From Zero to World’s Biggest Crypto Exchange in Just 6 Months
Editor’s Note: A few months ago, Coin Central published a review of an “up and coming” cryptocurrency exchange called Binance. Since then, Binance has rapidly grown to become the number one cryptocurrency exchange in the world. With such rapid growth, we’ve updated and expanded our original review in this new article…
Binance is currently the world’s largest cryptocurrency exchange, with over $6 billion in assets traded in an average 24 hour period. Binance’s rise to the top has been swift. Since its launch six months ago, Binance has grown at a rapid rate. Millions of users per week sign up to use the exchange, including 240,000 members last Wednesday alone. Wednesday’s daily record came after Binance lifted a temporary freeze on new member registrations.
Binance is also the name of a cryptocoin (BNB) traded and used on the Binance exchange. Since the ICO six months ago, the value of BNB has risen with the growth of the exchange. BNB is now among the top 30 cryptocurrencies in the world by market cap.
What about Binance makes it so compelling? Why are so many people signing up to use this new exchange? In this article, we’ll dive into those questions. The answers are surprisingly simple. The simplicity of Binance’s business model has been the key to its success so far, and it bodes well for future success.
How Exchanges Work: Understanding Binance’s Advantage
First, it’s worth understanding the basic mechanics of a currency exchange before we go any further. Solving some technical problems with exchange software is among Binance’s key competitive advantages.
A typical exchange works as a market maker for buy and sell orders. It’s important to note that the exchange itself does not buy and sell your currency when you make an exchange. Instead, the exchange matches you with another user who is willing to buy your asset at the price your asking. This matching of buy/sell orders is the key function of an exchange. When an exchange matches buy/sell orders and completes a trade, it charges a transaction fee to both parties for the service of finding a match. That’s how exchanges make money.
This order matching creates a bottleneck for many cryptocurrency exchanges. If you have more trade requests than your matching software can handle, orders will be delayed. With the popularity of Bitcoin and altcoins right now, users are submitting millions of trade requests per minute on the most popular exchanges. Delayed trades might be the difference between capitalizing on an investment opportunity and missing it.
Binance’s major innovation is their matching engine, capable of 1.4 million trades per second. This makes their trading platform one of the fastest available on the market. As such, many crypto investors have flocked to Binance for its processing speed.
The other critical component of an exchange is liquidity. Liquidity is the amount and frequency with which assets move around the exchange. In order to quickly find a match and complete an order at a competitive price, there needs to be a lot of activity on the orderbook. An exchange with a quiet orderbook is not a good place to invest your money. However, Binance has the busiest orderbook in the world, making it a safe, competitive market for transactions.
Binance has high liquidity in many different assets, not just Bitcoin and other top coins. In fact, as of writing, TRON is the most-traded asset on Binance in the past 24 hours, with other altcoins in the top ten. This altcoin advantage is a virtuous cycle for Binance, and new coins often choose to list with Binanceover competing exchanges. This includes many coins from Asia that may not be available from Western-based exchanges. The wide array of assets available is another key reason for Binance’s rapid rise.
Using the Binance Exchange
Binance does not support fiat currencies, so you can’t convert dollars, yen, pounds, euros, etc. on the exchange. (The name Binance is actually a combination of “Binary Finance,” suggesting that they only deal in digital assets.)
If you want to use Binance, you’ll need to already own cryptocurrency. Once you do, registration and setup are fairly easy, as is funding your Binance account.
User Experience & Interface
Binance has done a great job building an intuitive user interface without sacrificing the charts, graphs, and other information you need to make informed investment decisions. Trading is easy and only requires a few clicks to select the currency pair you’d like to trade and create the order. The user interface is available online, but also as a mobile app for iOS and Android.
Another factor contributing to Binance’s rapid growth is its availability in eight different languages. The exchange supports users that speak English, Chinese, Japanese, Korean, Russian, Spanish, French, and German.
The final key to Binance’s success is the competitive trading fees it charges. It’s free to fund your account, and orders are charged a simple 0.1% trading fee. The trading fee means you’ll want to limit how frequently you make trades since you’ll lose 0.1% every time you transact. However, we’ll see in a minute that Binance makes it possible to reduce these transaction fees. If you consider how much Binance makes off its transactions, it’s clearly a profitable business model. With over $6 billion traded in a 24 hour period, even if Binance only receives 0.05% of that daily volume, that’s $3 million in revenue per day.
Binance also charges withdrawal fees for moving assets out of your account into private wallets. The withdrawal fees vary by the coin, but they are flat fees, not percentage-based.
The Binance Coin (BNB)
You can use BNB to pay your fees on the Binance exchange. While you can still choose to pay your fees in the cryptocurrency you’re exchanging, Binance offers a rebate as an incentive to pay fees in BNB. In your first year of membership on Binance, fees are discounted 50% when paid in BNB. With every subsequent year of membership, the fee discount decreases. By your fifth year using Binance, there is no longer a fee discount for paying in BNB.
Since the fee rebate decreases every year, the value of the BNB token is also expected to decrease over time. To combat this depreciation, Binance will also destroy BNB tokens over time, reducing the total supply of BNB from 200 million to 100 million. Contracting the money supply in this way should counteract the effects of the decreasing discount. The goal being a stable price for BNB coins over time.
While fee payment is the primary purpose of the BNB token, you can also use it to invest in certain ICOs that participate in Binance’s Launchpad program. Once the ICO is over, these new tokens will automatically list on Binance, creating a seamless marketplace between ICO and exchange.
The Future of the BNB Token
Binance is promoting the adoption of the BNB token in the hopes that it will drive customer loyalty. The rebate, of course, is a nice perk for lowering trading fees. But even after the rebate decreases, users are still likely to own leftover BNB that they might as well continue to use. As the dominant cryptocurrency exchange in the world, we can expect Binance’s coin to circulate widely. The more its adoption grows, the more valuable and useful it becomes.
Right now, BNB’s primary value is within the exchange. This makes BNB unique among most new coins since it already has a practical use case. Most investors will get the highest ROI out of cashing in on the BNB rebate. However, in the future, it’s possible the value of BNB could grow as an asset. For the earliest investors, they’ve already seen a large return on BNB. It’ll be interesting to see if investors continue to take the rebate or hold BNB in hopes that it will appreciate.
If Binance sees continued success on its current level, it will certainly implement more features and programs. These new capabilities and add-ons will all likely use the BNB coin. Their ICO Launchpad is one early example of an added feature using the BNB coin. There are likely to be many more.
Where to Buy & Store BNB
You can only purchase BNB through the Binance exchange and EtherDelta (although the volume on EtherDelta is so low that you shouldn’t bother). Any coin supported on Binance is available as a trading pair with BNB.
If you’re interested in holding BNB as an investment, you should move it off the exchange into a wallet. As an ERC20 token, your BNB can be stored on MyEtherWallet. For improved security, you can also use a hardware wallet like the Trezor.
Binance Background & Team
Binance is a Chinese company, originally started in Shanghai and now based in Hong Kong. It’s founder, Changpeng Zhao, is the former CTO of OKCoin, another prominent Chinese cryptocurrency exchange. Zhao’s company, Beiji Technology, owns and operates Binance.
The Binance exchange only launched six months ago. In August 2017, shortly after launch, Binance announced that Yi He would join the team. Yi He was one of the original co-founders of OKCoin. She’s widely recognized for her ability to grow technology products and gain user adoption. Zhao, He, and the Binance team have grown the company into the biggest exchange in the world over the past six months.
There’s a reason why Binance has seen such massive growth and success over the past six months. It’s fast, reasonably priced, and available worldwide. If you already have an exchange that you use and like (that charges similar fees), then there’s no need to switch to Binance. In particular, if you often need to convert to fiat currency, Binance won’t be useful for you at all. However, if you’re unhappy with your current exchange, need lower fees, or are looking for the fastest processing times available, then a move to Binance could be right for you.