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Regulatory concerns have barely dented BNB’s growth. Yet.
Binance Coin (BNB) is the utility token on the popular cryptocurrency exchange Binance. Traders can use the token to pay fees on the platform, and developers can use it to power applications on the Binance Smart Chain.
The Binance Smart Chain is what sets BNB apart from utility (or trading) tokens on other exchanges. It is a programmable ecosystem like Ethereum (ETH) that can run smart contracts and serve as a platform for other applications and cryptocurrencies.
Smart contracts are small pieces of code that many believe are blockchain game-changers. They elevate these databases from ledgers that record transactions to programmable systems. For example, a smart contract might enable an insurance policy to pay out automatically under certain preset circumstances.
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- What it is: A token on Binance cryptocurrency exchange and fuel for Binance Smart Chain.
- Management team: Company founder and CEO Changpeng Zhao has a background in finance and technology. The company has offices throughout the world and over 2,000 employees.
- Date launched: 2017
- Market cap: $48 billion (CoinMarketCap, July 2021).
- Availability: Several major U.S. cryptocurrency exchanges don’t trade BNB because it competes with their own utility tokens. However, you can get BNB from Binance and KuCoin.
Should you buy BNB?
The sheer breadth of Binance’s offer has driven the price of BNB up in recent years. Its cryptocurrency exchange is one of the most popular in the world. It constantly launches new products and services and has attracted a wide community of cryptocurrency traders.
Customers can use BNB tokens to pay transaction fees on the exchange. Using BNB reduces trading costs, and there are various ways the token can earn interest. Right now, depending on the level of risk and how long they want to tie up their coins, BNB holders can earn as much as 10% APY or more.
Programmers can build new applications on the Binance Smart Chain. Developers are currently frustrated by network congestion on Ethereum, the leader in programmable blockchains. It hasn’t been able to keep up with high demand, and until it can complete its upgrade to a faster and cheaper system, programmers are looking for alternatives. That’s helped to drive activity on Binance’s network.
On top of that, the Binance exchange has something it calls a launchpad, where investors can find new products. Lower fees and an opportunity to connect with potential investors is a powerful combination for cryptocurrency project developers.
Binance has a difficult relationship with regulators
Several Binance services have regulators worried worldwide. Binance constantly offers new products, some of which are banned in certain countries. Here are some examples:
- Binance has a separate U.S.-specific site, in part because the U.S. does not allow retail investors to buy derivative products. However, the company is being investigated by the Justice Department and the IRS to see if Americans are accessing services on the international site.
- The FCA, the U.K.’s financial watchdog, recently banned Binance. It is not allowed to advertise in the country and has been ordered to display a warning to U.K. customers.
- German authorities are concerned about its latest stock tokens — coins that are pegged to the value of stocks like Apple or Microsoft.
However these individual situations unfold, investors do need to consider Binance’s attitude toward regulation. The company says it takes regulation very seriously, but that hasn’t stopped it from offering services that make regulators uncomfortable.
Binance’s approach seems to be to act first and worry about regulation second. That endears it to those cryptocurrency traders who don’t want governments to restrict the services they can access. But it could be problematic if a lot of countries decide to ban the exchange.
Cryptocurrency regulation is complicated, in part because it is difficult for authorities to force companies that are based outside their jurisdictions to follow their rules. For example, in spite of the U.K. ban, Brits can still access Binance’s services, even though they can’t currently deposit or withdraw British pounds to their bank accounts.
Increased regulation is almost certainly on the way worldwide. And if authorities crack down on services like Binance, it is difficult to think it won’t impact the future of BNB. Especially as other exchanges do not trade the coin.
All cryptocurrencies carry risk
Cryptocurrencies are relatively new and highly volatile investments. That’s why it’s recommended you only invest money you can afford to lose. Make sure your cryptocurrency investments are part of a wider, balanced portfolio and that you research any coin you buy carefully.
Each cryptocurrency also carries its own specific risks. For Binance, two factors are key: the development of the Binance exchange and the Binance Smart Chain.
That’s why BNB investors need to pay attention to regulatory developments. Recent moves against Binance have had little impact on BNB’s price. But in the long run, it remains to be seen whether exchanges that prioritize regulation will win out over those that don’t.
It’s also important to watch the number of applications on the Binance Smart Chain and how Ethereum’s upgrade unfolds. The longer it takes for Ethereum to launch a faster platform, the more opportunities there are for companies like Binance to capture market share.
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About the Author
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.