You may have heard of the Binance exchange, but did you know it has its own cryptocurrency known as Binance Coin (BNB)? BNB and Binance launched simultaneously, the latter of which quickly dominated the digital currencies space to consistently boast the largest trading volume globally.
Binance Coin is a utility token on the Binance cryptocurrency exchange for users to receive lower fees and pay for many other services on the platform.
At the time of writing, Binance Coin holds a coveted 10th spot of most traded cryptocurrencies (according to CoinMarketCap) with a per-token value of about $42 (close to its all-time high) and approximately $6.7 billion market cap.
So, what will we cover? This article will go over what Binance Coin is, what led to its creation, how it works technically from a user perspective, what makes it valuable, and what the future may hold.
Binance Coin’s creation coincided with the launch of the cryptocurrency exchange, Binance, founded by the Chinese-Canadian billionaire, Changpeng Zhao (affectionately known as CZ).
As an ingenious financing plan for Binance, BNB went through a typical issuance method using an ICO (initial coin offering) on the 21st of July 2017. Within 20 days, Binance successfully raised about $15 million through the sale of 200 million coins.
Of the 200 million, 10% (20 million) was sold to angel investors, 40% (80 million) to the founding team, and 50% (100 million) to ordinary folk. By April 2018, Binance processed the most cryptocurrency transactions of any exchange globally, making it the largest in this regard (as of 30 January 2021, they are still the largest).
The Binance Coin was originally the Ethereum-based ERC20 token. However, in April 2019, Binance migrated their coins onto their custom blockchain known as Binance Chain.
How does Binance Coin work?
At its core, Binance Coin was created mainly for the sole purpose of powering Binance’s ecosystem by ‘fuelling’ various transactions on the platform, which include incentivizing users with lower fees (25% off if using BNB), and making payments for many other Binance-related services.
These include the likes of investing in ICOs through their Launchpad program, joining mining pools, and crypto loans. BNB is transactable and exchangeable with other cryptocurrencies. Aside from Binance itself, BNB is also available at countless other exchanges with various wallet storage options.
Users can also trade BNB as a financial instrument through many CFD brokers. Lastly, BNB’s maximum supply limit is approximately 170,532,785, of which about 154,532,785 presently exists (roughly 91% of the total supply).
You may wonder why this number is noticeably less than the initial 200 million? The reason is due to the Binance coin burn.
Binance coin burn
Something noteworthy about Binance Coin is a repurchasing plan known as a coin burn, which takes place quarterly using 20% of the profits they’ve generated. There is no set BNB the company sets to burn each quarter, but they have suggested accelerating these gradually over time.
The purpose of Binance’s coin burn is to reduce the coin supply (making the coin more valuable) according to the overall trading volume on their exchange. What is important to note is the company does not destroy the tokens from holders but rather those in their ownership.
The long-term goal is to burn 100 million BNB, effectively leaving 100 million tokens in circulation. Since its inception, there have been 14 coin burns. The most recent burning event took place in January 2021, where 3 619 888 BNB was burned, the highest recorded figure in their history.
At this accelerated burn rate, assuming no other changes take place, Binance should reach the 100 million target between 5-8 years time.
Binance Coin ledger
Interestingly, BNB is not a mineable coin as the exchange relies on their selected validators for its creation instead, who receive fees for their work. Very little information exists on how the process works and how much BNB is produced daily, except that the coin relies on a unique consensus mechanism known as Byzantine Fault Tolerance.
What makes Binance Coin valuable?
Ultimately, Binance Coin success relies primarily on the trading volume growth of its native exchange. As the brand grows with an increasing number of processed transactions, the usage of this token will follow suit, ultimately raising its value.
As a utility token, Binance Coin isn’t as volatile as other cryptocurrencies, making it a much safer investment. However, as an altcoin (coins that aren’t Bitcoin), its value will often reflect the broader digital currencies market.
Future of Binance Coin
The cryptocurrency exchange industry, as with many others, is increasingly becoming more flooded. Despite the existence of new players, Binance has maintained the top spot for much of the time and will likely continue that trajectory.
Keen observers of BNB will undoubtedly look forward to the next coin burn as a reduction in the supply of any coin typically is succeeded by some form of price rally. Other than this event, there are currently no exciting developments for the token.
Overall, the decline or incline of BNB’s value will boil down to how the Binance exchange and the entire cryptocurrency market performs overall.
Binance Coin is yet another interesting case study about a different kind of cryptocurrency, exemplifying the beauty of how varied this market can be. Those who may know little about BNB should understand its primary function is a utility token on Binance, one of the world’s largest cryptocurrency exchanges.