Founded in July 2017, Binance is the world’s largest cryptocurrency exchange in terms of trading volume and the overall scope of its business operations. As a private crypto firm based in Malta, Binance’s web-based platform allows users to securely trade a wide range of cryptocurrencies.
In addition to developing a centralized trading platform, the Binance team has created a decentralized exchange (DEX) module - which allows users to trade cryptoassets without having to share their private key.
Binance Chain: A High-Performance Blockchain Network for Crypto Transactions
Binance’s DEX has been built on top of a blockchain network, called the Binance Chain. As a non-custodial crypto platform, only traders have access to their funds because the Binance Chain has been designed to facilitate cryptocurrency transfers without accessing users’ private keys.
As a low latency, high throughput blockchain-powered platform, the Binance Chain lets users conduct low-cost transactions - while also providing access to “high liquidity trading.” As mentioned on Binance’s official website, the exchange operator aims to settle transactions with only 1 confirmation finality and block times of just 1 second.
Binance Chain May Be Easily Upgraded with New Technology Stacks
The Binance Chain is reportedly designed to ensure fair trading by “minimizing” front-running as much as possible. Moreover, users may expect the same easy and intuitive user experience (UI) on Binance Chain as they would when transacting on Binance.com, according to the exchange operator’s management.
Notably, Binance’s management has designed its exchange platforms (including Binance Chain)
in a manner that allows for the integration of improved technology stacks and various other upgrades to the trading plaform’s architecture.
Binance Chain May Be Used to Issue New Tokens
Binance Chain users may send and receive Binance Coins (BNB), the native cryptocurrency of the exchange (now widely adopted by the larger crypto ecosystem), and they may also create and issue their own tokens.
Additionally, users may burn or “mint” and “freeze/unfreeze” tokens on Binance Chain. The blockchain-based trading platform also lets users make suggestions regarding new trading pairs which may be created between two different crypto tokens. Once a trading pair is supported by Binance Chain, users may submit buy or sell orders for a particular pair of cryptos on the chain itself.
Binance Coin, the Native Cryptoasset of Binance Chain
As explained, the Binance Coin (BNB) is the native cryptoasset of the Binance Chain ecosystem. BNB’s total supply has been capped at 200 million coins and its circulating supply is managed by burning (destroying) a certain number of coins, or freezing them, after certain conditions have been met.
BNB ERC-20 Tokens May Seamlessly Be Converted to Binance Chain Native Tokens
As confirmed by the Binance team, the exact number of BNB will be burned based on “the same number of BNB ERC-20 tokens” that have previously been destroyed. Since Binance Chain is now operational, all BNB ERC-20 (Ethereum-based) tokens can be exchanged for Binance Chain coins, the exchange’s website explained.
The token swap process may be performed by depositing BNB ERC-20 tokens to Binance.com’s trading platform. Upon withdrawal, the cryptocurrency will be converted to Binance Chain native tokens - which are transferable to users’ new crypto wallets.
No Registration Required to Trade On Binance Chain
In order to begin trading through Binance Chain, traders are not required to complete a registration process. Users may trade cryptoassets on Binance Chain by using any wallet that supports transactions on the BNB-powered blockchain network. In addition to trading BNB from the Binance Chain-compatible wallet, users may trade other supported cryptocurrencies as well.
Binance’s DEX Uses “Periodic” Auction Matching
To create new orders on Binance’s DEX, users may send messages in which they may specify the cryptoassets they intend to buy or sell. Users may also send cancellation messages if they decide to cancel any orders. Trading orders may be sent through users’ crypto wallets or traders may use an API to perform automated trading through Binance’s DEX.
All matching for buy and sell orders is handled on the blockchain - as all network nodes are tasked with performing the matches while ensuring consistency. The matching process occurs through Binance’s DEX which ensures “maximum” transparency - while also reducing the chances of front-running.
Notably, the Binance DEX does not perform “continuous” matching, which is done on many centralized crypto exchanges. In order to process trades, Binance’s DEX facilitates “periodic” auction matching for all open buy and sell orders. A periodic auction is performed by a system in which buy or sell orders are periodically matched by using some type of trading algorithm.
Once users’ orders are filled, the cryptoassets involved in the trade are automatically transferred to the buyers’ crypto wallets. After a transaction is completed and confirmation has been received (instant in most cases), traders do not have to wait for additional blocks. The purchased cryptocurrency may be traded again via the exchange platform or sent to another address.
Fee Structure on Binance DEX
Fees on Binance’s DEX are charged by the platform’s block producers (BP), who are responsible for validating transactions made on Binance Chain. The transaction processing fees, which are shared among the BPs, are charged to cover network usage costs and to prevent (or discourage) malicious attacks.
New orders placed on Binance Chain are “exempt” from fees, in order to “encourage usage.” Orders that either expire or get cancelled will be charged a fee if they “fail to provide liquidity.”
Using Byzantine Fault Tolerance (BFT)-based Consensus to Run Binance Chain
Binance Chain uses the Byzantine Fault Tolerance (BFT) and proof-of-stake (under development) consensus algorithm to generate blocks among the trading platform’s transaction validators (or BPs). As noted by the Binance team, its blockchain consensus protocol is similar to other large crypto networks including EOS and NEO.
Binance’s technical team is currently working on creating a process in which validators may be set up among “different entities” on Binance Chain. As mentioned on Binance’s website, users may run a full-node on the trading platform, in order to receive and produce new blocks of transactions. However, full-nodes may not participate in the blockchain’s consensus process - unless they have been selected as a Validator.
Binance Launches Bitcoin-backed Tokens on Binance Chain
On June 17, 2019, Binance revealed that it will introduce a Bitcoin-backed, BEP32 compliant token, referred to as BTCB. The token has reportedly been developed on the Binance Chain and each BTCB will be fully backed by the cryptocurrency being “wrapped” (in this case, Bitcoin).
Binance’s management is also planning to launch more BEP32 tokens which will be backed by other major cryptoassets.