the only major exchange functioning properly.
Binance Coin had a clear use case: when you hold BNB on your Binance account, you’ll receive a 25% discount on trading fees. This use case still exists.
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 magazine in February 2018.
The History of BNB Chain
The first step towards the BNB chain was taken in April 2019. This was when Binance launched the Binance Chain. Two significant things happened next.
Binance’s influence started to grow in the crypto industry. Before 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 failed to make a big impact. This wasn’t the case with Binance Smart Chain, 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. When writing this article, BSC is still one of the top five DeFi platforms in terms of TVL.
|Platform||Native token||TVL||Market share|
|BNB Chain||BNB||$4.5 billion||9.5%|
A re-branding of Binance Smart Chain and Binance Coin took place in February 2021. Binance Chain and Binance Smart Chain were merged together and re-branded to BNB Chain. This was when the Binance Coin was renamed to BNB (the same as the exchange ticker).
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 Beacon Chain and Smart Chain
The BNB Chain consists of two blockchains: the BNB Beacon Chain and the BNB Smart Chain. BNB Smart Chain is an EVM-compatible blockchain that runs BNB Chain’s decentralized applications. BNB Smart Chain will also act as a multi-chain hub in the future, which 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 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 project’s development, 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 Cosmos have been built similarly. 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 combines the popular Delegated Proof of Stake (DPoS) and Proof of Authority (PoA) consensus algorithms.
The PoSA consensus has only 21 validators. The BNB Chain theoretically uses 41 validators, but 20 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, translating to an investment of over $300 million. 18.3 million BNB tokens have been staked, representing about 11% of the coins in circulation.
BNB Chain’s governance is more centralized than the ones of its competitors. For example, Ethereum 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.
An overview of BNB Chain and BNB
BNB Chain is Ethereum’s biggest challenger by many measures. When 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 just 0.075%.
When looking at the BNB price performance in 2020, it is clear that a utility token’s role was insufficient. 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 to develop 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? 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 because its EVM-compliant blockchain was 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. Integrating the popular Trustwallet wallet (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 progress rapidly. BNB Chain’s most popular apps are ranked 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?
If you want to invest in BNB, check out our article on How to Buy BNB. You’ll find detailed instructions on purchasing BNB from the Binance exchange and information on secure storage options.