A beginner's guide to Binance Coin (BNB), the native cryptocurrency of Binance Chain and parallel running Binance Smart Chain.
Binance Coin (BNB) is the official cryptocurrency of the Binance crypto exchange.
When it was launched in April 2019, Binance Coin was nothing more than a humble Ethereum based ERC-20 token designed to reward holders with discounted trading fees.
However, Binance Coin has now become the native coin of both the Binance Chain and Binance Smart Chain.
With a hard cap of 200 million tokens and smart contract capabilities via the Binance Smart Chain, this continued evolution of Binance Coin and its associated blockchains is extremely exciting.
Introduction to Binance Coin
We introduce Binance Coin (BNB), Binance Chain and Binance Smart Chain.
This Binance Coin guide will not only cover BNB, but also Binance Chain and the highly anticipated Binance Smart Chain.
Let’s dive straight into some introductions.
Binance Coin (BNB)
Binance Coin (BNB) was first launched in 2017 as a utility token for rewarding Binance exchange clients with discounted trading fees.
Since then however, the token’s use cases have expanded exponentially to other applications, platforms and even entire blockchains.
Not only can BNB be used to pay transaction fees on Binance exchange, but can now be used on other exchanges (both centralised and decentralised), to book travel accommodation, pay for goods and services at a plethora of eCommerce locations and the jewell in the use-case crown:
Financial services within the decentralised finance (Defi) realm using platforms built on top of the Binance Smart Chain network.
Binance Chain
The Binance Chain is a blockchain software system developed by Binance and its community.
BInance Chain is designed to be a public blockchain with a focus on the transfer and trading of blockchain assets, while at the same time providing new opportunities for the future flow of blockchain assets.
Binance Chain supports the BEP-2 token standard, designed to offer users a rapid trading experience, focusing on performance, ease-of-use, and liquidity.
In this way, rapid trading can be enjoyed on Binance Chain, while powerful decentralised apps can be built on BSC.
Binance Smart Chain
The Binance Smart Chain (BSC) on the other hand, functions as a parallel blockchain to the Binance Chain.
But unlike its older brother, Binance Smart Chain offers smart contract functionality and even compatibility with the Ethereum Virtual Machine.
Binance Smart Chain supports the BEP-20 token standard, using the same functions as its Ethereum counterpart, the ERC-20 token.
That’s right, it’s a fully-fledged environment for developing performance-oriented decentralised applications.
BSC is its entirely own blockchain built for cross-chain compatibility with Binance Chain, ensuring that BNB holders receive all the advantages that both chains have to offer.
After the BSC mainnet went live on September 1 2020, BSC has seen a huge explosion in popularity, led by applications in the Defi space, taking advantage of the network’s relatively cheap fees when compared to Ethereum.
How does Binance Chain and Binance Smart Chain Work?
We examine Binance Chain, Binance Smart Chain and how BNB fits within each.
To begin this subsection of our Binance Coin guide, we must emphasize that Binance Chain and Binance Smart Chain serve two separate and distinct purposes.
For this reason, we will examine each blockchain separately and then take a look at how the Binance Coin (BNB) fits within each.
How does Binance Chain work?
Set up and maintained by the popular cryptocurrency exchange of the same name, Binance chain is the native blockchain of Binance Coin (BNB).
The company’s goal was to create a blockchain that would serve as an alternative marketplace for issuing, using, and exchanging digital assets in a decentralized manner.
This was achieved by creating a new decentralized exchange running on the Binance Chain, called the Binance DEX.
While Binance continues to run their own highly popular centralised cryptocurrency exchange, by also using Binance Chain to run a DEX they are able to use their experience and expertise to also offer clients a more decentralised trading option.
Speaking about Binance Chain, Binance CEO Changpeng “CZ” Zhao said:
“Binance Chain is a very simple chain in terms of application, but it can handle very large loads.
It is our opinion that the load is more important than the features”.
Their initial goal was to launch an alternative DEX that allows users to exchange assets better and more efficiently than other platforms currently found on the market.
Since then however, additional features have continued to be added, thus expanding Binance Chain’s capabilities.
Capabilities such as:
- Allowing you to send and receive Binance Coin (BNB) between different addresses on the DEX.
- The ability to issue new tokens on Binance Chain, which you can then send, receive, burn, mint, freeze and unfreeze.
Anyone using Binance Chain can even propose trading pairs they would like to see added to the DEX.
If the community agrees with their proposal and there’s enough support, then Binance will add the coin and trading on that exact pair will be operational.
As the DEX on Binance Chain grows, more functions will be explored and developed further.
How does Binance Smart Chain work?
In September 2020, Binance Smart Chain (BSC) was launched.
The Binance Smart Chain is an entirely separate blockchain that actually runs parallel to the Binance Chain.
In essence, the two Binance branded blockchains run separately, but side-by-side.
BSC is not an off-chain scalability solution to the Binance Chain but is an independent chain that could function even if the Binance Chain ceased operation.
Consequently, both chains share a strong resemblance in design parameters.
What sets the BSC Blockchain apart from the Binance Chain is:
- Compatibility with the Ethereum Virtual Machine (EVM)
- Smart contract capabilities.
According to the Binance Academy, the design goal of BSC was to retain the high throughput of the Binance Chain while introducing smart contracts into the ecosystem.
BSC achieves approximate 3 second block times by using the same Proof of Stake authority as Binance Chain.
After a block has been finalised and a new one subsequently created, no new freshly-minted BNB subsidy is granted as BNB is not an inflationary token.
In fact, due to regular coin burns by the Binance team, BNB is actually a deflationary token.
Within the Binance Blockchain however, only 21 validators (node operators) are utilized to verify transactions and mint new blocks.
These validators were all chosen by Binance, operate under the direct control of Binance, and serve at the discretion of Binance.
Thus the governance present in the Binance Smart Chain Blockchain is identical to that of the Binance Blockchain.
Given this high degree of control over blockchain operations, the Binance Smart Chain is also highly centralized.
Binance created the separate Binance Smart Chain in order to allow dApps, primarily DeFi applications, to be built on top of the network.
The widespread utilization of smart contracts in the BSC Blockchain has seen a wide and ever-growing array of new financial products continuously being developed.
Binance Smart Chain’s ever-increasing popularity is a trend that doesn’t look likely to diminish anytime in the near future.
How Binance Coin fits within each blockchain
The genesis of Binance Coin (BNB) was originally based on the ERC-20 standard.
At the time, this meant BNB was required to be stored in an Ethereum compatible wallet.
However, upon the launch of the Binance Chain mainnet, BNB was migrated to the Binance Chain.
This turned BNB into the blockchain’s native coin to be used for blockchain fees and other transactions.
This migration to its own blockchain, transformed BNB into a BEP-2 standard coin and resulted in higher usage of BNB.
What this means is that BNB retained the equivalency of an ERC-20 coin, but it now existed on Binance's own chain.
When Binance Smart Chain was introduced, Binance had to ensure BNB was also compatible with the new chain.
This compatibility was created via the BEP-20 standard.
Depending on which blockchain and associated Binance Coin wallet that you’re using, you must ensure that you’re sending the right version of BNB to the right address:
- Binance Chain: Supports the BEP-2 token standard, so if you’re trading on Binance DEX, you’ll need BEP-2 tokens.
- Binance Smart Chain: Supports the BEP-20 token standard, so if you’re using dApps on BSC, you’ll need BEP-20 tokens.
Final thoughts on how Binance Chain and Binance Smart Chain Works
As demonstrated in this section of our guide to Binance Coin, both Binance Chain and Binance Smart Chain are nearly identical in structure and governance.
The divergence of the two chains appears in their respective usages with Binance Chain for decentralised trading via their own DEX and Binance Smart Chain for dApps including DeFi.
It’s also worth noting that if you live within the United States, you are IP address restricted from using Binance exchange.
This includes transferring Binance Coin to Binance Chain’s DEX and all DeFi and wallet applications based on Binance Smart Chain.
With no IP restrictions or KYC required for BSC operations, BSC can still be used and accessed via a VPN.
Is Binance Smart Chain Decentralized?
As Binance runs all Binance Smart Chain validators themselves, BSC is in fact a centralized blockchain network.
No, Binance Smart Chain is not a decentralized Blockchain.
There is a limited number of nodes (21) used by the Binance Smart Chain to validate transactions and create new blocks for the Blockchain.
This centralization is made worse by the fact that each node operator:
- Performs its duties under the direction and control of Binance
- Is appointed by the authority of Binance
- Serves at the sole discretion of Binance who may remove any node operator at any time and for any reason.
Here’s Binance founder, Changpeng Zhao (CZ) on the issue of centralization vs decentralization:
"...as a new blockchain, the initial team will naturally have more influence over the strategic direction of its growth. We believe this is a good thing for a young chain and will allow faster decision making and a higher degree of efficiency."
The difference between centralized and decentralized blockchains
A typical centralized blockchain system is a private blockchain, where it is governed and/or managed by a single group or organization.
All facets of a centralized Blockchain’s operation is under the control of this single entity.
In contrast to this, in a typical decentralized blockchain no one member knows or has to trust anyone else.
Each member of the network has a copy of the exact same data in the form of a distributed ledger.
In this fashion, no one node within the network can alter information held within it.
Conclusion to the centralization of BSC
As so much control is exercised by Binance in the operation of the Binance Smart Chain, it can not be classified as decentralized Blockchain.
The degree of control by the single entity, Binance, over the Smart Chain's operations renders it a centralized Blockchain.
Binance Smart Chain vs Ethereum
We compare Binance Smart Chain to Ethereum to discover which is best.
To begin this subsection of our Binance Coin guide, we first must look at some background information concerning both BSC and ETH.
Next, we examine the use of BNB and Ether on each respective network, taking a look at how each facilitates activity on their blockchain.
We wrap up by examining how each network is used, with a focus on the highly competitive BSC vs ETH Defi battleground.
Background to Binance Smart Chain vs Ethereum
As we will learn, the realm of Decentralized Finance has become paramount in the cryptocurrency sphere, and the competition is fierce.
While it is true the Bitcoin was the first 'programmable money', Ethereum and its ability to run smart contracts were next in line to make it easier to program assets on the blockchain.
Ethereum provided developers with simpler frameworks to create decentralised applications (dApps) designed to run on top of a blockchain.
The genesis of Ethereum allowed those interested to search for loans and higher yields outside the more conventional banking and financial institutions (which institutions required proof of identity and high fees).
Ethereum provided those using the network a unit of account, trade means, loans and investment vehicles without the need or approval of a third party.
As one can imagine, meeting the needs of the investment community caused an influx of investors into the world of blockchain technology and this growth obviously fostered competition.
As it happens, one of the largest competitors to Ethereum rising out of the growth in the Decentralized Finance space was Binance Smart Chain (BSC) that used its own cryptocurrency called BNB.
With a background to Binance Smart Chain vs Ethereum out off the way, lets now take a look at how BNB and Ether each facilitates activity on their respective blockchains.
The use of BNB and Ether
Binance Coin (BNB) is the native cryptocurrency of the Binance Smart Chain, while Ether (ETH) is the native cryptocurrency of the Ethereum blockchain.
Both BNB and ETH are utility coins on their native chains to enable transactions and pay transactions fees.
Just don’t confuse the Binance Smart Chain with the regular Binance Chain.
BNB provides utility to a centralized finance system (the Binance Cryptocurrency Exchange), while also providing a Decentralized Finance utility via the parallel running Binance Smart Chain.
Comparisons between BNB and ETH are regularly drawn as both coins function on their respective networks in a similar ways.
In fact, BNB was initially launched in 2017 as an ERC-20 token on the Ethereum network by way of an Initial Coin Offering (ICO).
However, BNB was eventually transitioned off Ethereum's chain in 2019 and migrated to its native chain for the functionality we see today.
There’s now no doubting that aach crytocurrencies are investment quality assets.
The BSC vs ETH Defi Battleground
In September of 2020, Binance launched the Binance Smart Chain which offered an alternative network to Ethereum for running Defi applications on top of.
This was a welcome development to the Defi space as the growth of the industry was overtaxing the limited infrastructure available on Ethereum.
The result was network congestion, slow transaction times and highly prohibitive transaction fees.
Growth of the Binance Smart Chain was assured as BSC offered an Ethereum alternative providing fast transaction speeds and low-cost transaction fees.
BSC provided a viable solution for those who could no longer afford to use the Ethereum network for Defi and opened the space up to a wave of new participants.
No better example of this was participation in LeoFinance’s own DeFi platform, called CubFinance.
ETH and BSC have extremely similar applications built on top of their networks providing decentralized exchanges and lending/borrowing platforms.
However, the two chains diverge as they operate on two different consensus mechanisms.
Ethereum
Currently, Ethereum uses a Proof of Work consensus mechanism where miners use computers to compete with one another to validate transactions.
To win, and be paid a mining rewards as a result, the computer must solve complex mathematical equations.
Upon solving the equation, the computer adds a new block of transactions to the blockchain and the miner is paid in ETH.
This mining system is highly energy-intensive but provides security for the system.
The geographic diversity of the miners’ location results in a decentralized network, absent of any type of central authority.
It’s here in this manner that Ethereum’s consensus varies from Binance Smart Chain and as such is an entirely trustless system.
Binance Smart Chain (BSC)
On Binance Smart Chain (BSC), a Proof of Authority mechanism is used for consensus where nodes known as validators create new blocks for the network.
Within this particular network however, there are only 21 validators who are pre-approved and in fact chosen by Binance itself.
Using this Proof of Authority consensus mechanism gives Binance full control over its Blockchain (yep, BSC is centralized).
It is Binance's decision who can become a validator and Binance retains the right to remove a validator at will.
Further, at its sole discretion, Binance can effect any change to the ecosystem at any time under any condition.
So with all of Binance Smart Chain’s validators being centrally controlled (at least highly influenced) by the head office at Binance, you can see how conflicts of influence may arise.
Final Thoughts on Binance Smart Chain vs Ethereum
By now, everyone should be aware of the upcoming upgrades to Ethereum, coined Ethereum 2.0.
The major upgrade coming to Ethereum is its transformation from a Proof of Work consensus system (discussed above) to a Proof of Stake system.
In this new system, miners are replaced with individuals who 'stake' their coins.
These individuals, who so decide, may join 'stake pools' (much the same as miners' could join 'mining pools') to earn additional rewards on their coins.
Unlike Binance's Proof of Authority model, Proof of Stake 'pools' and nodes are not chosen by a central authority.
This ultimately means Ethereum in either instance (PoW or PoS), is more decentralized than Binance Smart Chain.
Binance Coin Wallets
There is a range of Binance Coin wallets available for you to store your BNB holdings.
When choosing a Binance Coin wallet, you should choose one that is able to support both the BEP-2 AND BEP-20 token standards for storing BNB.
While we’ve already discussed the inner workings of each token standard above, all that’s left to say in this section of our BNB guide is to ensure you’re sending the right coin to the right wallet address.
Failure to send the correct token to the correct wallet address, for example a BEP-2 token to a BEP-20 address, may result in your coins being lost.
Types of Binance Coin Wallets
There are three basic types of Binance Coin wallets available for the storage of BNB tokens.
1. Paper wallets
In a Binance Coin paper wallet, the private and public keys of the address of a cryptocurrency are physically printed on a piece of paper.
QR codes display these keys with their respective alphanumeric strings.
Paper wallets have the advantage of being able to generate addresses offline, which makes them a popular alternative to cold storage.
Aside from their security, they are also immune to hacker attacks because they are presented in an analog format, which means them being immune to digital attacks and hacking.
2. Software wallets
Binance Coin software wallets permit you to store your private keys online, keeping the BNB tokens you own safe and accessible.
A software wallet also permits you to easily send, receive and spend your BNB cryptocurrency at will.
You can store assets in a Binance.com account or Binance Chain account and may use Binance Wallet Direct to easily transfer assets between the two.
Today, there exists a wide array of software cryptocurrency wallets for you to choose between, most of which store coins from other chains besides Binance Chain based assets.
Some suggestions will be provided, but it is recommended that you fully investigate the array of Binance Coin software wallets available and choose the one with which you’re comfortable.
With this in mind, some of the most popular software wallets include:
TRUST WALLET: Trust Wallet is the most popular mobile-only Cryptocurrency wallet available. It allows BNB holders to safely secure and manage your assets while retaining full control of you private keys at all times. Using Trust Wallet permits you to store coins from all of the major cryptocurrency networks, in addition to BNB.
METAMASK: Metamask is a wallet that is available as a browser extension and a mobile application. Users can connect to Binance Smart Chain and hold your assets on-chain through an inbuilt token wallet for all of the BEP-20 coins held, together with an integrated token exchange built-in.
BINANCE CHAIN WALLET: Binance Chain Wallet is the native wallet application for Binance, available as a browser extension for Chrome, Firefox, and Brave. It allows you to transfer assets between the two chains, interact with decentralized finance products and decentralized applications, as well as safely storing your BNB.
ATOMIC WALLET: Atomic Wallet is one of the more popular multi-functional desktop wallets available for BNB holders. Atomic Wallet provides the same security protocols as the Binance Chain wallet, as well as permitting inbuilt swap functions through “Atomic Swap”. This allows you to exchange your assets to BNB and vice versa, all from within the wallet.
While there are many other Binance Coin software wallets available, the above list appears to be the most popular.
No specific choice of wallet is provided to the users herein and you are reminded to do your own research in choosing an online 'hot' software cryptocurrency wallet.
3. Hardware wallets
Binance Coin hardware wallets use a physical device or smartcard to store your private keys.
They are beneficial for long term hodlers due to their increased, offline security for your keys.
To use a hardware wallet, the user has to connect to the manufacturer’s web interface to initiate or verify transactions sent to their public keys."
Hardware wallets are also known as “Cold Storage” wallets, as they are designed for long-term storage of assets as in safes or other safe places.
In much the same way as software wallets, there exists a wide array of hardware cryptocurrency wallets for you to choose from.
Some suggestions will be provided, but again it is recommended that you fully investigate the array of crypto wallets available and choose one which you’re comfortable with.
Once again, doing your due diligence is entirely on you.
Some of the more popular hardware wallets include:
LEDGER: Ledger has proven itself to be the most popular hardware cryptocurrency wallet on the market. It provides a high level of security for BNB storage. Best of all it is easy and simple to configure. To use a Ledger wallet, you simply plug it into the USB port of your computer. Ledger is only functional in-person, ensuring the safety of your assets as the accounts private keys are stored offline.
SAFEPAL: SafePal is the first hardware wallet that is backed by Binance Labs. You can safely store, manage and trade their crypto assets using the app and as well manage your NFT holdings. SafePal offers full offline interaction through an “Air-gapped” protocol, meaning there is an absence of a Bluetooth, WiFi, NFC or USB connection requirement required to interact with the SafePal wallet.
Final Thoughts on Binance Coin Wallets
As you can see, there is a wide array of Binance Coin wallets available to hold the BNB assets you own.
Whenever you’re ready to make a choice, getting your BNB off of the exchange where you bought it and taking control of the private keys associated with your Binance Coin, is highly encouraged.
With that in mind, it’s critical that you fully investigate which wallet function you require, as well as any individual preference for style.
As with all cryptocurrencies you own, choosing a Binance Coin wallet is an extremely important and personal decision that only you can make.
Binance Chain and Binance Smart Chain Pros and Cons
Before you invest in Binance Coin (BNB), read the pros and cons of each blockchain.
Binance is the biggest cryptocurrency exchange in the world in terms of volume and number of users.
They created Binance Chain (BC) in 2018 to scale Crypto Trading activities.
By 2020, Binance Smart Chain (BSC) was launched parallel to BC.
In this section of our Binance Coin guide, we are going to look at some of the major pros and cons of both Binance Chain and Binance Smart Chain.
In conclusion, we will try to answer whether one should invest in Binance Coin in 2021, or look to allocate their funds elsewhere.
Binance Chain Pros
1. Performance: Binance Chain supports Binance Dex, used by millions of crypto traders all over the world. The blockchain provides quick transactions with low fees and high liquidity.
2. Startup Boost: Binance Chain provides a great platform for ICOs and tokens to kick things off with ease. Crypto startup funding new token liquidity can be managed through Binance DEX supported by the Binance Chain.
3. Customer Support: Binance has strong customer support teams dedicated to fixing customer issues. Crypto is quite new, meaning people make mistakes and potentially lose their funds. Having 24x7 professional support at your disposal is worth it.
4. Brand Image: Binance has established itself as one of the biggest and most trusted crypto brands in the world. The community is huge and quite active on social media. It's not just an exchange but a global blockchain company that is involved with all kinds of crypto trends.
Binance Chain Cons
1. Centralization: With speed, security, and ease of use come centralization. Most of the Binance Chain top validators are directly or indirectly owned by Binance. Hence we cannot say it is fully decentralized.
2. No Smart Contracts: Binance Chain is used for trading but smart contract functionality is not available. That's why they also created Binance Smart Chain.
Binance Smart Chain Pros
1. Smart Contracts: Binance Smart Chain is a fork of Ethereum with some changes. Hence it has smart contract functionality and is compatible with the Ethereum Virtual Machine. It's perfect to host DeFi and NFT applications.
2. Interoperability: BSC and Binance Chain are running parallel and they are interconnected. This means that users can easily transfer their tokens from BSC to Binance Chain and vice versa. Also, BSC is an independent chain that will run even if Binance Chain stops.
3. User Experience: BSC has better speed and low gas fees as compared to Ethereum. While Ethereum kills the user experience with high congestion and gas fees, Binance is able to squeeze in more transactions in one block.
4. Adoption: Since it is an exact copy of Ethereum and compatible with EVM, Ethereum based DApps can easily switch to BSC. There are multiple cross-chain bridges available by Binance and other third parties which makes the transition quite easy.
5. Community: Apart from high performance and a better user experience, Binance has a huge user base that provides enough support to their new projects. Binance's community is one of the biggest reasons for BSC's success. BSC has already flipped Ethereum in the number of transactions metric.
Binance Smart Chain Cons
1. Centralization: Just like Binance Chain, Binance Smart Chain is also centralized. It used PoSA (Proof of Staked Authority) mining in which 21 validators are required to keep the chain online. However, most of the Binance Smart Chain validators are directly or indirectly owned by Binance itself.
2. Dependence On Ethereum's Dev Community: Binance Smart Chain is heavily dependent on Ethereum's dev community which means not much innovation is happening on BSC. Instead, it is carried across from Ethereum.
3. Security: Since BSC is centralized, it is prone to system failures, hacks and 51% attacks. Remember, all network validators are required to be approved by Binance's internal team.
Should you Invest in BNB In 2021?
Yes, BNB is backed by one of the biggest crypto and blockchain brands in the world.
BNB, the native token of Binance Ecosystem, is used to pay trading fees, BSC gas fees, controls and even for BSC governance.
As you can see, BNB has several use cases, making it no longer just a mere utility token.
Since the inception of Binance Smart Chain, the price of BNB has moved into an exteme uptrend and gained more than 800% when compared to the start of the year.
Due to the crypto trading boom in 2021 and after BTC reached its all time high, trading volumes of Binance has increased exponentially.
Since many users like to pay fees in BNB, demand for the coin has grown and BNB's market cap is growing due to growing interest in DeFi plus NFTs.
Apart from these, one of the major reasons for BNB is an attractive investment is the quarterly burns.
Binance uses around 20% of its quarterly profits to buy and burn BNB.
So should you invest in BNB in 2021?
Yes, BNB is backed by one of the biggest crypto and blockchain brands in the world.
Ethereum's transaction fees continue to be high and the DeFi space is continuously growing.
Due to the increasing popularity of crypto, more and more people are joining this space and Binance is becoming their first choice of entry.
For this reason, BNB looks like a lucrative investment in both the short and long term.
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