What is BNB Smart Chain? BNB token explained

What is BNB Smart Chain? BNB token explained

What is BNB Smart Chain? BNB token explained

The BNB token is the native token of the BNB Chain and massive Binance ecosystem, which comprises one of the largest—if not the largest—cryptocurrency exchange by trade volume.

Part of what makes the BNB Chain unique is its dual blockchain structure made up of the Beacon Chain (Formerly Binance Chain) and the BNB Smart Chain (Formerly Binance Smart Chain). Both blockchains run parallel to each other, with each offering different features and functionalities.

In this article, we’ll take a look at the BNB Chain, its powerful dual-chain structure and the BNB coin, as well as what’s next for this crypto juggernaut.

    The Binance Ecosystem

    Binance was launched in Jul 2017 by Chang Peng Zhao, otherwise known as CZ.

    CZ has a wealth of experience and previously served as the Chief Technology Officer of OKCoin. He also had a hand in developing the Tokyo Stock Exchange and the blockchain explorer Blockchain.info. He is now recognized as one of The Richest People in Cryptocurrency according to Forbes Magazine, with a net worth estimated at $1.1 billion as of Sep 2018.

    Under CZ, Binance has become a major crypto force with two blockchains (Binance Chain and BSC), two exchanges (Binance Centralized Exchange/CEX and Binance Decentralized Exchange/DEX) as well as a large suite of financial services including crypto loans, a crypto credit card, liquidity mining, fan token farming and more.

    Beacon Chain (formerly Binance Chain)

    While the BNB token was origially on the Ethereum blockchain, Binance eventually decided to migrate to its own blockchain, the Binance Chain, with the goal of enabling blazing fast and permissionless trading.

    Built on forks of Tendermint and Cosmos SDK, the Binance Chain went live on 23 April 2019 and rebranded to Beacon Chain in February 2022.

    While the Beacon Chain is built for speed and instant finality—and is thus perfect for permissionless trading—it lacks extra programmability and flexibility. In particular, it has no smart contract functionality and compatibility with Ethereum’s universe of tools and DApps.

    Thus, a proposal was made to launch a second chain with complementary features to bolster the entire BNB ecosystem.

    BNB Smart Chain

    The DeFi movement had been gaining momentum and the innovators at BNB were not to be left out. BNB launched its Smart Chain on 1 September 2020 with the goal of providing an alternative, user-friendly smart contract-enabled blockchain to help spawn new and innovative DeFi applications.

    Binance Smart Chain (BSC) was later renamed BNB Smart Chain (still BSC), as a way of distancing the blockchain from the main exchange.

    BNB Smart Chain boasts the following features:

    - 3-second block time

    - Proof-of-Authority (PoA) consensus mechanism with 21 validators

    - Average transaction fee: 20 gwei

    A key feature of BNB Smart Chain is that it is Ethereum Virtual Machine (EVM) compatible. This means that apps built for Ethereum are also supported, with the advantages of faster and cheaper transactions. For this reason, BNB has been able to successfully onboard many Ethereum-based apps, including the popular IDEX exchange.

    BNB Dual-Chain Structure

    The  dual parallel-chain system consists of the Beacon Chain for on-chain governance and security (voting, staking) of the BNB Network and e BNB Smart Chain, which is EVM compatible, opening it up to multichain uses cases and a world of Web3 apps.

    Cross-chain compatibility also means that digital assets between both chains like BEP-2 and BEP-8 tokens from the BNB Chain are easily swapped with the BNB Smart Chain's BEP-20 tokens in a trustless manner.

    As an extra robust feature, both blockchains also run independently of each other. So, if either blockchain should fail for a period of time, the other one will still be running.

    The BNB Coin

    Binance was funded with an initial coin offering (ICO) of the BNB coin, which raised $15 million from 26 Jun to 3 July 2017. While originally an ERC-20 token on the Ethereum blockchain, the BNB coin was swapped to the BNB Smart Chain mainnet as BEP2 BNB on a 1:1 ratio in Apr 2019.

    The BNB coin serves multiple uses within the Binance ecosystem. Firstly, BNB is used to pay transaction fees on Binance Chain and Binance DEX. Traders who pay with the BNB token are able to enjoy discounts on their Binance transaction fees.

    Secondly, BNB is used as “gas” with developers paying the token to deploy Smart Contracts on the BNB Smart Chain.

    BNB is also used to power the staking and validating activities that maintain the BNB Smart Chain, with stakers receiving rewards. All Smart Chain validators are rewarded with transaction gas fees in BNB.

    As of 2020, Binance users have been able to use BNB for mining rewards in new tokens that have been backed by Binance’s Launchpad, which supports and mentors blockchain startups. This reward system, along with other staking and lending utilities on the Binance CEX, have proven very popular.

    Finally, the BNB coin may also be used as a currency for owners to pay their bills, purchase smartphones, book flights and accommodation, or to donate to charity through a wide range of participating partners and merchants.

    BNB is a deflationary coin because Binance is using 20% of its total exchange profits to buy back and burn BNB coins until 50% of the total supply—or 100 million BNB—is depleted.

    What’s Next

    Binance’s unique dual-chain structure is an attractive feature offering flexibility to developers. But is it enough to compete with a developer community as large as that boasted by Ethereum?

    While the smart-contract enabled BNB Smart Chain sees itself as a potential competitor to the ecosystem’s largest blockchain, Ethereum still undoubtedly has the most powerful network effect. It remains to be seen whether perceived flaws such as high transaction fees will be the ultimate deal-breaker or not, especially now that Ethereum has merged to a proof-of-stake consensus.

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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