Binance Coin (BNB) | Smart Chain, Price Predictions, How It Works

Following the top three cryptocurrencies in terms of market capitalisation—Bitcoin (BTC), Ethereum (ETH), and Tether (USDT)—Binance Coin (BNB) is the fourth largest token in the world. It also remains a core part of the broader Binance ecosystem.^[1]

Despite its popularity, Binance Coin remains somewhat of a foreign cryptocurrency for some investors, especially given there are multiple Binance blockchains that interact with it. Here's what you need to know about why Binance Coin is so popular, how it's used, and whether it's a good investment in 2022.

What Is Binance?

Binance is one of the most popular cryptocurrency exchanges in the world. It's also one of the largest exchanges by daily trading volume, featuring more than US$15.8 billion in transactions every single day. Unlike exchanges like Coinbase, Binance features a much broader selection of altcoins to trade, which is why it's so popular amongst crypto traders looking for a variety of trades.^[2]

Binance was founded by Chinese-Canadian software expert Changpeng Zhao in 2017. Binance was originally based out of China before relocating to Japan and eventually Europe due to regulatory issues.^[3]

In the years since, Binance has expanded from being just a crypto exchange to offering its own blockchain ecosystem, including smart contract development. Binance's blockchain also supports non-fungible tokens (NFTs).

The exchange has even spearheaded the creation of multiple stablecoins, based either on fiat like the U.S. dollar (similar to Tether) or coins representing tokenised versions of specific stocks, like Tesla.^[4]

What Is The Binance Coin (BNB)?

Binance Coin (BNB) is the native cryptocurrency issued by the Binance exchange as part of a larger Binance ecosystem. BNB was initially built of Ethereum during its 2017 debut, similar to how most altcoins nowadays (also known as ERC-20 tokens) are built off Ethereum.^[5]

However, since Binance launched its own main net blockchain in 2019, the Binance Chain, the BNB coin has since transitioned from running on Ethereum infrastructure to the Binance Chain blockchain (BEB-2) instead.^[5]

Around 200 million BNBs were available during its 2017 initial coin offering (ICO). However, Binance uses one-fifth of its profits every quarter to repurchase and "destroy" BNB, effectively burning the supply. This tokenomic policy ensured that the max supply continued to dwindle while prices steadily increased.^[5]

Since BNB is built on an entirely different blockchain, the Binance Chain, the best way to trade BNB is via the Binance exchange directly. Many other exchanges, like Coinbase, don't allow users to store BEB-2 based cryptos like BNB.^[15]

What Is Binance Coin Used For?

BNB is primarily used to pay for transaction fees on the Binance exchange and broader ecosystem. The original idea was that Binance users could pay for transactions and fees using BNB instead of other cryptos, and in exchange, they'd receive discounted trading fees.^[5]

Since then, BNB has become a valid payment for various websites and platforms. So far, BNB has become a popular alternative mainly in Asia, but some American and European companies also accept Binance Coin as an alternative payment method.

As the Binance ecosystem grows, BNB will likely continue spreading and find new ways to be used as more people start accepting it.

What Is The Binance Chain (BC)?

As a blockchain ecosystem, Binance originally ran on the Binance chain. This is a blockchain designed to facilitate fast, decentralised trading. The most successful decentralised app (Dapp) built off the Binance Chain is the Binance DEX, a decentralised exchange created by Binance and powered by the Binance Coin.^[6]

The Binance Chain is an effective way to send and receive digital assets and ensure high liquidity across the blockchain. However, it's lacking when it comes to some other features. Chief among them is almost no smart contract functionality, something that other blockchains like Ethereum and Polkadot include by default.^[6]

What is The Binance Smart Chain (BSC)?

The Binance Smart Chain was developed shortly after the Binance Chain, mainly to allow smart contract development in the Binance ecosystem. It launched in September 2020 as a separate blockchain rather than an upgrade to Binance's its existing Binance Chain.^[6]

The rationale was that introducing smart contract and DeFi functionality would slow down the network of the older blockchain. We've seen similar situations happen in the past, such as in 2017 when CryptoKitties caused massive congestion on the entire Ethereum network.^[8]

The BNB smart chain uses a Proof-of-Staked Authority (PoSA) consensus algorithm. This is a hybrid between the commonly used Proof-of-Stake system used by newer blockchain projects like Terra, and the less popular Proof-of-Authority (PoA) system. While PoA allows for shorter block times and lower costs, the downside is that it's seen as less decentralised compared to other systems.^[7]

For the Binance Smart Chain, there are only 21 validators via the PoSA mechanism.^[9] In comparison, Ethereum has more than 300,000 validators, meaning each individual validator has much less control over the entire network.^[10]

BEB-2 vs BEP-20 Tokens

While the Binance Chain has its own token (BNB), the Binance Smart Chain has its own unique infrastructure for new cryptocurrencies. Tokens issued on the Binance Chain are called BEB-2 tokens, while BEB-20 tokens are those issued on the Binance Smart Chain.^[11]

The main difference between the two is that BEB-20 tokens are compatible and easily exchangeable with ERC-20 tokens built from the Ethereum blockchain, which most altcoins are these days. Binance Smart Chain and the Ethereum blockchain both enable smart contracts, whereas Binance Chain doesn't. That's one reason why BEB-20 and ERC-20 tokens are so compatible, whereas BEB-2 tokens are not.^[11]

BNB Price History And Predictions

Back in 2017, during its ICO, Binance Coin traded for a mere US$0.10. At the time, there were around 200 million tokens in circulating supply. As of 2022, there are around 169 million tokens in total supply. In contrast, prices have shot up to more than US$416 per token, more than 4,000 times increase in the past 5 years, although down from its all-time high of US$672.^[12]

As the Binance ecosystem became increasingly popular, both the exchange itself as well as its blockchain network, BNB became increasingly in demand to pay for network and transaction fees.

BNB has a market capitalisation of around US$69 billion, making it the fourth-largest cryptocurrency by size. It's an impressive success story, but as one of the largest coins in the world, BNB lacks much of the exponential growth potential crypto investors are sometimes looking for.^[12]

Price Predictions

While BNB doesn't get the same attention that Bitcoin or Ethereum receive, many crypto experts view the token highly. Forbes senior contributor Billy Bambrough said that BNB is forecast to hit a US$1 trillion market cap by 2024. That's based on BNB's average annual growth rate of 615%.^[13]

Based on its current market cap, that would suggest BNB could rise more than 1,400%, pushing BNB above US $6,000 per token. However, given that these numbers are using past growth figures as a baseline, it's quite likely this kind of growth projection is a bit too optimistic.

BNB Legal Issues

Despite its popularity, the Binance ecosystem has been under legal scrutiny for quite some time. Back during the early days of crypto, Binance attracted a lot of negative attention as an exchange that enabled money laundering.

The exchange was completely banned in the U.S. back in 2019, with Binance creating a U.S.-specific exchange with a smaller selection of altcoins that strictly abided by U.S. laws.^[14]

However, in 2021, Binance's legal issues only got worse. The Internal Revenue Service (IRS) launched an investigation into Binance over money laundering and tax evasion. Additionally, the United Kingdom and Japan both banned Binance from doing business within those countries.^[14]

Summary

Binance Coin is one of the world's largest cryptocurrencies, and for a good reason. As Binance became increasingly popular amongst crypto traders and smart contract developers, BNB became increasingly in demand. Now it's become one of the top five largest cryptos by market cap.

Unlike Cardano, Polkadot, or Solana, Binance occupies a slightly different position than Ethereum. That means it's likely to stick around even if a newer smart contract blockchain platform emerges to dethrone Ethereum. On the other hand, that also means you shouldn't expect BNB to ever dethrone Bitcoin or Ethereum, especially given its more centralised nature.