5 Things to Know Before You Buy Binance Coin
by Emma Newbery | Updated May 16, 2022 - First published on Aug. 6, 2021
Binance Coin has grown 900% in two years, here's why.
Binance Coin (BNB) is currently the fourth biggest cryptocurrency by market capitalization according to data from CoinMarketCap. Its swift rise in popularity is down to the growth of the Binance exchange and the development of the Binance Smart Chain.
Let's find out more about the Binance Smart Chain and other factors that will help you better understand BNB.
1. It's more than a trading token
Binance customers can use BNB to reduce trading fees and earn interest. But that's not the only use for the Binance coin. It also fuels the Binance Smart Chain, which is a programmable blockchain that runs smart contracts.
Imagine a blockchain database as a huge tamper-proof ledger that records transactions and information. The reason people are so excited about smart contracts is that they let you store small pieces of self-executing code on the blockchain.
Instead of being a static ledger, you can program it. And that's powered the development of thousands of decentralized applications (dApps).
Blockchain's superpower is that it takes out the middleman -- like banks and governments. With smart contracts, you can take out a loan without needing a traditional lender, or set up an insurance policy that automatically pays out in certain circumstances.
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Ethereum (ETH) was the first to launch smart contracts and is still the leader in this field. But it has been a victim of its own success. Its network is congested and transaction fees are high. As a result, developers are moving to other networks with smart contract capabilities.
Binance is particularly attractive because it's also a cryptocurrency exchange. You can build a dApp on the Binance network and then use the exchange's launchpad to present the project to new investors.
2. Binance faces regulatory challenges
Binance is one of the largest exchanges in the world and its wide range of currencies and services has played a big role in its popularity.
However, a Binance affiliate was recently banned in the U.K. Japanese authorities have warned that it is not authorized to operate there, and Binance has pulled out of Ontario, Canada, after a crackdown on other exchanges.
Authorities around the world are getting tougher on cryptocurrency services. They are concerned that crypto can be used to launder money and hide criminal activities. There's also a worry that retail investors could get burned by using advanced trading tools that multiply the risks of what is already a risky investment.
Binance says it takes its regulatory responsibilities seriously. And according to Financial Times, it is now investing heavily in compliance. Indeed, in a recent Bloomberg interview, Binance's CEO and founder Changpeng Zhao argued that the company "probably holds the most number of crypto exchange-related licenses globally."
With regulation heating up around the world, if other top cryptocurrency exchanges can get licenses in jurisdictions where Binance is not authorized, it will hamper the coin's growth. And that could eat into consumer confidence, especially if it impacts customers' ability to deposit and withdraw traditional money, as it has in the U.K.
3. Binance doesn't have a headquarters
Binance has offices around the world and currently has more than 2,000 employees, but nowhere it calls home. This follows the company ethos that crypto should be borderless. Zhao has emphasized on several occasions that cryptocurrency organizations don't need to fulfill traditional concepts of company, such as having an office or a bank account.
It does, however, have licensed entities in countries like the U.S. that require a registered company for regulatory purposes. This was what Binance was trying to create in the U.K., but it withdrew its application.
In some ways, Binance's lack of a headquarters illustrates its approach to regulation. It wants to stay true to the founding principles of Bitcoin that are decentralized and open. But to function and continue to be accessible to the masses, it needs to compromise.
4. It owns CoinMarketCap
Binance bought popular cryptocurrency data site, CoinMarketCap in 2020. The two companies operate independently. However, acquiring a site with millions of users could increase Binance's exposure to retail investors in the long run.
It also owns TrustWallet -- a decentralized wallet where people can store their coins -- and Swipe, which works to connect crypto and traditional payment systems.
5. Its price has increased 900% in two years
If you'd bought $10,000 in 2019, your BNB would be worth around $100,000 today. That's a huge jump and as an investor, you need to consider how much more the token is likely to grow. It has a lot of competitors, both as a cryptocurrency exchange and as a programmable ecosystem. But combining the two is a powerful proposition, especially with a strong team behind it.
One of the most attractive things about BNB is that it has a clear use case, which can't be said for every cryptocurrency out there. As a Binance customer, I like the company's balance of education and accessibility. It teaches investors how to use more complicated products and informs them of the risks involved.
However, as a BNB holder, I'd also like to see fewer regulatory issues. It would be a shame if the company pushes the boundaries so far that it ends up in a crypto wasteland with a host of innovative products that nobody can access.
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About the Author
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns BNB and Ethereum.