Binance Smart Chain Explained: The very first defy application that I ever invested in was on something called the binance smart chain where I basically staked some BNB coins to earn some money the next day I woke up and I checked my account and I realized I really did make money and that’s where the defy rabbit hole started for me about a month later I invested one thousand dollars into a BNB token and it actually shot up to around ten thousand dollars and that was a phenomenal experience but I think I got lucky my point is that BNB and the binance smart chain holds a special place in my heart.
In this article, we are going to explain what the BNB coin is how it relates to Binance’s smart chain and what it means for you as an investor first off let me explain what binance is and then we’ll get into the BNB coin that you can actually buy and sell to understand the b and b coin we must first learn about the history of binance.
What is Binance?
Binance is one of the largest cryptocurrency exchanges out there rivaling other exchanges like Coinbase, Gemini and recently FTX one day a while ago binance decided to create their own blockchain aiming to create one that was fast and could handle a lot of data at first their binance chain blockchain-focused only on the binance exchange but after a little bit they saw ethereum booming and realized they needed something called smart contracts at least if they wanted other people to use their blockchain if you don’t know already smart contracts are a big part of the crypto space that allows people to create their own applications that run on the blockchain.
Smart contracts also allow the creation of new tokens on the blockchain really anything dify related is due to the use of smart contracts they allow us to run decentralized applications create new tokens on the blockchain mint NFTs and even do more complicated things that you can learn about in our specific smart contracts article.
Well around two years after they started that blockchain binance finally got around to it and created a second blockchain that had smart contracts and they called this one the binance smart chain now this is a big misunderstanding for new users including me that there are actually two binance chains the original binance chain and the new binance smart chain and if you accidentally send your crypto on one chain to another chain not knowing this you can easily lose your funds.
Oh and by the way instead of starting from scratch and setting up new smart contracts binance just forked Ethereum’s code so that they could have the same features but with a few changes that made it faster and cheaper if you don’t know in the developer world fork is a term that means they copy and pasted ethereum’s code and then made their own changes so to achieve faster speeds and cheaper transactions they had to give up some of their decentralization which we’ll get to later copying most of ethereum’s code also meant that developers could easily move their projects from the ethereum network to the binance smart chain network without rewriting much of their code.
Binance Smart Chain BNB Consensus Model
The consensus model that this smart chain uses is delegated proof of stake essentially the top 21 people staking the most BNB coins get to decide which transactions get approved and which ones get blocked.
Now if you don’t want to be one of those top 21 people holding millions of dollars of BNB you can actually earn staking rewards without owning that much BNB all you have to do is delegate your coins to a top validator and they’ll share their rewards with you overall this method is quite centralized but it does allow for those cheaper fees that I mentioned earlier and more transactions per second.
If you have no idea what staking is you can also watch our article on the proof of stake method it seems to clear up a lot of misunderstandings for many people.
Now the binance smart chain is so much cheaper than ethereum that practically anyone can make hundreds of transactions without spending much more than a dollar on ethereum the average transaction can cost $3 all the way up to over $50 and much higher than that for complex smart contract usages to put this in a simpler way what I’m trying to say is that anyone can create their own token very affordably on the binance smart chain and because of this malicious developers and scams started to pop up all over the place on the binance smart chain network.
it was the first popular decentralized exchange that allowed people to swap one token for another and early users were able to create their own tokens from scratch and then advertise them on websites like reddit i’m gonna be honest with you most of these new tokens were scams and since this is a decentralized world nobody was held accountable other than that bnb still has many unique use cases as it is faster and cheaper than ethereum but there are many other copycat blockchains that have come along as competition.
Polygon for example is very similar but many early users of polygon learned from their mistakes from binance smart chain like me. so now that you know how the binance smart chain kinda works and what bnb is let’s get
What are the tokenomics of BNB Coin?
There was initially 200 million BNB coins minted half of them were sold through an ico in July of 2017 for 15 cents each raising around $15 million this means those early investors got a decent chunk of change as the price is around $400 now another 40% of all the coins were given to the founding team with around 20% vested each year this means they don’t get all the coins at once only so much per year the final ten percent of all the coins were given to angel investors.
One thing that is very interesting about the BNB coin is that the binance company actually buys them back each quarter every three months they take 20% of all the profit of binance and use it to buy back tokens and then they take those tokens and they burn them forever this decreases the total supply which theoretically should raise the price and I think this is a really cool idea passing profits from the company through the blockchain to their coin and they’ll continue to do this until the supply goes from 200 million to 100 million total coins.
What are the Usecase of BNB Coin?
The best one is probably that you can actually save on trading fees when you use the binance exchange they also have other marketplaces where you can get discounts on monthly services and even electronics if you pay with BNB notably one service that I have heard before of is canva which is a design mock-up website that I have personally used before but I didn’t know you could use BNB to pay for that.
There are even travel benefits to owning BNB which I won’t get into here but I thought was kind of interesting one last thing binance is incorporated in the Cayman islands and they also have a binance.com and a binance.us website which offers different services to us users and international users I am excited for the day when it really doesn’t matter what your geolocation is and everyone can use crypto fairly hopefully this day comes soon.