What is BNB?
May 12, 2022
6 min read
BNB is the token used to build up-and-coming crypto projects on the BNB Chain. It can also be used to avail of trading discounts on the world’s largest cryptocurrency exchange as well as being one of the most frequently traded tokens based on market cap.
What is BNB (BNB)?
Building the world’s largest cryptocurrency exchange needs a strong and robust token. A token not only used for paying off trading and withdrawal fees, but something that people actually like to trade with and hold for its value.
The Binance exchange was built on the back of such a token, BNB—recently renamed to stand for “Build and Build” according to an announcement on their official website. Ranking fourth in terms of market capitalization as of writing, BNB has long graduated from being just a utility token and is now easily one of the most recognizable coins among all cryptocurrencies.
BNB is also the token that powers the BNB Chain. It rivals that of Ethereum when it comes to providing the foundation for building other blockchains and decentralized applications (dApps), playing a huge part in the global decentralized finance (DeFi) boom.
What is BNB used for?
For users of the exchange, BNB is best known for providing attractive discounts on all transaction fees, but its use cases have extended beyond the platform:
- BNB is a discount token for trading on the platform.
- BNB is used to create and run smart contracts on the BNB Chain.
- BNB can be used to invest on dApps being built on the BNB Chain.
- BNB can be staked to support the network and earn rewards.
- Tiny fractions of cryptocurrencies or “dust” left over in one's wallet after trading can be conveniently converted to BNB.
- BNB can be used to purchase BSC-based NFTs..
- Next to bitcoin (BTC) and stablecoins, BNB is also commonly accepted for merchant payments.
- BNB is commonly paired for swapping with BEP-20 tokens on decentralized exchanges such as Pancakeswap.
How does BNB work?
Until recently, the company’s ecosystem was composed of the Binance Chain and the Binance Smart Chain (BSC), two separate blockchains running parallel to each other, but which now have merged to be called simply as the BNB Chain.
BNB was previously an ERC-20 token (an Ethereum token) which facilitated trading on the exchange and whose sales were used to build up the then fledgling company.
But to meet the demands of the DeFi boom, the company needed smart contract capability on their blockchain so that dApps could be built on top of it. This led to the development of the BSC and the BEP-20 coin standard. BNB was migrated onto the new chain and became the medium of exchange for investing in ICOs launched on the new network and for running their smart contracts—resulting in a huge boost to BNB’s value.
The BSC is in fact, a hard fork of Ethereum’s code, which is just another way of saying that it is a copy of Ethereum—but with some modifications to improve its performance. As Ethereum’s popularity has resulted in congested bandwidth which slows down transactions, BSC needed to find a way to reduce the computational overhead and make developing dApps much faster and cheaper.
The solution was to reject Ethereum’s proof-of-work (PoW) system in favor of a proof-of-stake (PoS) protocol. Unlike in PoW which has miners competing with one another to verify transactions and add blocks to the chain, PoS uses staked tokens to determine a validator’s portion of influence over the network. In PoS blockchains, the more tokens are staked by a validator, the more rights are given to verify blocks for the chain and earn rewards.
PoS thus drastically reduces the amount of computing power needed to run a blockchain and requires much less energy than mining.
Furthermore, BSC takes PoS a step further to simplify the process even more with what’s called “delegated proof-of-stake”.
What is Delegated Proof-of-Stake (DPoS)
To put its speed into numbers, BSC can handle 300 transactions per second (TPS) and currently only charges about 5 gwei or $0.04 per transaction.
DPoS manages this by basically becoming a more centralized version of PoS wherein only the top 21 nodes with the most staked tokens for the day can participate in validating transactions.
Though this might sound beneficial only to “whales” who have a lot of BNB to stake for themselves, other users can still participate by delegating their BNB to these top nodes to earn a portion of the rewards. The argument is that this creates a quality assurance system, wherein users are essentially “voting” which nodes become validators by putting their trust on reliable and high-performing ones and denying malicious ones from participating in the system.
BNB initially had a maximum supply of 200 million tokens. Every quarter, the company uses 20 percent of its earnings on the platform to buy back BNB for “burning”—bringing down the circulating supply and increasing the value of each individual coin. This makes for a fairly predictable price movement which benefits the overall BNB community.
Currently, the tokens in circulation stands at around 163 million, with the goal of reducing the supply to just 100 million.
With over 1200 projects, BNB reminds us of the appeal of a decentralized financial system, that is—that anyone can be a stakeholder in building up an economic infrastructure. Unlike in the conventional sense where only the big corporations could participate in profit ventures, the BNB chain is a proof-of-concept that growth can be much faster and efficient when it's made accessible for everyone from all walks of life to pitch in.
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DISCLAIMER: The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.
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