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Could BNB give ETH a run for its money?

BNB is a layer 1 token, used to trade and pay fees in the Binance ecosystem. It was first introduced as an ERC20 token, and has since evolved to operate on the Binance Smart Chain, with its own standards. But can BNB replace ETH completely?

BNB’s Launch and ICO:

Binance Coin launched through an ICO in July 2017 with an initial supply of 200 Million coins. They were distributed as:

  1. Founding Team: 40% (80 Million BNB)
  2. Angel Investors: 10% (20 Million BNB)
  3. Public Sale: 50% (100 Million BNB)

The listing price of the coin was 15 cents per token, thereby raising a total of USD $15 Million from public sale. From the total money raised:

  1. 33% was allocated to upgrading the Binance platform and the exchange itself.
  2. 50% was allocated to Binance branding, marketing, and education of new innovators.
  3. The remaining 17% has been kept as an emergency fund.

Despite a total distribution of 100 million coins at launch, there are quarterly token burns which reduce the total BNB supply in circulation.

Uses of BNB Token:

BNB has several uses cases, including:

  1. Pay for trading fees on Binance Exchange.
  2. Trading fee payments in Binance Decentralized Exchange.
  3. Pay for transaction fees on Binance Chain
  4. Transaction fee payments on Binance Smart Chain.
  5. Goods and services for both online and in-store purchases. (Using Binance Card or Binance Pay)
  6. Book hotels, flights and more on Travala.com
  7. Participate in token sales hosted on Binance Launchpad.
  8. Donate on Binance Charity

BNB Migration to BEP-2 Token and launch of Binance Smart Chain:

In September 2020, Binance launched Binance Smart Chain (BSC), a blockchain network that runs in parallel with Binance Chain. This means there are 3 different forms of BNB now.

The original BNB token was built on the ERC20 protocol. This was later swapped to the BEP-2 token in the ratio of 1:1. This BEP-2 token is the native token of the Binance chain.

Network Design and Security Model

Unlike Ethereum, the Binance Smart Chain does not have smart contracts yet. Insteadm it utilizes the Tendermint byzantine-fault-tolerant (BFT) consensus mechanism.

The system involves several different types of nodes:

  • Validator nodes, where select community members who vote to validate transactions;
  • Witness nodes, which witness the consensus process and broadcast transactions to other nodes;
  • Accelerator nodes, which speed up the transaction validation process.

All the validators receive fees once blocks are produced.

Validator nodes vote to process transactions in the network as part of Binance Chain’s Tendermint byzantine-fault-tolerant (BFT) consensus mechanism.

Users can speed up transaction processing by choosing an accelerator node, which works in tandem with validator nodes.

Binance Smart Chain:

It is with the advent of BSC, Binance went into direct competition with Ethereum and its high gas prices. With transaction fees that are about 35 times cheaper, BSC has overtaken Ethereum in the first three months of 2021 for daily unique active wallets.

BNB’s Performance:

In Q1, we can see the price rise of BNB of over 710 % surpassing Bitcoin and Ethereum which rose by 103% and 159% respectively.

If we talk about the market dominance, with Bitcoin’s dominance falling, we see BNB dominance to be around 2.8% of the total cryptocurrency market cap.

Binance Smart Chain, is showing rapid growth. If we see the total value locked, in Q1 2021, BSC’s TVL rose from 3% to 27% because of the rising gas price which drives away the retail users.

As both ETH price rises and network congestion builds up, Ethereum’s gas fee crisis will worsen. At the moment, it is not conducive for retail users to do a simple swap on a decentralized exchange. For example, it would cost you above ~$57 if you were to swap 1 ETH to 2,040 DAI on DeBank. However, with the same transaction on BSC, you will be charged ~$10 gas fee, that is almost 6x cheaper than on Ethereum.

This is BSC’s biggest advantage over Ethereum.

However, BSC is not the only solution out there. There are other competitors as well, and let’s not forget EIP 1559 looking directly into the eye of BSC and just few month away.

Competitors:

Many projects chose to build on the Polkadot ecosystem following Gavin Wood’s support. Solana recently made an ATH, with the strong support of FTX Exchange.

DeFi on BSC has expanded exponentially with close to $20 Billion in Total Value locked. DEX’s continue to be a major part of it. Pancake Swap is the leading DEX on BSC with total market cap of $2.7 Billion.

Conclusion

BNB has a great chance of giving even better returns and some claims that it might be able to flip ETH to replace it in total market cap have been made. But here are some of the things that we need to consider as well:

  1. We are rooting for a decentralized world, whereas Binance is a centralized coin. Binance owns and controls most of BNB supply.
  2. If the regulators came knocking, there are people who can be completely held accountable for it.
  3. BNB is also a mere copycat of Ethereum. BNB is just a hard fork of Ethereum with a centralized validator and that’s it.
  4. Let’s not forget the EIP 1559 where we are targeting the reduction of fees and then its ultimate migration to beacon chain which will move it from proof of work to proof of stake and this could be a big downfall for BNB.

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