What Is Binance Coin (BNB) and How Does It Work?

What Is Binance Coin (BNB)?

Binance Coin, with ticker BNB, is a crypto token that launched in July 2017. BNB started as an ERC-20 token on Ethereum and was originally meant for use within the Binance ecosystem, for example to pay trading fees on the platform.

Today, BNB is mainly the native token of BNB Smart Chain. Native here means BNB is the coin the network itself uses. For example, you need BNB to pay transaction fees, work with smart contracts, and take part in staking.

A smart contract is a program on a blockchain that can automatically carry out certain actions based on preset rules. If you use such a program on BNB Smart Chain, you pay gas in BNB for it. Gas is simply the fee for processing your action on the network.

At launch, the maximum supply was 200 million BNB. Through burns, where tokens are permanently removed, the goal is to eventually bring the total supply below 100 million BNB.

Key Takeaways

• BNB is the native token of BNB Smart Chain.
• You use BNB for gas, smart contracts, and staking.
• BNB Smart Chain uses Proof of Staked Authority and a limited validator group.
• Different burn mechanisms permanently remove BNB from the supply.
• The limited validator group and the original token distribution are important points to keep in mind.

How Does Binance Coin Work?

On BNB Smart Chain, BNB mainly works as a gas token. Want to send BNB, use a smart contract, or deploy one yourself? Then you pay transaction fees in BNB.

BNB Smart Chain uses a consensus model called Proof of Staked Authority, often shortened to PoSA. Consensus means the network needs a way to agree on which transactions are valid and which new blocks can be added to the blockchain.

At PoSA, validators play that role. Validators are participants who help process transactions and produce blocks. Their selection depends on how much BNB they have staked themselves and how much others have delegated to them. Staking means BNB is put to use within the network. Delegating means you connect your BNB to a validator without having to become a validator yourself.

The validator ranking is updated daily. The 21 highest-ranked validators make up the Cabinet. The 24 after that make up the Candidate group. In each epoch, a fixed period within the network, 18 Cabinet validators and 3 Candidate validators produce blocks.

Validators and delegators can receive rewards paid out from transaction fees. So BNB is not an inflationary mining token where new tokens are mainly issued as mining rewards.

Validators do have to follow the network rules. If they are offline for too long, double-sign, or vote maliciously for fast finality, they can be penalized. Fast finality is a mechanism that lets transactions be confirmed as final more quickly. Such a penalty can also affect a validator's self-stake, meaning the BNB the validator has locked up themselves.

Binance Coin (BNB) Overview

What Is the Relationship Between BNB and BNB Chain?

BNB is the token used within BNB Chain. On BNB Smart Chain, you use it to pay gas, and BNB also plays a role in staking. BNB Chain is broader than just BNB Smart Chain: it also includes technology around things like opBNB and BNB Greenfield.

These networks use the same BNB token environment. Because of that, BNB can also be used for certain cross-chain activities between BNB Smart Chain, opBNB, and Greenfield. Cross-chain means an activity involves more than one blockchain or network.

BNB Chain used to have a dual-chain structure. Besides BNB Smart Chain, there was also BNB Beacon Chain. That Beacon Chain had a role in staking and governance, among other things. Governance is about how rules and changes within a network are organized.

BNB Beacon Chain was shut down on December 3, 2024. The staking and governance functions moved to BNB Smart Chain. Communication between BNB Smart Chain and Beacon Chain also ended. So explanations that still describe Beacon Chain as an active network are outdated.

How Does the BNB Burn Work?

A burn means tokens are permanently removed from the supply. After that, they cannot be used again. BNB has several burn mechanisms.

The BNB Auto-Burn happens every quarter. The amount of BNB burned is determined based on protocol data and the average BNB price in that quarter. The exact protocol variable used for this can differ by protocol version.

There is also BEP-95. This mechanism continuously burns part of the gas fees that validators collect per block. The percentage burned through BEP-95 is a parameter that validators can adjust.

There is also the Pioneer Burn Program. In approved cases where users can clearly show they lost BNB because of an error, compensation can be tied to burning an equal amount of BNB.

The long-term goal of these burns is a total supply of less than 100 million BNB. Important to know: fewer tokens in circulation does not by itself say anything about the demand for or value of BNB.

Who Developed Binance Coin?

BNB was issued by Binance in 2017, at the same time as the launch of the crypto exchange. Changpeng Zhao and Yi He are the co-founders of Binance.

Changpeng Zhao led the team described in BNB's original issuance. BNB does not have a separate founder team that stands apart from Binance. That is why Binance's founders are often mentioned when talking about BNB's early development.

What Are the Benefits of Binance Coin?

BNB has a clear function within BNB Smart Chain. It is needed for gas payments and staking. That means BNB is not just a token you can hold, but also a practical part of how the network works.

Another feature is that BNB Smart Chain is EVM-compatible. EVM stands for Ethereum Virtual Machine, the environment where Ethereum smart contracts can run. In practice, this compatibility means developers can use many existing Ethereum tools and bits of knowledge when building on BNB Smart Chain.

BNB holders can also delegate BNB to validators. That lets them take part in network staking without doing the technical work of a validator themselves.

The combination of staking-based validator selection and block production by a limited group of validators makes fast confirmation possible. In addition, BEP-95 continuously burns part of the transaction fees, on top of the quarterly Auto-Burn.

These are technical features. They are not a guarantee of low costs, available apps, or financial returns.

What Are the Downsides of Binance Coin?

BNB Smart Chain works with a limited group of block producers. Per epoch, 21 validators produce blocks, selected from 45 active validators. That can help performance, but it also means consensus is spread across fewer simultaneous block producers than on networks with many more active validators.

Validator selection depends on staked and delegated BNB. Large stake positions can therefore have more influence on which validators are selected.

Validators also face the risk of penalties. For example, if they have downtime, double-sign, or cast malicious finality votes, they and their self-stake can be penalized. So if you delegate BNB, you are taking part in a system where choosing the validator matters.

The original token distribution is also an important historical point. Of the maximum supply of 200 million BNB, 40% was reserved for the founding team. This does not say how much BNB that team or related parties hold now, but it does show how the initial distribution was set up.

Finally, BNB Beacon Chain has been shut down. Old BEP-2 or Beacon Chain-related functions are therefore no longer available through an active Beacon Chain network.

Conclusion

BNB is the native token of BNB Smart Chain. You use BNB to pay transaction fees, use smart contracts, and take part in staking. The token originally started as an ERC-20 token, but now it is mainly tied to the broader BNB Chain ecosystem.

The technical foundation is Proof of Staked Authority. Validators are selected based on staked and delegated BNB, and then a limited group produces blocks. That makes fast confirmation possible, but it also means block production is in the hands of a relatively small validator group.

BNB also has multiple burn mechanisms that permanently remove tokens from the supply. The goal is a supply below 100 million BNB. At the same time, a burn by itself does not determine the token's demand or value. If you want to understand BNB, the network function, the role of validators, and these trade-offs are the main basics.