Binance Coin (BNB) is the 4th largest cryptocurrency today in terms of market capitalization. BNB is the native token of Binance Exchange, and for most of its lifetime, it has been used to pay trading fees on the trading platform. However, it has recently exploded in popularity due to the growth of Binance Smart Chain’s (BSC’s) ecosystem, which uses BNB for many functions. BSC is a blockchain that supports smart contracts rivaling the Ethereum network’s DeFi (decentralized finance) ecosystem. It has seen massive growth and adoption due to its minuscule transaction fees and similarity to the Ethereum network.
What is BNB?
BNB is a cryptocurrency that exists in three different forms, all on different networks (but all have the same price):
- (BEP-2) BNB is the native token of Binance Chain, which is the simplest of these 3 networks, and it facilitates fast and efficient trading on the Binance Exchange platform.
- (BEP-20) BNB is on the BSC and is used to pay transaction fees on the network.
- (ERC-20) BNB is on the Ethereum network and wields limited use cases beyond price speculation.
BEP-20 BNB on BSC works similarly to Ethereum on its network because it is essentially a copy of Ethereum with a few tweaks. While BNB’s most common use case is to pay transaction fees on BSC, it has a number of other use cases including:
- Payment of discounted fees on Binance Exchange
- Staking to earn interest on different kinds of DeFi platforms such as DEXes (decentralized exchanges) and yield farms like Pancake Swap and Autofarm
- Payment for various services (such as travel accommodations, income etc.)
History of BNB
BNB was founded alongside Binance Exchange by Changpeng Zhao, known as “CZ,” in June 2017. The token launched through an Initial Coin Offering (ICO) roughly two weeks before trading on Binance Exchange opened. Binance Exchange is the largest spot and derivatives trading cryptocurrency exchange in terms of volume.
In September 2020, Binance Exchange released its fork of the Ethereum blockchain, BSC. Adoption of the new network was slow in its early stages. The network had very few working decentralized applications (dApps), and it had few advantages over the reigning DeFi king, Ethereum. However, when Ethereum started to face massive congestion on its network, transaction costs skyrocketed.
The extremely low fees on BSC were attractive to dApp developers, and users began joining the network once platforms like BurgerSwap and PancakeSwap (both BSC copies of the Ethereum-based DEX Uniswap) launched. Since this wave of adoption at the beginning of 2021, developers have built a diverse ecosystem on BSC for lending, yield farming and payment platforms.
BNB Price Movements
Cryptocurrencies are infamous for their high volatility, and BNB is no exception. It has seen a massive rise from about $37 at the beginning of 2021 to an all-time high of about $700 early this May. This surge coincided with a stark increase in Ethereum transaction fees as the network encountered heavy congestion. Some investors speculate that the popularity of BNB can be attributed to users switching from Ethereum to BSC to save on transaction costs.
While BNB’s highs are meteoric, so are its lows. The recent correction in the crypto markets that followed the announcement of the Chinese government’s plan to restrict cryptocurrency usage sent BNB to $210 on May 23, 2021. Like most other assets in its class, BNB has not been able to return to its all-time highs yet, but it has recovered to about $365 at the time of writing.
BNB’s market capitalization has recently risen to $55.2 billion, making it the fourth largest of all cryptocurrencies behind USDT. It managed to break $100 billion at its peak in early May, a little less than a quarter of Ethereum’s market cap at the time. Some analysts and influencers believe that BNB will flip Ethereum, but this kind of dominance would mean another 415% increase in its price in a scenario where Ethereum trades sideways.
Best Exchanges For BNB
BNB is traded on specific cryptocurrency trading platforms like eToro and Binance Exchange. It’s easy to set up an account on eToro on their mobile app (for iOS and Android) or through your desktop on its website.
It should be noted that eToro doesn’t let you transfer your BNB off the platform yet and can only be traded on the site, unlike Binance Exchange. Users in the U.S. will need to enter their Social Security number, address and a driver’s license (or other valid ID) to open up an account on either platform and start trading BNB.
Unfortunately many U.S.-based trading platforms like Coinbase, Gemini and Kraken haven’t listed BNB yet. However, it’s easy to use these exchanges to fund your Binance account with crypto because apps like Coinbase make it simple to connect your bank account. Check out our article for an in-depth, step-by-step explanation of how to buy BNB.
eToro, headquartered in Cyprus, England and Israel, has provided forex products and other CFD derivatives to retail clients since 2007. A major eToro plus is its social trading operations, including OpenBook, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its lack of tradable currency pairs and underwhelming research and customer service features
- U.S.-based cryptocurrency traders
- Social and copy traders
- Simple user interface
- Community engagement and following other traders
- Expansive network of social trading features
- Large client base for new traders to imitate
- U.S. traders can only buy cryptocurrency
- Only 15 cryptocurrency pairs available
BSC vs. Ethereum
BSC was launched by Binance Exchange in September 2020 to rival the Ethereum DeFi ecosystem by promising lower transaction fees while remaining compatible with most decentralized apps and tools on the Ethereum network. Developers of DeFi platforms on Ethereum can port over their projects to BSC with relative ease. Also, wallets like MetaMask support both Ethereum and BSC transactions, making it simple to use the same wallet for both networks.
All you need to do to trade or store your BNB and other BSC tokens with MetaMask is add the network by following the step -by- step instructions on Binance’s forum post describing the process.
BSC uses a Proof of Staked Authority (PoSA) consensus mechanism in which the 21 users with the most staked BNB are elected every 24 hours to process and approve all transactions on the network. This practice makes the processing and validation of each transaction much faster and cheaper than a traditional Proof of Stake consensus mechanism because there are fewer validators who need to sign off on each one. Ethereum 2.0, which hasn’t even fully launched yet, has nearly 80,000 validators, making it significantly slower and prone to congestion.
Although BSC optimizes transaction speed and fees, it sacrifices a large degree of decentralization and security compared to the Ethereum network. Because there are so few validators, the power to maliciously alter the network is concentrated within Binance Exchange and the top holders of BNB. Also, more than 85% of BNB is either owned or custodied (held in wallets for someone else) by Binance itself. This holding system doesn’t mean that the company will change its network in a way that will hurt BNB holders, but they do hold the power to do so more easily, unlike fully decentralized cryptocurrencies.
Is BNB a Good Investment in 2021?
BNB has been a wildly successful investment in 2021 even after losing more than 50% of its value from its all-time high prices due to the recent crypto market crash. Since January 1, 2021, BNB is still up 970% and has emerged as a valuable and legitimate competitor to Ethereum. Because users of the BSC network enjoy significantly lower transaction costs compared to the Ethereum blockchain, retail investors are incentivized to use BSC over Ethereum.
Ethereum developers have updates slated for this year to help reduce transaction costs, and if successful, the network might absorb a large portion of its competitors’ users. Some DApps on Ethereum are also starting to employ “Layer 2” solutions, which help speed up transactions on their application by processing them off of the main Ethereum network.
Low transaction fees are the largest boon BSC has over its rival, and if this advantage is sustained, BSC and BNB will likely remain a popular network and good investment respectively.
Frequently Asked Questions
Ethereum is the king of DeFi, even though its high fees have turned many users away recently. It has the largest group of developers of any cryptocurrency by far working on the network and the platforms that run on it. This network will probably remain the top choice when it comes to DeFi as it is improved on a regular basis with updates built by the leading developers in cryptocurrency today.
Because Ethereum and BNB are the native tokens of each of their networks and are used to pay for transaction fees, their prices will likely correlate with the success of their respective networks. Until the slated updates solve or at least dampen the issue of enormous transaction costs on Ethereum, however, BNB will remain a viable competitor.
BNB has some elements of decentralization, but in practice, it is a centralized cryptocurrency. For example, anyone can theoretically become one of the all-powerful 21 validators of BSC. To do so, however, they would need to stake an alarming amount of BNB and be able to consistently maintain a Virtual Private Server. The cost of the amount of BNB needed would be about $10 million at the time of writing, allowing only the ultra-rich to control the network.
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