When you enter the world of cryptocurrencies, you are essentially meeting the world’s largest crypto exchange, Binance. Reporting 28.6 million active users as of the end of 2021, Binance is in its category by market share, handling over 15% of global cryptocurrency traffic. That is, if we exclude the third-order crypto exchange, Mandala, with which it shares its liquidity.
To serve all those millions of users, Binance launched Binance Coin (BNB) the same year it was founded in 2017. Binance Coin has many uses, but let’s first start with how and why it was created.
Why did Binance launch Binance Coin (BNB)?
Just as private companies go public with IPOs (Initial Public Offerings) to attract investors, cryptocurrency companies tend to do the same with ICOs (Initial Coin Offerings). With a traditional IPO launch, investors acquire a stake in the company through stock shares. In turn, ICOs launch tokens on the blockchain network.
In the case of Binance, the company headed by Changpeng Zhao launched Binance Coin on the Ethereum blockchain with a ticker BNB. Ethereum is still the largest smart contract platform with 55% market share, so it was a good call to choose Ethereum to launch an ERC-20 token, the Ethereum smart contract standard, as the Ethereum smart contract standard.
Three years after the launch of Binance Coin, Zhao launched the Binance Smart Chain (BSC). This is Binance’s version of Ethereum. However, BSC still has a market share of 9x less than Ethereum, which is less than 6% compared to Ethereum’s 55%.
With the BNB ICO launch, Binance distributed 10% (20 million BNB) tokens, at $0.15 each, to so-called angel investors. These are private, wealthy individuals who provide companies with enough seed money to fully develop their business roadmaps. Binance retained 40% (80 million BNB) of tokens for itself, leaving 50% of the remaining BNB supply open to the public.
The maximum supply of Binance Coin was set at 165,116,760 BNB. As Binance grew bigger, the BNB token appreciated, just as the company’s shares did on the stock market. In other words, imagine a hold on BNB in 2017. This would have increased by 368,137 percent! So, if you were a Binance investor with only $1,000 worth in BNB, you would now be able to convert that one grand into $2.5 million.
Now that you understand the difference between BSC and BNB and its service as a funding vehicle, it is time to see what you can actually do with Binance Coin as a utility token.
Explanation of the use of Binance Coin
First and foremost, Binance Coin (BNB) represents your stake in Binance itself. If you believe that the company is poised to move even further, this will be reflected in the price of BNB, allowing you to sell it for a much higher price than you would buy later.
Furthermore, BNB is like all other cryptocurrencies on other blockchains. You can exchange BNB for any other token available on the Binance exchange. Furthermore, the company encourages you to hold BNB as it gives you a discount when you pay your transfer/exchange fees in BNB instead of other currencies.
Expanding with other exchanges, Binance entered into an agreement with Crypto.com. This exchange entered into an agreement with credit card companies to issue credit cards backed by crypto assets. Binance, in turn, saw this as an opportunity for Crypto.com to incorporate BNB as a form of payment for credit card bills. In this way, Crypto.com penetrated Binance’s larger user base, while Binance gained more mainstream acceptance of its native cryptocurrency.
Similarly, online merchants can choose to opt for BNB to pay for their services. This ranges from booking hotels and flights to paying for lottery tickets and gifts. This list contains all the online platforms where BNB can be used.
Lastly, Binance has its own version of PayPal called Binance Pay. With BNB in your Binance wallet, users can directly use them to make purchases at these merchants, without any fiat cryptocurrency conversions.
bnb burning mechanic
On a final note, Binance has a mechanism that ensures that BNB will appreciate in value by making them scarce. It does this by burning quarterly, as explained in the official Binance whitepaper. Burning tokens simply means removing them from circulation, so they create a more scarce pool.
Eventually, bitcoin only became so valuable because of its limited limit of 21 million BTC. By the same token, when the Federal Reserve increased the money supply by trillions of dollars, it greatly devalued the dollar, leading to 40 years of high inflation. It just goes to show that, more often than not, handing over their money to companies is a better bet than governments.