Binance Coin (BNB) explained – The cryptocurrency of the worlds biggest digital asset exchange
If you have been involved in the crypto-space for some time, then you must have heard of Binance. In fact, the chances are that you have built the majority of your portfolio through them. Binance Coin (BNB) is the coin issued by Binance and is used to make transactions within the exchange. Originally it was built on the Ethereum blockchain but has since moved on to its own Binance chain. In this article, we will get to know more about BNB. However, before we do so, let’s familiarize ourselves with Binance itself.
Binance and CZ
Exchanges play a critical role in the ecosystem as they act as a portal between the fiat world and the crypto world. Exchanges mainly fall under two categories:
We simply can’t talk about Binance and Binance Coin without bringing up their enigmatic founder Changpeng “CZ” Zhao. Born in Jiangsu, China, to a family of educators, CZ moved to Vancouver, Canada, in the late ’80s after they were temporarily exiled from China.
CZ got into the blockchain space through Blockchian.info and then moved onto OkCoin as its CTO, before leaving them in bad terms. That was when he started his own company – Binance. In less than a year, the company grew at such a staggering pace that CZ ended up becoming a billionaire.
The popularity of Binance
As of writing, Binance managed to conduct $842,652,240 worth of transactions over the last 24 hours. To give you another idea about its popularity, consider the following facts.
So, why is Binance so popular?
Ok, so till now, we have read about Binance and CZ. So, let’s get into BNB.
What is Binance Coin?
Binance Coin’s main utility is to allow users to pay the fees charged by Binance for their services. The fees include – trading fees, exchange fees, and listing fees. Binance usually charges a trading fee of 0.1%, but if users pay these using BNB, then they can claim a discount. The discount rates are predetermined every year. The discount is halved every year, which means:
Unlike Bitcoin, you don’t mine BNBs. Prior to their ICO, Binance had already pre-mined 200 million BNB tokens. The token allocation was done as follows:
How to store BNB
In July 2018, Binance acquired Trust Wallet which has since been marketed as the official BNB wallet. Apart from the official wallet, you can use both hot and cold wallets to store your BNB.
A wallet that is directly connected to the internet is called a “hot wallet.” While these wallets are not the safest of options since they are susceptible to hackers, they are relatively easy-to-use. If you are someone who regularly uses cryptocurrencies, then you should keep a portion of it in hot wallets. Examples of hot wallets compatible with BNB are:
Cold wallets, on the other hand, are wallets that are completely offline. These are the wallets that you should use to store a majority of your cryptocurrency reserve. While these wallets are a lot safer, they are not as convenient and straightforward as hot wallets. Cold wallets compatible with BNB are:
Supply and Demand – A Brief Primer
Before understanding the burning mechanism, let’s give you a lesson in Economics 101. One of the most basic principles in microeconomics happens to be “supply and demand.” Let’s do a quick tutorial on that before moving ahead.
The supply/demand equation states that given all else is equal, in a competitive market, the price of a particular product will vary until it reaches economic equilibrium, wherein the quantity demanded is equal to the quantity supplied. There are two sides to this equation:
The supply schedule shows the relationship between the price of a good and the quantity of it supplied by the producers. If the general market condition is perfect, then the cost of producing an extra unit for a company should be less than the market price it receives.
The factors determining the supply are as follows:
The demand schedule represents the amount of a particular good that buyers are willing and able to purchase.
The factors determining this are as follows:
Binance Tokens and Burning
Token burning is not unique to Binance Coin. In fact, it’s a pretty common practice within the industry. During the token burning, a predetermined amount of tokens are “burnt” or removed from circulation permanently. While there are n number of reasons why you would want to burn tokens, it is mainly done for deflation. If you are familiar with the stock market, then think of token burning as share buybacks, wherein publicly-owned companies reduce the amount of stocks available to investors by buying back the stocks themselves.
Binance has a repurchase program where they use 20% of the profit to buy back BNB tokens. Binance will continue the token-burning process until they have bought back 50% or 100 million BNB tokens. The results of the first six quarterly burnings are as follows:
So, how exactly do you burn tokens?
Token burning can be accomplished in several different ways. The core idea is to render them completely unusable for the future. To do this, the coins are sent to an inaccessible public wallet. Once the coins enter this wallet, it’ll be impossible for anyone to retrieve them. There are many ways that one can do this. Let’s take a look:
Anyway, we are here to study BNB. So, let’s look at how the process works.
BNB Burning – Behind the scenes
The following burning process is what BNB used to do.
The current Binance Burn function however, is a little different, because of one major reason – The Binance chain. The Binance chain is Binance’s native blockchain, which had its mainnet launch back in April 2019. Because of this, a couple of things happened which you need to keep in mind:
The new coin burn mechanism is not dependent on a smart contract anymore. It can be executed in a specific function on the Binance chain.
Main use-cases of BNB tokens
So, what are the main use-cases of BNB? Let’s take a look.
#1 Trading fees
As already mentioned, the main utility of BNB is to provide trading fee discounts for its holders on Binance. Currently, holders can gain a whopping 12.5% discount on their Binance trading fees. However, keep in mind that these rates will drop by half each year and in 2021, it will no longer apply.
#2 Less dust wastage
First, let’s understand what “dust” means. If you have used exchanges before then, you must be pretty familiar with this. “Dust” is the amount of cryptocurrency that is too small to trade or withdraw since they are smaller than the applicable fees. While this may seem like a small amount at first, let’s look at the reality of the situation. Every single trader accumulates some amount of “dust.” When you consider that Binance has around 15 million users, that’s a lot of accumulated dust that’s just wasting away in their wallets. Now, you can convert this dust to BNB and receive a sum of cryptocurrency that is actually usable.
#3 Purchasing services
BNB is one of the most most popular cryptocurrencies in the world. As such, you will be able to purchase a lot of goods and services with BNB. Australian tourism agency, TravelByBit, accepts BNB among several other cryptocurrencies as payment for their services.
Nexo allows its users to secure loans by using BNB as collateral. It can also be exchanged for fiat currency through Dether.
#5 IEO dominance
IEOs or Initial Exchange Offerings work like ICOs, but they have a crypto exchange platform acting as a middleman. Instead of handing the funds directly to the developers, you hand it to the crypto exchange, which has partnered up with the project. In return, the exchange will give you a proportionate amount of tokens.
This is the simple reason why IEOs are so much more credible than ICOs. When an exchange hosts an IEO, they are associating their name with the project. Which is why you better believe that they are going to do everything in their power to only host projects which deserve their seal of approval.
So, speaking from the point-of-view of an investor, don’t you want to buy the tokens of a project that an exchange of Binance’s caliber has deemed worthy? Of course, you do. This is why you should have a healthy amount of BNB in your kitty, to take part in Binance’s IEOs.
While the idea of Binance having its own tokens seemed pretty promising, the launch of the Binance chain has taken expectations to a whole new level. The reason why BNB tokens are such a good investment is because the company behind it is highly ambitious and continues to grow and expand. It doesn’t matter if you are a regular trader, an investor, or just a casual dabbler. BNB should be at the top of the list of coins you must possess.