BNB TLDR
- BNB is the native asset of Binance Chain and was initially created for fee reduction on the Binance exchange.
- It is used on Binance DEX for fee payments, issuing new tokens, sending/canceling orders, and transferring assets.
- Binance Smart Chain uses BNB for delegated staking, and it supports smart contracts and uses Proof-of-Staked Authority consensus.
- BNB has additional use-cases such as fee discounts on exchanges, payment asset on third-party services, and participation rights & transacting currency on Binance Launchpad.
- BNB has a burn mechanism that reduces its total supply (~ every three months) until it reaches 100 million from its initial maximum supply of 200 million.
What is BNB?
BNB, or Binance Coin, is an asset initially created to function within the Binance ecosystem. Its main functions include being used for exchange fee discounts, unique participation rights, and being a quote currency on Binance.
BNB can also be used on third-party platforms and services. After the successful launch of Binance Chain, BNB has become the native asset of Binance Chain, similar to ETH for Ethereum.
BNB powers Binance Chain, serving as gas fees on the Binance DEX, paying fees, issuing new tokens, and transferring assets.
Furthermore, Binance Smart Chain introduces additional use-cases for BNB, such as paying for gas fees for transactions and smart-contract execution.
Binance Chain’s key features
Tendermint BFT consensus with an application layer
Binance Chain is a blockchain built on Tendermint BFT consensus and Delegated Proof of Stake (DPoS) with a dedicated application layer that runs on top of it. While the vote delegation feature is not yet open for users, Binance Chain is built on forks of Tendermint and Cosmos SDK, leveraging a revised edition of the Tendermint consensus with its P2P networking logic.
Binance Chain records various types of information, including account and balances, fees, token information, trading pairs, tick size and lot size, and governance information. The balance of each asset on the network, for example, is composed of three different parts: locked, frozen, and available.
Binance Chain also maintains a list of all trading pairs on its decentralized exchange (DEX) and various information related to the trading engine, such as tick size and lot size.
The governance information recorded on Binance Chain includes details about validators and the governance mechanism of the network. By using Tendermint and DPoS, Binance Chain aims to provide a fast and secure platform for building decentralized applications (dApps) and facilitating peer-to-peer transactions.
Native token standards
Binance Chain stores assets as tokens under the BEP-2 standard, which includes information such as source address, token name, symbol, total supply, and mintable property. Users can issue or list a token for a specific fee, and BNB is used as the gas fee for the Binance Chain.
Additionally, Binance Chain supports a mini-token standard called BEP-8, which is cheaper to issue than BEP-2 and allows for self-managed listing without requiring validators to vote.
BEP-8 tokens can only be listed against BNB or BUSD and have restrictions such as supply limitations and inability to be listed as a quote asset. Use cases for BEP-8 tokens include small enterprise tokens, community tokens, and IP tokens.
A native on-chain matching engine: Binance DEX
Binance DEX is a decentralized application running natively on Binance Chain. It has a single order book managed and replicated across all full nodes with a deterministic matching logic. Unlike other DEXs with off-chain matching, Binance DEX’s matching process is built into Binance Chain natively.
The benefits include transparency, front-running resistance, and speed. However, Binance DEX’s matching engine is auction-based, unlike centralized exchanges like Binance.com. Orders are matched on a first-in, first-out (FIFO) logic natively on-chain with a 1-second block time, and the match-time is one block with 1-block finality.
Atomic swaps and Hashed Time-Locked Contract (HTLC) functions
BEP-3 is a standard on Binance Chain, which enables smart contracts using Hashed Time-Locked Contract functions and interoperability mechanisms. This enables atomic swaps between Binance Chain and EVM-compatible networks like Ethereum.
The 5-step process for atomic swaps includes approving the ERC-20 token for the contract, initializing swap transactions, sending HTLT transaction, sending HTLT claim transaction, and finally claiming the ERC-20 token.
Binance Smart Chain’s key features
“Binance Smart Chain is Binance Chain’s side-chain, forked from “go-ethereum” (an implementation of the Ethereum protocol in GOlang), which allows full support of smart contracts and other programmable features.”
– BNB Whitepaper
Proof-of-Staked Authority (PoSA) consensus algorithm
The Binance Smart Chain uses a consensus algorithm called Parlia, which is a combination of Delegated Proof-of-Stake (DPoS) and Proof-of-Authority (PoA).
The algorithm has a network of 21 validators and delegators who vote for validators. Anyone can become a validator if they meet specific requirements, including staking 20,000 BNB.
Validators receive network fees for validating blocks, while delegators can vote for validators and receive rewards from network fees.
The top 21 validators with the most staked BNB are selected daily to produce blocks. Binance Smart Chain also has a slashing mechanism to prevent bad behavior.
EVM-compatibility and smart-contract support
“Binance Smart Chain is fully EVM-compatible and naturally supports smart contracts. Hence, high-level languages, like Solidity and Vyper, can be used to write a set of contracts that can be compiled into bytecode and deployed on the Virtual Machine, using tools like Remix or Truffle. This makes it easy for developers to port some of their decentralized applications onto the Binance Smart Chain.“
– BNB Whitepaper
A dedicated cross-chain transfer and communication protocol
Binance Smart Chain is EVM-compatible and allows interoperability with Binance Chain through a communication protocol based on the Cosmos SDK. Cross-chain transfers between the two networks are enabled without the need for a trusted party. The system includes an Oracle Relayer, a Binance Smart Chain relayer (BSC Relayer), an Oracle Module, a Cross-Chain Module, and a set of smart contracts.
An Oracle Relayer: each validator must run an oracle relayer responsible for monitoring blockchain state changes. If the cross-chain communication packages are submitted, each validator needs to submit a vote for the request. Once a ⅔ majority is attained, cross-chain actions are performed.
A Binance Smart Chain relayer (BSC Relayer): its function is to relay “cross-chain packages” between the Binance Chain and the Binance Smart Chain.
An Oracle Module built-in Binance Chain: its function is to allow validators to reach a consensus on something, like cross-chain transfer operations.
A Cross-Chain Module on Binance Chain: its function is to allow the transfer of assets between the Smart Chain and the Binance Chain.
A Built-in System with a set of smart contracts: Binance Smart Chain incorporates a set of smart contracts by default for different purposes (see below).
source: BNB Whitepaper
Binance Smart Chain supports Binance Chain’s native token standards like BEP-2 and BEP-8 through “Token Binding.” The platform also incorporates other cross-related smart contracts such as Transfer, Refund, BSC staking, and Governance.
Economics and supply
Supply
“BNB supply was initially set at 200,000,000 coins. As mentioned in its whitepaper, BNB’s supply will be reduced to 100,000,000 units, a decrease by -50% of its original supply, owing to a burn mechanism.
Every three months, Binance burns several BNBs based on its revenue. Owing to this burn mechanism, the supply of BNB is gradually decreased, increasing its scarcity.” – Binance Whitepaper
Economics of Binance Chain
“Binance Chain economics relate to fees on the network, including trading fees associated with Binance DEX, transaction fees (e.g., transfer asset fees), and other function calls (e.g., freezing, issuing calls).
In Binance Chain, 11 validators are in charge of the network operations due to the use of a Delegated Proof-of-Stake (DPoS) consensus mechanism.” – Binance Whitepaper
Economics of Binance Smart Chain
Binance Smart Chain’s native asset, BNB, functions similarly to ETH on Ethereum. BNB is used for gas payments, cross-chain operations, and staking. Validators and delegators both collect transaction fees.