Binance Coins: A Smart Investment
The Binance Coin is a digital currency issued by the Binance exchange and trades under the symbol BNB. In May 2024, Binance Exchange was the world’s second-largest cryptocurrency exchange (as certified by Coinmarketcap), with a daily trading volume of $11.8 billion. Binance Coin (BNB) had a 24-hour trading volume of $1.45 billion.
What is the Binance Ecosystem?
Binance provides a range of platforms for developers, researchers, traders, investors, and more. This is accomplished through the use of Binance Chain and Binance Smart Chain. Binance Chain was created to process transactions. In contrast, Binance Smart Chain provides a smart contract-friendly environment for developers to build and create decentralized apps (dApps). Furthermore, Binance Smart Chain does not have the same network congestion or costs as Ethereum, making it an intriguing alternative. Binance Chain and Binance Smart Chain operate simultaneously and independently, with compatible features across the chains and the larger ecosystem. Binance have a whole ecosystem which makes it easier for the investors and users to operate it.
A blockchain software system called Binance Chain was first created by Binance and the community. The development of the Binance Chain is driven by the community and involves numerous global developers and contributors. In addition to facilitating transactions on the Chain, covering transaction fees on the Binance Exchange, and enabling in-store payments, its native Binance Coin (BNB) runs the Binance Ecosystem.
What is Binance Coin?
The cryptocurrency issued by the Binance exchange is called Binance Coin, and it is traded under the name BNB. Each quarter, Binance utilizes one-fifth of its earnings to burn (or repurchase) BNB that is stored in its treasury in order to permanently destroy it.
Only Bitcoin, Ethereum, and USD Tether had a higher market capitalization than Binance Coin (BNB) at the time of writing. While Binance was first developed in 2017 as a utility token to provide traders with lower trading costs, it is now used for a wide range of purposes, such as paying transaction fees on the Binance Chain, booking travel, entertainment, internet services, and financial services.
The Binance ecosystem is made up of many distinct elements, yet they are all connected by Binance Coin. The BNB coin has multiple functions, such as being a component of a development protocol, a rewards token, a token issuance pairing, and a medium of exchange for transaction fees and payments.
How does the BNB Chain work?
- Proof of Stake Authority (PoS)- To maintain the network, the BNB Chain combines components of a PoS structure with PoA. A minimum of 10,000 BNB must be staked by users in order to be considered as a validator. In the event that a user does not have this sum, they may assign their stake to an elected validator, who will then share in any benefits they earn. Validators not only stake 10,000 BNB but also their reputation by working in public rather than privately. While it’s not uncommon for miners on other blockchains to operate publicly, on the BNB Chain it’s an obligation rather than an option. Comparing PoSA on the BNB Chain to networks like Bitcoin or Ethereum, a lot fewer validators are needed. To prevent malicious users from becoming validators, the network is giving up decentralization at this point in the validation process. The network can support a substantially larger transaction volume across fewer validators by centralizing control among a small number of validators.
- Smart Contract- Binance announced the BNB Smart Chain in 2020, which adds smart contract features to the BNB Blockchain. Smart contracts enable two parties to establish and carry out agreements without the need for an intermediary by utilizing a set of specified conditions. The usage of smart contracts on the BNB Smart Chain has increased the network’s functionality while lowering the overall cost of creating and executing contracts between two parties. Some developers have been drawn toward the BNB Smart Chain because smart contracts are relatively inexpensive to establish on the network. However, these costs are minimal because traffic on the BNB Smart Chain is reduced (when compared with Ethereum).
- De-Centralized applications- Smart contracts have also enabled the construction and use of DApps. DApps, like smartphones or computer programs, offer a diverse set of features. Instead of executing on a central server, a DApp’s code is committed to the blockchain using a smart contract. The BNB Chain’s peer-to-peer network can then carry out the app’s smart contract without the need for a centralised authority.
- Tokenization- BNB Chain also serves as a fundamental layer (or Layer 1) for other cryptocurrency initiatives. The native coins for these projects are called BEP-2 tokens. Think of BEP-2 as a collection of standardised instructions that all blockchain assets must follow. This standard ensures that anything created on the BNB Chain can interact easily with any other token in the ecosystem.
Coin Burn
Every quarter, Binance spends one-fifth of its income to repurchase and permanently destroy (or “burn”) the BNB in its treasury. Binance has carried out these burning events on a regular basis. The most recent BNB burn as of May 2024 was on April 24. Binance destroyed a total of 1.94 million BNB, worth $670.78 million. This was Binance’s 27th quarterly BNB burn.
In order to further enhance scarcity, these tokens are burnt. The last two quarters of 2020 saw record burning, with roughly seven million tokens burnt in just six months. During the 13th quarterly BNB burning event, over two million BNB tokens were burned. Binance Coin prices have generally rebounded shortly following each fire occurrence, only to collapse again. However, the price rarely returns to its pre-rally price, and the BNB token outperformed other cryptocurrencies throughout the 2018-2020 down market season.
Advantages of Binance Coins
- Fee- Due to the unique PoSA consensus technique, the BNB Chain can handle more transactions with less validator participation and processing power. As a result, fees are quite minimal when compared to other smart contract blockchains, such as Ethereum.
- User friendly- If you already use the Binance exchange, having BNB on hand is like having airline reward points. BNB can be used to decrease trade costs, make payments on a variety of supported platforms, and receive access to exclusive NFT drops.
- Burning mechanism- BNB’s auto-burn mechanism ensures that the coin is capable of handling the constant stresses of supply and demand. Auto-burning will continue till 100 million BNB are left in the market.
Disadvantages of Binance Coins
- New Project- The BNB Chain, unlike Bitcoin and Ethereum, is a relatively new project. While it has achieved great success and consistently ranks among the top cryptocurrency by market capitalization, the project will need to continue to innovate and find additional use and adoption in order to scale.
- Centralized- The BNB Chain is linked to a private corporation called Binance. It also applies the PoSA consensus model. In this model, transaction verification is delegated to a small group of validators who can afford to participate. These validators are also required to disclose information that could be used to identify them. When compared to other networks, the BNB Chain is more centralized, which contradicts some of the fundamental ideals of cryptocurrency. This configuration also results in a very centralized point of failure, as attackers only need to target a few key nodes to compromise the system.
- Cyber hackers- While the BNB Chain is protected by cryptographic blockchain technology, Binance, the exchange, is frequently targeted by hackers looking to get into hot wallets. This could cause stress among security-conscious investors.
FAQ
1. How to store BNB?
There are several options for storing BNB, including a cold wallet, a hot wallet, and with a custodian.
2.How can I buy BNB?
You can buy it directly through the official website of BNB i.e., Binance.com
3. What is the price of 1 Binance Coin today?
As of today (18th July 2024), the price of 1 Binance Coin is INR 47,515 and USD 567.