Created by the cryptocurrency exchange Binance, Binance Coin (BNB) was initially launched as a token on the ethereum blockchain, but was subsequently migrated to Binance’s proprietary blockchain, Binance Chain1.
Binance Chain was created with the intent of operating a native crypto asset, called BNB, meant to offer an alternative way to pay for fees charged to traders using the exchange. Binance has since developed a decentralized exchange (DEX) on top of Binance Chain2.
Today, BNB can be used to pay Binance’s 0.1 percent per trade fee in addition to its withdrawal fee, which is charged when users move their cryptocurrencies from the exchange to a private wallet. BNB can also be traded for other cryptocurrencies.
Users receive a discount on each trading fee according to the following schedule when trading with BNB3: they receive a 50 percent discount for the first year, a 25 percent discount for the second year, a 12.5 percent discount for the third year, a 6.75 percent discount for the fourth year and no discount for the subsequent years.
Since the discount rate decreases over time, the value of the BNB is also expected to decrease. In order to counteract this depreciation, Binance utilizes a process called “The Burn”. According to their white paper, Binance will destroy BNB tokens every quarter based on the trading volume of their crypto-to-crypto platform until 50% of the total supply of BNB tokens is destroyed – 100 million BNB tokens.
The final goal of “The Burn” is to stabilize the price of BNB over time4.
How does Binance Coin work?
Binance Coin (BNB) is an ethereum-based (ERC-20) token that can be used to trade cryptocurrencies and pay for fees within the Binance exchange. BNB tokens can be used to pay fees on the exchange, with the incentive being that Binance offers a rebate as an incentive for up to five years of membership5.
Binance is distinct from other crypto exchanges in that it transacts purely in cryptocurrencies (as opposed to exchanges that deal in fiat currencies)6. Zhao’s vision for Binance was to compete with the other exchanges by offering solutions to the numerous problems he saw with the cryptocurrency trading infrastructure.
Launch & issuance
Binance completed its initial coin offering (ICO) of 100 million BNB on July 21, 2017.
All BNB tokens were created prior to the ICO, and were sold within 20 days, raising approximately $15 million.
The funds raised were used in three different ways: 35 percent of the funds were used to build the Binance platform and perform system upgrades; 50 percent were used for Binance branding and marketing; and 15 percent were reserved as emergency funds5.
Network design & security model
BNB started as an ethereum-based (ERC20) token that eventually moved towards its own, custom blockchain called the Binance Chain7. Unlike ethereum, however, Binance Chain does not support smart contracts8.
Binance Chain utilizes the Tendermint byzantine-fault-tolerant (BFT) consensus mechanism. The system involves several different types of nodes: validator nodes, select community members who vote to validate transactions; witness nodes, which witness the consensus process and broadcast transactions to other nodes; and accelerator nodes, which are owned by organizations and speed up the transaction validation process9.
Once blocks are produced, the fees collected are distributed among all validators10.
Monetary policy/ token policy
Binance has capped the BNB supply at 200 million tokens. 100 million tokens were released to the public during the ICO, while 80 million were allocated to the founding team and 20 million to the angel investors5.
In order to combat the depreciation of value that will happen with the yearly decreasing discount, Binance plans to burn half of its total supply of token (100 million tokens) over time. The final goal of “The Burn” is to stabilize the price of BNB over time11.
Validator nodes vote to process transactions in the network as part of Binance Chain’s Tendermint byzantine-fault-tolerant (BFT) consensus mechanism.
Users can speed up transaction processing by choosing an Accelerator Node, which is a node that works in tandem with validator nodes and is owned by an organization.
Authored by John Metais