Binance Coin, also known as BNB Coin, is the native token of the vast Binance ecosystem, which includes one of the largest—if not the largest—cryptocurrency exchanges in terms of market capitalization. Complete trading volumes on the Binance market reached a new peak of $3 trillion USDT in 2020.
The Binance ecosystem is distinguished by its dual blockchain structure, which consists of the Binance Chain (BC) and the Binance Smart Chain (BSC). Both blockchains operate in parallel, each with its own set of features and functionalities.
Binance ecosystem
Chang Peng Zhao, also known as CZ, founded Binance in July 2017.
CZ brings a wealth of expertise to the table, having previously worked as OKCoin's Chief Technology Officer. He also helped to establish the Tokyo Stock Exchange and Blockchain.info, a blockchain explorer. According to Forbes Magazine, he is also one of the wealthiest people in cryptocurrency, with a net worth of $1.1 billion as of September 2018.
Binance has grown into a major crypto force under CZ, with two blockchains (Binance Network and Binance Decentralized Exchange/DEX), two exchanges (Binance Centralized Exchange/CEX and Binance Decentralized Exchange/DEX), and a vast suite of financial services including crypto loans, a crypto credit card, liquidity mining, fan token farming, and more.
Binance chain
Binance, which was previously based on the Ethereum blockchain, decided to launch its own blockchain, the Binance Chain, in order to allow lightning-fast and permissionless trading.
The Binance Chain, which was built on forks of Tendermint and Cosmos SDK, went live on April 23, 2019, and its native token BNB moved away from the Ethereum blockchain. The Binance DEX is now the largest DApp on the Binance Chain.
Binance Chain is designed for speed and instant finality, making it ideal for permissionless trading. However, it lacks additional programmability and versatility. It lacks smart contract accessibility and compatibility with Ethereum's universe of tools and DApps, in particular.
As a result, a proposal to launch a second chain with complementary features was made in order to strengthen the entire Binance ecosystem.
Binance smart chain
The DeFi movement was gaining traction, and Binance's innovators were not going to be left out. Binance's Smart Chain (BSC) was introduced on September 1, 2020, with the intention of providing a user-friendly smart contract-enabled blockchain to help spawn new and creative DeFi applications.
Binance promotes BSC as a superior Ethereum alternative, citing the following features:
- 3-second block time
- Proof-of-Authority (PoA) consensus mechanism with 21 validators
- Average transaction fee: 20 gwei
BSC is Ethereum Virtual Machine (EVM) compliant, which is a key feature. This means that DApps created on Ethereum will work on BSC as well, with the added benefit of faster and cheaper transactions. As a result, several Ethereum-based DApps, including the famous IDEX exchange, have been successfully onboarded by Binance.
It's no surprise that DeFi protocols are among the most common DApps on BSC. PancakeSwap, BakerySwap, Venus, and JulSwap are among the most common, according to DAppRadar. Thanks to a $100 million BSC Accelerator Fund, there are currently 47 successful DApps on the network.
BSC recently hit a new high of 532,654 transactions on January 26th, 2021, accounting for nearly 45 percent of the Ethereum network volume.
Binance dual-chain structure
With this dual parallel-chain scheme, users will benefit from the Binance Chain's quick transactions and trading while still using the BSC's smart contract programming capabilities all within the same user interface and tooling environment.
Cross-chain compatibility also ensures that digital assets from both chains, such as the Binance Chain's BEP-2 and BEP-8 tokens, can be conveniently exchanged with the BSC's BEP-20 tokens in an untrustworthy manner.
Both blockchains also operate independently of one another, which adds to their robustness. As a result, if one of the blockchains fails for a period of time, the other will continue to function.
BNB coin
Binance was financed by the BNB coin's initial coin offering (ICO), which raised $15 million between June 26 and July 3, 2017. The BNB coin was originally an ERC-20 token on the Ethereum network, but in April 2019, it was switched to the Binance Chain mainnet as BEP2 BNB at a 1:1 ratio.
Within the Binance ecosystem, the BNB coin has a variety of applications. For starters, BNB is used to pay Binance Chain and Binance DEX transaction fees. Binance transaction fees are reduced for traders who pay with the BNB token.
Second, BNB is used as "gas," with developers paying the token to use the Binance Smart Chain to deploy Smart Contracts.
Staking and validating tasks that keep the Binance Smart Chain running are also driven by BNB, with stakers earning rewards. Transaction gas fees in BNB are charged to all Binance Smart Chain validators.
Binance users will be able to use BNB to mine new tokens backed by Binance's Launchpad, which funds and mentors blockchain startups, starting in 2020. This reward scheme, as well as the Binance CEX's other staking and lending features, has proven to be very successful.
Finally, owners of the BNB coin can use it to pay their bills, buy smartphones, book flights and accommodations, and donate to charity through a variety of participating partners and merchants.
Binance will use 20% of its net exchange profits to buy back and burn BNB coins until 50 percent of the total supply—or 100 million BNB—is exhausted, making BNB a deflationary coin.
The Future
Binance's unusual dual-chain layout is an appealing aspect that gives developers a lot of options. Is it, however, enough to contend with a developer group as big as Ethereum's?
Although the smart-contract-enabled BSC sees itself as a rival to Ethereum, the ecosystem's largest blockchain still has the most strong network impact. It remains to be seen if perceived vulnerabilities like high transaction fees would be the deciding factor. In that case, the tide will turn in favor of the Binance dual-chain application.