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Crypto: What is Binance Coin (BNB)?

Binance coin is a digital asset developed by Binance. It used to be based on the Ethereum blockchain, but now has it trades on the Binance blockchain. How exactly does this coin work?

Binance-coin

With tens of millions of registered users, Binance is a contender for the most popular cryptocurrency exchange in the world. Vast amounts of crypto flow through the exchange every day, making it an important part of the crypto ecosystem. Binance has also developed a blockchain ecosystem centred around BNB Chain, which combines the two blockchains previously known as Binance Chain and BSC.

What is BNB?

Binance Coin (BNB) is the native token of the Binance-related blockchains that form BNB Chain. BNB Chain is a blockchain network with smart-contract capability and has become a popular alternative to the Ethereum network in this regard. Many DeFi projects now launch their tokens on BNB Chain, and other major crypto assets are available in wrapped form on the network.

BNB first launched in 2017 as an ERC-20 (Ethereum) token. It was made available to the public in an initial coin offering (ICO). During the ICO, individuals could buy BNB directly from Binance. Customers purchased 100 million BNB during the ICO. Another 20 million went to angel investors, and the remaining 80 million went to Binance themselves.

In contrast to Bitcoin, BNB isn't a mined cryptocurrency. Binance distributed the total supply of 200 million coins through the ICO, and no more coin creation will take place. Because of this, BNB is also sometimes referred to as a 'pre-mined' cryptocurrency.

What Makes BNB Valuable?

BNB migrated from the Ethereum network to its own native blockchain network in 2019. Binance since rebranded its BNB-based networks to BNB Chain in 2022. BNB plays a large role on BNB Chain, being the primary token of the network. Fees on BNB Chain are paid in BNB, meaning it is required for transactions. This is similar to how Ethereum serves as 'gas' on the Ethereum network.

The popularity of BNB Chain gives BNB much of its value. Demand for BNB to fuel transactions on the network pushes the value of BNB up. Further growth of the BNB Chain network will correlate with higher demand for BNB.

BNB Chain competes with other layer-1 smart contract platforms like Ethereum and Avalanche. This means that the value of BNB is linked to the network's positioning within the smart contract space. If BNB Chain continues to attract users into its ecosystem the demand for BNB will rise. However, if BNB Chain does not remain competitive against other smart contract networks, the demand for BNB could drop.

BNB also has a 'burn' mechanism. The burn mechanism destroys BNB to reduce the total supply. The Binance team purchases and burns BNB every quarter, based on volume on the BNB Exchange. In 2021 Binance introduced a further 'auto-burn' mechanism, destroying a portion of the BNB spent as gas. Binance has the long-term goal of burning 100 million BNB - half the total supply.

BNB's burn mechanism puts deflationary pressure on the overall supply of BNB and potentially provides a backstop against any wanes in demand. The shrinking supply of BNB as coins burn means that the remaining BNB in circulation is more valuable. Because no new BNB will ever be mined, BNB holders are not in danger of losing value due to inflation of the coin's supply. This could make BNB a strong store of value.

Who uses BNB?

BNB is used by people who use BNB Chain, as they need it to pay transaction fees. This makes it vital for people purchasing BNB Chain tokens such as PancakeSwap (CAKE) or SafeMoon (SFM). It is also necessary for DeFi protocols that rely on the BNB Chain network. High fees and slow speeds on other networks bring new investors into the BNB ecosystem every day.

BNB has the backing of Binance, one of the most prominent cryptocurrency exchanges worldwide. The staggering amount of trade done through Binance has helped BNB quickly grow. It is also a crucial asset within the BNB Chain ecosystem. These qualities give BNB enduring popularity with some investors. Today, BNB plays a major role in the crypto space. As always, before you take any risk with investing in crypto or anywhere else, speak to a qualified financial advisor.

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