What is Binance Coin (BNB)? How Does It Work?

The crypto space is maturing, and cryptocurrencies have been invented for a variety of reasons, not only as a decentralised peer-to-peer payment system.

The Binance Coin (BNB) was initially designed for fundraising purposes for the crypto exchange company Binance. This was done through an Ethereum-supported Initial Coin Offering (ICO) process in July 2017.

You have to note that in 2017, many of the cryptocurrency coins or tokens that were sold to people via the ICO process were found to be fraudulent. Fortunately, the founders of Binance Coin kept their word, and developed the promised project to completion.

That being said, we’ll be taking a closer look at BNB and its use cases in this article.

What is Binance Coin (BNB) and its uses?

Binance Coin is loosely categorised as a utility token. However, like any other cryptocurrencies in general, it is tradable in the crypto market, and can be used as payment if the sender and receiver transact on the same network. 

Binance Coin was initially circulated as an ERC-20 token. This means it used to exist only on the Ethereum network, where direct buyers of the token must pay in ether (ETH) to receive Binance Coin using smart contracts (autonomous digital vending machines, so to speak).

What ‘utility’ does the Binance Coin serve, you ask? With the BNB, seasoned crypto traders can trade on the Binance decentralised exchange platform with a discounted trading fee. 

Gaining independence on the Binance Chain

Binance wanted to do more, so after a successful ICO, the company created an entirely new blockchain network, called the Binance Chain, which is similar to the Bitcoin Network, only faster, to accommodate the needs of crypto traders.

BNB as an ERC-20 token were converted into the brand-new BNB coins, native of the Binance Chain, that are still circulating to this day.

Having more power and flexibility, the company joined with various online businesses, such as travel agents and financial services to add more utility to Binance Coin as a full-fledged cryptocurrency. 

Of course, a single blockchain for transactions isn’t enough, so Binance created a second, standalone blockchain, called the Binance Smart Chain to accommodate smart contracts and allows for the development of decentralised applications (Dapps). Both are independent blockchains that communicate with each other without friction. 

For these reasons, BNB is fundamentally strong as it attracts more and more investors due to its increasing use cases and business adoption.

Already familiar with Binance Coin? Click here to buy Binance Coin (BNB)

Binance Coin (BNB) tokenomics

Binance Coins are pre-minted at a maximum supply limit of 200 million BNB. At the moment of creation, the distribution of BNB were as follows: 20 million BNB were offered to angel investors of Binance, 80 million to the founding team, and the remaining 100 million BNB were offered to public investors in ICOs.

Since it is impossible for new Binance Coins to be created, the Binance Chain and the Binance Smart Chain both operate using a combination of two consensus protocols — Proof of Stake and Proof of Authority.

While elected validators can stake their BNB to receive block creation rights and profit from transaction fees, unlike in traditional proof of stake, the validators themselves are not chosen based on the amount of coins staked.

Here’s a little trivia: Cardano (ADA) uses a traditional proof of stake consensus protocol (namely the Ouroboros Protocol), Polkadot (DOT) uses a delegated proof of stake protocol to elect validators, while VeChain (VET) uses a pure proof of authority protocol to allow a vetted group of validators.

How Binance Coins are burned

The supply of Binance Coins gets reduced over time. Every quarter since 2017, Binance uses around one-fifth of its profits to buy back BNB and burn or permanently destroy the coins, reducing its circulation.

At the time of writing, Binance has burned 1,099,888 BNB (the latest burn occurred on 15 April 2021 before press date). This accounts to 0.55% of the total supply. It is interesting to note that the burnt BNB are likely to be sourced from the available supply in the Binance market.

Exactly why the company does this is unknown. There are cases where a network needs to burn coins or tokens, such as when VeChain’s VTHO fuel token is constantly created and burned for its value stability to make transaction costs predictable. 

For the Binance network, burning coins within the Binance economy would certainly increase the value of the remaining Binance Coins held by the founders and public investors alike.

Although, an increased value due to arbitrary burning may not actually serve any other purpose. 

How to Buy Binance Coin (BNB)

Regardless of whether or not burning Binance Coins has other purposes beyond increasing the value of the coins held by investors, the fact remains that its scarcity-driven price will increase.

The burn indirectly reflects the performance of the company, as a portion of its profits go into buying and destroying BNB, meaning that the more profitable the company is, the more valuable the coin is likely to be — a correlation that is found in shares of stock.

In a way, investing in Binance Coin is like investing in the company itself, even if the company is not a public one.

Due diligence is required to see where the company may go in the future. Unfortunately, being the biggest decentralised exchange is no easy task, and common allegations and criticisms from government bodies worldwide include Binance not having a strong framework to prevent money laundering and tax evasion.

Furthermore, Binance is incorporated in the Cayman Islands, one of the world’s ‘tax havens’ for businesses.

While it has an office in Singapore, the company has no single corporate headquarters. It is, after all, a decentralised exchange owned by a private company.

Then again, Binance Coin is not tied to the company’s book value, and its price is still largely determined by market supply and demand, like any other cryptocurrency.

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Binance Coin (BNB) is just one of over 160+ cryptocurrencies that we provide here at Easy Crypto. Our collection of crypto assets include:

• Stablecoins
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