Please note that I am not a financial advisor. The following article is for the sole purpose of providing information on the topic discussed.
Binance has quickly become one of the most important platforms in the crypto world observing spectacular and unstoppable growth since its founding in 2017, characterized by including a great variety of cryptocurrencies and tokens, and very low transaction fees.
Due to this growth and other factors, it was normal for Binance to decide to launch its own cryptocurrency, Binance Coin (BNB). But what is the purpose of Binance Coin?
Binance Coin’s purpose is to provide users and operators of the platform with affordability and simplicity in their day-to-day operations with lower and more competitive fees than if the user conducted the same operations with Ether on the Ethereum blockchain.
Today, we’ll go in-depth about Binance Coin, a cryptocurrency that has quickly managed to place itself among the most important in the world, and we’ll also see if it’s worth investing in it insha’Allah (God willing).
What is Binance Coin?
It’s an ERC-20 type token originally built within the Ethereum blockchain and launched simultaneously with the Binance crypto exchange.
In July 2017, Binance issued a total of 200 million BNB tokens in an ICO to raise funds to continue the development of the exchange. After a while, the coins were transferred to the platform’s own blockchain, known as Binance Chain (BC). It is noteworthy that this cryptocurrency has a mechanism that reduces the amount of BNB in circulation, being programmed to burn 100 million BNB – 50% of the initial issue – which will mean a gradual adjustment in the price of the cryptocurrency for it to become more stable over time.
On the other hand, since all the BNB tokens were issued at its launch, the cryptocurrency cannot be mined, but the reverse process occurs, that is, the gradual burning of BNB until only 100 million units remain on the market.
Similar to what happens with Ether in Ethereum, Binance Coin works as the fuel needed to power the Binance ecosystem. It is something that was contemplated since the creation of the exchange, and its intention from the beginning was to obtain funding at the same time as offering benefits to the holders of the cryptocurrency that operate on the platform.
What is Binance Smart Chain?
Binance Smart Chain (BSC) is a second-generation blockchain technology that works in parallel to Binance Chain. Compared to other blockchains, Binance Smart Chain has a more general purpose, and this is achieved through the use of smart contracts.
Thanks to these automated pieces of code, any conceivable logic can be encoded, including traditional financial services. The development of smart contracts in BSC is possible thanks to EVM (Ethereum Virtual Machine). Thanks to EVM sharing, BSC has the ability to execute smart contracts written on other EVM-compliant blockchains.
Developers can make use of the Binance API to connect to Binance servers and code smart contracts in a good variety of programming languages, including GO, Java, JavaScript, C++, C#, Python, and Swift.
Binance Chain or Binance Smart Chain?
The original intention at the time of founding Binance was to implement a platform on which smart contracts could be executed to offer greater functionality. However, the decision was made to do it in two steps. So, in April 2019, Binance created Binance Chain to make trading on its platform almost instantaneous. However, this had a counterweight; ultra-speed transactions didn’t allow the execution of smart contracts, since they require a greater level of computational power.
It’s convenient to remember that Ethereum has faced a lot of congestion for this reason, particularly when NFTs entered the scene. An example of this we saw in December 2017, when people rushed to collect and trade NFTs from the game CryptoKitties; at that time, the entire Ethereum network collapsed.
It was to avoid these kinds of congestion problems that Binance separated the functions of its platform into two different blockchains and thus implemented Binance Smart Chain in September 2020 as BC’s sidechain.
By executing smart contracts to assist the Binance Chain, BSC is fully compliant, allowing the migration of crypto assets from one chain to another. While BSC supports the BEP-20 token standard, BC supports BEP-2 tokens. As with Ethereum ERC-20 tokens, BEP-20 allows easy implementation of tokens in DeFi protocols.
On the other hand, the mobility of funds between the two Binance chains is easy using the Binance Chain Wallet, which allows access to funds in BC, BSC, and Ethereum, exchange NFT, or participate in yield farming to obtain passive income.
What can you do with BNB Coin?
Originally, this cryptocurrency was created to pay for transactions on the Binance exchange, however, the value and utility of BNB has been increasing in line with the growth of Binance and the expansion of its ecosystem. Currently, Binance Coin can be used within Binance, on third-party exchanges, to make day-to-day payments, for new blockchain development projects, and within the Binance Smart Chain (BSC). Here are the most common uses:
Transaction fees
When trading within the Binance Chain, users can get a discount on the fees per trade.
Trading
In addition to the fact that users can exchange BNB for other cryptocurrencies, there is also a discount on trading fees within Binance when using BNB. Currently, this discount is 25%.
Raise user levels
Users who have large amounts of BNB and who have been trading for at least 30 continuous days on the platform, can become VIP users. This level offers interesting discounts on trading fees, among other benefits.
Non-commercial conversions
Users who own other cryptocurrencies in their Binance account that they cannot trade have the option to convert to BNB.
IEO Lottery
Binance’s Initial Exchange Offerings (IEO) program allows users to request lottery tickets based on the amount of BNB tokens they hold. The winning ticket is rewarded with a specified number of BNB tokens.
Governance
BNB-owning users also have rights to the Binance Chain governance mechanism. This will depend on the amount of BNB that is held in staking.
Day-to-day payments
Many physical stores accept payment for goods and services through the BNB cryptocurrency.
Binance Smart Chain (BSC)
BNB can be used on the blockchain parallel to the Binance Chain, known as the Binance Smart Chain. It is possible to exchange assets and information between BC and BSC.
Is Binance Coin worth buying?
In less than four years, Binance Coin has experienced exponential growth, going from being a common asset to positioning itself as the third largest cryptocurrency by market capitalization. This has had a lot to do with the support of Binance, today considered the exchange with the largest number of operations in the world, with a base of 15 million users.
To give you an idea, suffice it to say that in January 2021 BNB was trading at $43, and in July of the same year, at $332. That means a growth of 672% in just a few months.
Now, if you take into account the maximum value that it reached at the beginning of May 2021, when all cryptocurrencies increased their value notably, BNB traded at $675, 1,469% more than in January.
As of today, and according to CoinMarketCap, the cryptocurrency ranks third among all cryptos, with a market capitalization of more than $96B and with a circulating supply of 166 million tokens.
One of the reasons for this growth has to do with Binance’s policy of helping to accelerate its use by offering discounts on commissions when trading this token. When you buy or sell Bitcoin with Tether or USDC, for example, you must pay the corresponding fees. However, if you use BNB, the exchange offers discounts that can go as high as 25% – previously 50%.
However, the hottest objection on the lips of BNB detractors is the fact that it’s under the control of a centralized exchange that could decide to change course in the currency in the future and therefore, change the rules of the game. The most extreme detractors say that on any given day Changpeng Zhao – Binance founder – could wake up in a bad mood and decide to generate more tokens, which would negatively affect the price of the asset – lowing its price.
I already mentioned above that to prevent the currency from depreciating, Binance burns a number of BNB tokens every so often. In this way, a part of the profits it makes every three months is used by Binance to buy back BNB and burn it. The idea behind this is the same behind Bitcoin, produce scarcity: as there are fewer coins in circulation, the price should either hold or rise.
Binance and regulators
I also mentioned earlier that one of the main advantages of Binance Coin is that it’s backed by a huge exchange such as Binance. However, this could soon work against it. The reason for this is that the main cryptocurrency exchange is under the scrutiny of regulatory bodies around the world and almost every week, there is news that speaks of new conditions that the company must endure.
One of the latest news related to this is that the UK financial watchdog banned its operation in its territory, so the exchange had to suspend the purchase of cryptocurrencies with the Pound Sterling (GBP). Also, authorities in some countries don’t welcome the fact that Binance’s corporate structure remains opaque. This and others are some of the reasons why the exchange was forced to implement identity verification or KYC – among other things – for all its users in August of this year.
Although the Binance ecosystem is growing along with its BNB tokens, it’s important to be cautious due to this and other scenarios related to the exchange
Is Binance Coin halal?
Is Binance Coin halal? According to scholars who generally view cryptocurrencies as halal, yes. Scholars have also noted that Binance Coin (BNB) is halal. Scholars note that BNB is a utility coin that serves a function on a blockchain that is also seen as halal. Scholars would normally classify BNB as an asset and not a currency.
Conclusion
Binance Coin can be a good opportunity for those investors that are really active on the Binance platform. Likewise, it can be used as a good investment asset if it’s operated at the right times and with a solid strategy. In this way, Binance Coin can be a solid option as long as it isn’t overly affected by regulatory factors.
In addition, being tied to a centralized exchange like Binance, BNB also lacks privacy for the user – but only if this is a weighted factor for the user. In any case, remember that before investing, you should always do a thorough analysis of the risks and benefits.
And in the end, Allah knows best.
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