Binance is the world’s largest cryptocurrency exchange by trading volume.
What started as a simple crypto exchange quickly grew after its launch in 2017. Since its launch, the exchange has made waves in terms of both innovation and controversy.
Over the years Binance has become a touchstone of the crypto industry with billions of dollars in volume. It’s illustrious CEO Changpeng Zhao has been a strong proponent of crypto and famously feuded with FTX CEO Sam Bankman-Fried before FTX collapsed in stunning fashion in late 2022.
In this guide, we’ll discuss the history of Binance, how Binance became the largest crypto exchange, its innovative products, and of course, the controversies surrounding it. Let’s start at Binance’s launch.
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Binance’s Beginnings (2017-2018)
Binance Exchange first launched in July 2017 following the Initial Coin Offering (ICO) for Binance Coin (BNB). The term Binance came from combining the term Binary Finance into one word, Binary Finance referring to finance that works through binary code, or cryptocurrency as it is now referred to. The exchange was co-founded by the still current CEO Changpeng Zhao and CMO He Yi. “CZ” as he’s now known, is one of the faces of crypto and one of its biggest proponents.
Binance’s headquarters were originally located in China, but as China began passing more and more bans on crypto, the firm moved to Japan, and then to Malta once Japan’s regulations became tighter. Currently, the company is registered in the Cayman Islands.
Binance Coin was launched with one deflationary measure and has since added another. The first mechanism that makes BNB deflationary is the quarterly burns of BNB performed by the exchange. Binance burns the BNB it receives for transaction fees on the exchange. The second deflationary measure was launched in 2021 and will be discussed in that section.
Growth, Hack, BUSD Launch (2019)
It didn’t take long for Binance to become the world’s largest exchange by trading volume, with it reaching that mark in 2018. Then, the company looked to grow. One of the ways in which they did so was by launching Binance USD (BUSD), a USD-backed stablecoin, in September 2019. Binance also migrated Binance Coin (BNB) from Ethereum to the new Binance Chain in 2019. Binance Coin (BNB) was initially launched as an ERC-20 (Ethereum) token. The US version of Binance (Binance.US) was launched in 2019 as well, yet another step for Binance’s growth as a company.
BUSD was issued in conjunction with Paxos, a New York-based financial institution. Paxos provides monthly reports on BUSD backing, along with attestations by a third-party accounting firm. BUSD is a top 10 asset by market cap, with over 18 billion BUSD circulating. Following the collapse of the UST stablecoin in 2022, Paxos began disclosing the backing of BUSD, which is entirely US cash or cash equivalents. Binance also began a partnership with Simplex in 2019 which allowed the use of debit and credit card purchases of crypto on the exchange.
Earlier in the year, in May 2019, Binance experienced the first hack in its history, with 7,000 Bitcoin (BTC) being drained from the exchange. At the time, the value of the BTC was over $40 million USD. Binance was able to completely reimburse all affected users through its Secure Asset Fund for Users (SAFU). The SAFU is still available in the event of another hack of the exchange.
Binance Chain Launches, Forbes Issue (2020)
Though the Binance Chain was launched in 2019, it was solely for governance, validation, and voting. To gain a foothold in the burgeoning world of decentralized finance (DeFi), Binance developed the Binance Smart Chain (BSC), a smart contract capable blockchain. This allowed Ethereum applications to migrate to the BSC because it implements the Ethereum Virtual Machine. In essence, Binance created an alternative to Ethereum but with faster transaction speeds and lower fees. Any app that had been launched on Ethereum could then migrate to the BSC if they so desired. This helped spur the growth of both Binance Exchange and the BSC.
The Binance Smart Chain officially launched in September 2020, and BNB, with its newfound utility, hit its all-time high in May 2021 after months of price growth. Just one month after the launch of the BSC, in October 2020, Forbes released an article based upon a leaked document, alleging that Binance was intentionally creating a business structure to mislead US regulators.
IRS Launches Investigation, New BNB Burns (2021)
In May 2021, around the time BNB hit its all-time high, the IRS launched an investigation into Binance. This was in conjunction with the US Department of Justice and part of an investigation into U.S. residents using cryptocurrencies for illegal transactions. It is still ongoing. Binance actually bought a stake in Forbes just 7-months later in February 2022.
In October 2021, Binance added another deflationary mechanic to BNB in the form of update BEP-95 to the BSC. The BEP-95 upgrade means that the BSC network will burn a fixed ratio of each block’s gas fees that validators collect. Essentially this means that the more transactions that take place on the BSC, the more BNB is burned, decreasing the supply and therefore forcing upward pressure on the price of the asset.
In December 2021, they added BNB Auto-Burn, which changed the quarterly burn mechanics and will halt once the circulating supply of BNB drops below 100 million.
BNB Chain Launch, Exploit (2022)
In February 2022, Binance launched the BNB Chain, the name they’re using for the now merged Binance Chain and Binance Smart Chain ecosystem. The BNB Chain then has two components, the BNB Beacon Chain (formerly Binance Chain), which is used for governance and voting, and the BNB Smart Chain (formerly Binance Smart Chain), which is where the apps and consensus take place.
In October 2022, the BNB Chain encountered its first exploit, which was of the cross-chain variety. This means that the exploit took advantage of a bridge between BNB and multiple other blockchains. The hacker was able to “create” 1 million BNB in two separate transactions and then send them to himself across multiple chains. So while no individual person was affected in the sense that their BNB was stolen, the exploit created a variety of issues across the industry.
FTX Fallout, Binance Attempts to Quell FUD (2022-2023)
The collapse of FTX Exchange put centralized crypto exchanges in the crosshairs of regulators, lawmakers, and traditional finance pundits alike. Various bodies have demanded that Binance, along with a host of other centralized exchanges, provide a proof of their reserves along with some sort of audit of their financial control systems. Despite some concessions to all the demands, Binance is still facing a sort of guilty until proven innocent situation. Nothing short of a full fledged audit by a top firm will quell any of the fear, uncertainty, and doubt (FUD) surrounding Binance.
It should be noted that Binance has been questioned numerous times before but has continued to overcome every obstacle thrown at it. The result of Binance’s current battle will undoubtedly add to its already storied history.
Who is Changpeng "CZ" Zhao?
Born in China, CZ moved to Canada when he was 12 with his family following the Tiananmen Square massacre in China. He lived in Vancouver and worked at McDonald’s as a teen in addition to doing nights at a gas station. He attended McGill University in Montreal, graduating with a degree in computer science. After graduation he quickly became head of Tradebook Future Development at Bloomberg, developing software from 2001-2005.
Zhao moved to Shanghai and founded Fusion Systems, an IT and business consultancy that had Goldman Sachs and Credit Suisse as clients. He found out about Bitcoin at a poker game with friends, and took an immediate interest, making his first investment in Bitcoin soon thereafter by selling his apartment in 2013. Bitcoin quickly dropped in value after his investment, but he stayed the course. While living in Shanghai he worked at Blockchain.com and OKCoin, two centralized crypto exchanges that are still running. He founded Binance in 2017 in Hong Kong.
He is generally highly regarded in the crypto industry although he also has his critics.
