Why Is Binance So Popular, and How Does it Work?

Binance is the world’s most popular cryptocurrency exchange. Its rise has been meteoric; in less than two years, it went from being a tiny start-up to the largest exchange on the planet in terms of trading volume.

So, what happened? How did Binance become so popular among crypto users? Keep reading to learn more…

1. An Ideal CEO

The founder and CEO of Binance—Changpeng Zhao—is one of the most well-known faces in the crypto world. Given the organization he’s running, that’s no surprise. A delve into CZ’s past, however, reveal that he lived through a perfect set of experiences to ready him for the launch of Binance.

Zhao was born in China but moved to Canada during his childhood. He studied Computer Science at McGill University in Montreal before heading to Japan to develop trading matching software for the Tokyo Stock Exchange. After leaving Tokyo, he furthered his trading app knowledge by developing futures trading software for Bloomberg and creating one of the world’s fastest high-frequency trading apps for his own company, Fusion Systems.

In 2013, he jumped into crypto. He worked at Blockchain.info and OKCoin before eventually leaving the latter to create Binance.

2. Perfect Timing

Make no mistake; the Binance leadership has continually shown its brilliance in numerous ways. Without some of the decisions it has taken, Binance would not be the company it is today.

However, it’s also true to say that Binance benefited considerably from the timing of its launch. By going live in mid-2017, it was able to hoover up new crypto users just as the bull market really started to take hold.

Had the company launched nine months later after the crash, it’s hard to believe that it would have been quite so successful.

3. Avoiding Fiat Currency

Lots of people criticize Binance for not offering fiat trading pairs. But that shows a lack of understanding of the underlying reasons for the decision.

By not letting users trade USD, GBP, EUR, or any of the other major global monies, the company was able to sidestep the strict regulatory requirements that arise when dealing with national currencies.

The company’s ability to circumvent regulations allowed it to grow its userbase much more quickly than its competitors. By the end of 2017—just six months after its launch—Binance already had three million users. There were only 15 countries in the world that Binance did not serve.

4. Rapidly Adding New Assets

Binance capitalized on the crypto boom by quickly expanding the number of assets available on its platform. In a period when every altcoin felt like it could be the next Bitcoin, it was a smart move. Users fell over themselves to invest increasingly large amounts of money into the diverse projects.

In contrast, Coinbase (which had been the leading crypto on-ramp in the US) spent the entirety of the crypto bull market offering just four coins. It wasn’t until the crash and the subsequent loss of users that the company started to look at expanding its offering. By then, it was arguably too late.

Rumors suggest Binance charges more than 400 BTC to list a new coin on its platform. Again, that provides the company with considerable amounts of capital that it can invest back into its other services.

5. The Rise of BNB Coin

BNB has been integral to the growth of Binance. Some people would argue it’s the most important aspect of Binance’s success.

The coin’s integration into the Binance platform helped the company to retain users, even during the 2018 crash. Indeed, BNB was one of the few coins whose market cap and value held steady during those difficult months. It is also one of the only major coins that saw a new all-time high during the crypto renaissance in spring 2019.

But BNB’s success goes deeper than mere numbers. The coin has become central to the entire exchange. Perks such as discounted trading fees, community votes, and the ability to use the coin outside of Binance (such as for collateral on crypto loans with Nexo), mean that holders of BNB are actively invested in the success of the Binance business.

6. Initial Exchange Offerings

Initial Exchange Offerings (IEOs) are similar to ICOs—they allow a crypto start-up to raise capital from investors.

But there are also some key differences. For example, IEOs are operated by an exchange rather than the start-up’s team. That means users can make investments using their existing exchange wallets, safe in the knowledge that the exchange has fully researched the project. It massively reduces the risk of falling victim to scams and other frauds.

Although Binance is not the only exchange to offer IEOs, it is undoubtedly the most successful. It’s Binance LaunchPad service has received considerable praise.

Significantly, users can invest in IEOs using BNB, thus further expanding the ecosystem surrounding the coin. There is now a self-fulfilling circle of hype surrounding each new release. Some of the IEO coins (perhaps most notably Matic, Harmony, and BitTorrent) have quickly become established crypto names and have allowed investors to make large profits.

7. Customer Experience

Binance’s customer experience is unrivaled on other exchanges.

Unlike so many of its competitors, the site is slick, well-designed, and easy-to-use—even for beginners. Binance is also one of the few crypto exchanges that offer a desktop app, and its mobile apps are crisp and clear.

But there are other aspects at play, too. For example, the Binance Academy is one of the best crypto learning resources anywhere on the web. All the material is entirely free (even for people who don’t have a Binance account).

And what about Binance’s response to the 2019 hack? It was open and honest about what happened and moved quickly to refund customers who had lost money. The response was in stark contrast to the way some other exchanges have handled similar situations.

How Does Binance Work?

In its most basic form, Binance allows you to buy, sell and trade digital currencies like Bitcoin and Ethereum. In order to give you a birds-eye view of how the platform works, we’ve broken down the main steps that you will typically need to follow to get started.

Step 1: Open an account

Head over to the Binance homepage and open an account. If you’re only planning to deposit and withdraw funds using cryptocurrencies, then you’ll only need to provide an email address.

Step 2: Set up two-factor authentication

In order to secure your account, Binance will ask you to set-up two-factor authentication (2FA). This means that you’ll need to install an application like Google Authenticator or Authy on to your phone. Subsequently, each and every time you want to log in – or perform key account functions like a withdrawal request, you’ll need to enter a unique code that can only be found on your phone.

Step 3: Deposit coins

Although a select number of nations can now use a credit card or bank account to deposit funds, we’ll make the assumption that you’re looking to deposit with a cryptocurrency.

If a fiat currency deposit is something you want to explore, you’ll need head over to the ‘Funds’ section of your account and follow on the on-screen instructions (if available).

Nevertheless, on the deposit page, you’ll need to scroll through the long list of coins that are supported, and click on the one that you want to deposit into Binance. You can use this address to send funds to that you purchased on another platform ie Coinbase.

Copy the unique wallet address that is provided to you, and use that to transfer the funds from your private wallet.

Step 4: Trade

Once your cryptocurrency deposit has been credited – which usually takes no more than 10-20 minutes, you are then ready to start trading. Hover over the ‘Exchange’ button at the top of the screen, and select whether you want the ‘Basic’ or ‘Advanced’ trading platform. If you’re just starting out, then go with the former.

You now have access to over 540 individual trading pairs. If the coin that you want to purchase is not directly paired against the cryptocurrency you deposited with, you’ll need to make an additional trade.

For example, if you deposited with Bitcoin Cash, but you’re looking to buy a smaller cap ERC-20 token that isn’t paired with Bitcoin Cash, then you might need to exchange it for Bitcoin or Ethereum first.

When you complete your trade, your newly purchased coin will now be available in your Binance account. You can either keep it in your Binance account, or withdraw it to an external wallet.

How Much Does it Cost to Trade at Binance?

Although Binance does offer a maker/taker fee structure, the standard trading fee that you will pay is 0.1%. This will be charged every time you buy and sell a coin. If you are a market taker – meaning that you simply use the liquidity that is already available on the platform, then you can reduce this down to 0.09% if you trade more than 500 BTC (or cryptocurrency equivalent) in a 30 day period.

The lowest fee available for market takers is 0.04%, albeit, you would need to trade at least 150,000 BTC in a single month.

At the other end of the spectrum, market makers – which provide the platform with liquidity, get an initial fee of 0.1%, too. However, for trades of more than 150,000 BTC per month, this can be reduced down to 0.02%.

Irrespective of how much you trade, the fees charged by Binance are some of the lowest available in the cryptocurrency exchange arena. In even better news, you have the opportunity to reduce these fees further by holding the Binance Coin.

Reduced Trading Fees via Binance Coin

If you hold a balance in the platform’s native Binance Coin, then you can use this to pay your trading fees. In doing so, you will be offered a reduction of 25%. As such, your 0.1% standard trading fee is reduced down to 0.075%.

The discounted fees available via the Binance Coin will reduce over time. While this was previously 50%, the next reduction will take the discount down to 12.5%.

Deposits, Withdrawals and Payments

Although Binance has always been known as a cryptocurrency-only exchange, the platform is now able to facilitate fiat currency deposits and withdrawals. At the time of writing, this is available via credit cards or a bank transfer. Not all locations are supported, so you are best advised to check this first.

Credit Card

If you’re looking to use a traditional credit card to purchase coins, you can now do this directly from the Binance website. Both Visa and MasterCard are accepted.

The platform notes that while payments can be accepted from credit cards of all currencies, if the native currency is anything other than USD or EUR, then an additional charge might apply. In terms of the standard processing fees, this comes at a cost of 3.5% ($10 minimum). This is slightly lower than industry counterpart Coinbase, which charges 3.99%.

Bank Transfer

If you’re looking to deposit and withdraw funds via a bank transfer, then this can be facilitated via the platform’s Binance Jersey off-shoot. At the time of writing, supported countries mainly consist of the UK and Europe, alongside a number of other jurisdictions such as Turkey, Singapore, Australia, New Zealand, and the United Arab Emirates.

To get funds into your Binance account via a bank transfer, you need to specify your desired currency and how much you want to deposit. Binance will then provide you with details of the account you need to make the transfer to, alongside the reference number you need to include within the transfer.

KYC is Required for Fiat Deposits and Withdrawals

It is important to remember that Binance will require you to go through a simple KYC process before they can accept your fiat deposit request. This is to ensure that Binance remains compliant with all respective anti-money laundering laws. This is especially crucial for the exchange at a time that they are looking to obtain the necessary regulatory approval to launch an exchange in the US.

To do this, you’ll initially need to enter your full name, home address, country of residence, and date of birth. You will then be redirected to the platform’s third-party verification partner – NetVerify. To complete the KYC process, you’ll need to upload a copy of your government issued ID. This needs to either be a driver’s license, passport, or national ID card.

Security at Binance

Binance offers a number of security safeguards to ensure your funds remain safe from the threat of external malpractice. Firstly – and as we noted earlier in our step-by-step account set-up overview, you are advised to install 2FA. This means that unless a hacker has access to your mobile phone, they won’t be able to gain access to your Binance account.

Moreover, if you attempt to login from a device or IP address that has not previously been used on Binance, you will need to confirm this via your registered email account. You can also choose to receive email notifications when key account functions are performed, such as withdrawals.

While we are on the topic of withdrawals, Binance recently introduced its ‘Address Whitelisting’ feature. Ordinarily, you have the option to withdraw your cryptocurrency funds to any wallet address. However, if you set-up the address whitelisting feature from within your account, you can ensure that withdrawals can only be made to a single address. You can of course amend this at any time, although you’ll need to go through an extra couple of security steps.

SAFU Reserve Fund

We really like the Secure Asset Fund for Users (SAFU) that Binance introduced in 2018. The SAFU function acts like a reserve fund in the event that the platform experiences a hack. The reserve SAFU pot is funded by taking 10% of all trading fees that Binance generates. When you take into account the multi-billion dollar trading volumes that the platform is accustomed to, the fund could potentially grow to a significant amount.

As great as the security features are at Binance, it is important to note that the platform was actually hacked in May 2019. The malicious actors were able to remotely steal surplus of 7,000 Bitcoin, which at the time amounted to a market value of just over $40 million. The good news is that the platform utilized the aforementioned SAFU fund, meaning that Binance customers that were affected did not lose any money.

Regulation

In terms of its regulatory status, Binance is regulated in Malta under its newly enacted Virtual Financial Assets (VFA) act. Other than this, Binance is not licensed by any other regulatory bodies. However, this isn’t to say that the platform does not comply with its anti-money laundering obligations.

On the contrary, Binance requires all customers that plan to use fiat currencies to deposit and withdraw to go through a KYC process. Moreover, if you attempt to withdraw more than 2 BTC in a 24 hour period, then you will also be required to go through a verification process.

It is also important to note that Binance is in the process of applying for regulatory approval in the US to launch a fully licensed exchange for US citizens. This means that it will need to ensure its regulatory endeavours are water-tight if it is to get the green light.

So now that we’ve covered account security and regulation, in the next section of our review we are going to cover customer support.

Binance Margin Trading

The team at Binance recently introduced margin trading to its platform. You will need to apply for a margin account if this is something you’re interested in, which will include a disclaimer form indicating that you understand the risks involved.

You will need to transfer Binance Coins to your maring trading wallet, which is essentially used as collateral against the funds you intend to borrow. Binance will allow you to trade at a margin rate of 3:1, meaning that if you have the Bitcoin equivalent of 1 BTC, you can effectively borrow 2 BTC.

If you are engaged in margin trading and your margin balance falls below 1.3, then Binance will get in touch to let you know that a margin call is required to avoid liquidation. If your margin balance then drops down to 1.1, Binance will be forced to liquidate your trade, meaning you’ll lose your collateral.

As such, you should only trade on margin if you have a firm understanding of the underlying risks.

Binance Review: The Verdict?

In summary, it’s easy to see why Binance is now one of the largest cryptocurrency exchanges in the industry. With customers offered super low trading fees, hundreds of crypto-to-crypto trading pairs to choose from, and enhanced security features – Binance is an excellent choice if you’re looking for a new exchange to join.

In reality, it’s amazing just how quickly the platform has grown since it was launched in 2017. Although the exchange is less than two years old, Binance is already responsible for billions of dollars in weekly trading volumes.

It is also a good move that the platform is now able to facilitate fiat currency deposits and withdrawals. While at the time of writing this is only available in a select number of nation states, it is likely that Binance will continue to roll out it’s credit card and bank transfer facilities over the coming months.

BROUGHT TO YOU BY: Crypto Blabbers Admin

Crytocurrencies lover and enthusiast.
Co-founder of Crypto Blabbers.

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