Binance’s Infrastructure Exposed and Debunked

Binance is a crypto-to-crypto exchange enabling users to buy, hold, and sell digital assets.[1] Binance is one of the largest cryptocurrency exchanges, and at one point approximately 310,000 users created new accounts for the centralized exchange in about an hour, which forced the Binance team to close registrations due to the influx of users who required further processing. To date, there are more than 10 million Binance users and that number is rapidly growing according to Forbes.[2] Binance was founded in 2017 by CEO Changpeng Zhao and Co founder He Yi to represent their ideas of a cryptocurrency exchange. The Binance team hired talented individuals and with hard work they were quickly gaining traction. Unfortunately then, as often happens with startups, there are always some complications. Binance moved its headquarters from Hong Kong due to restrictive regulations.

“I think people who fail to evolve and learn are part of the problem.”- S. Klarman, billion-dollar Hedge Fund Manager

Binance evolved. This critical decision to move and demonstrate perseverance created a ripple effect that ultimately paved the way for Binance to become one of the largest cryptocurrency exchanges in the world.

How did the team come up with the name Binance? According Zhao, “Binance wanted to represent the bids and asks on the exchange with two squares, while also echoing the binary word in the name.” Thus, binary intertwined with finance led to the name Binance.

Original logo art by Zhao, Binary + finance= Binance

CEO Changpeng Zhao, also known as “CZ”, graduated McGill University in Montreal with a computer science degree. CZ was employed by Bloomberg and Fusion, worked as a software developer for the Tokyo stock exchange, and also filled that role for Blockchain Info. CZ was the Chief Technology Officer at Okcoin crypto exchange before diverging into his own venture.

Binance Uganda and Binance Jersey

Binance has launched two fiat on-ramp exchanges so far. The first one supports direct fiat-to-crypto trading in Uganda, Africa which had 40,000 users in its first week, and the newer one is located in the island of Jersey, which is located between France and England for Binance’s European customers. [3,4] Binance Uganda supports (UGX), users will be able to trade: Paxos (PAX), Binance coin (BNB), Bitcoin (BTC), and Ethereum (ETH). While Binance Jersey supports direct fiat-to-crypto trading using both the Euro (EUR), and the British Pound (GBP). This fiat-to-crypto on-ramp has two currencies; users will be able to trade Bitcoin (BTC), and Ethereum (ETH). Binance plans to have two fiat exchanges on each continent.

Other countries may soon join: Binance Singapore, Liechtenstein, and Malta.

Decentralized vs. Centralized Exchanges

Binance is a cryptocurrency exchange supporting various languages around the world to spread the accessibility to financial freedom. As we all know, there are advantages and disadvantages in leaving assets on an exchange. In assessing which method is most effective, it is imperative to first assert the common wisdom that different people learn best by employing different methods. Whether the end-goal is to speak a new language, understand a scientific theory, or in this case, learn how to better comply with centralized exchanges versus decentralized exchanges, one must acknowledge there is no universal solution that will work to an equal effect for each individual. As I shall explain the following analysis, it is my opinion a Binance centralized exchange offers the optimal solution to the crypto ecosystem. Though this theory has its strengths and weaknesses, which will be discussed more in detail, it provides the best option in many ways.

If you want to use a centralized exchange, investigate the cold wallets for reputability. Which exchanges are considered safe? Out of the top 100 crypto exchanges, the top five exchanges based on their cyber security Score are: Binance, Bitmex, Coinbase Pro, itBit, and Kraken. [5] Centralized exchanges are indeed faster than decentralized exchanges, and they also have a high security integrity. At this time, Binance can process 1.4 million transactions per second. In contrast, the usability for decentralized exchanges can feel a bit sluggish to users, but they can do the job. I have had my fair share of experience on decentralized exchanges and it feels as though it is the equivalent to dial-up internet, except applied to financial transactions. I believe the decentralized exchange infrastructures are terrible at the present time, but they will become faster as their User Interfaces (UIs) progress.

The main concern of users when it comes to centralized exchanges is, “Will the exchange keep our funds safe?” As a direct response to this common and palpable concern, Binance will protect the future interests of all users in cases of extreme emergency. Binance created a secure asset fund for users or known as, “SAFU”. Binance allocates ~10% of all trading fees received into this SAFU. This offers protection to all users and their funds. The fund is stored in a separate cold wallet.

In a decentralized exchange you are the sole owner of your assets, and you can login by inputting your seed key 12–24 word phrase, or private keys. After that lengthy login process, you can begin to buy and sell digital assets. How does this work? “Trades occur directly between users peer-to-peer through an automated process. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you.” [6] However, a decentralized exchange method works if you do not make a mistake and if you have access your private keys. In 2018 alone, Binance helped 3,992 users retrieved 3,229,045.91 million tokens mistakenly sent or lost. Losing passwords would be your worst nightmare on a decentralized exchange. According to Fortune Magazine , there are approximately four million Bitcoins missing because the owners have lost their retrieval codes or lost their hard drive. [7] As a specific and particularly unfortunate example, a man named James Howells lost out on selling more than $22 million Bitcoin by discarding his hard drive that contained 7,500 Bitcoins. [8] Without having any backups, users are commonly simply out of luck.

Binance cryptocurrency listings are heavily scrutinized during a process wherein fewer than 3% of cryptocurrencies which apply for listing are chosen. That’s a lower percent change than a college applicant being accepted to the top, most-prestigious Universities in America: Stanford, Harvard, Princeton, or Yale. The centralized exchange goes through this strict approval process, whereas decentralized exchanges are less strict regarding which cryptocurrencies they choose to list.

If you use decentralized exchanges it involves a few extra steps, but centralized exchanges are far more efficient and absolutely more user-friendly. I believe a centralized exchange is practical for the general population. I did a small sample size that does not show the consensus of all users, but I believe more than ~46% of the next wave of customers are retail investors who are typically non-technically-inclined individuals who want to invest in cryptocurrencies.[9] When you are purchasing goods from a company, you do not question whether the company is centralized. Consumers tend to care about the user experience during the product purchase transaction, and if there is customer support standing by to assist if needed, which is a core service a decentralized exchange typically does not and cannot offer. I think people do not care enough about decentralization for companies in general because there is no insurance with decentralization exchanges, although they work well enough in their own capacity.

The best option will depend on the user needs. Although in my opinion, it is to use a centralized exchange and then buy a hardware wallet. An example would be a Trezor or Ledger, or download mobile wallets to safely secure your cryptocurrencies.

Binance Chain

Binance is creating a Binance decentralized exchange called the Binance chain. [10] It will use the Binance-specific coin “BNB”, and it will be used as native gas. Native gas is a becoming a relatively-common concept employed when users of a digital asset need to pay an execution fee. The fee paid by the user during an exchange is gas, and it will be priced in “BNB”. The amount of BNB the user pays per gas depends on the desired processing speed of the executable orders or how much work it requires to send the transaction. This decentralized exchange is planned as another option for the Binance crypto ecosystem. According to CZ, Binance DEX will support hardware wallets on the day of launch. Binance has created a simple preview of their decentralized exchange (DEX) in action. [11]

Binance Acquisition

Binance had its first acquisition with Trust Wallet. [12] It is a free mobile wallet that allows users to store cryptocurrency safety. [13] The users are responsible for their own private keys, keeping your funds extra safu.

Binance Partnership

Binance invested $2,500,000 to the company TravelbyBit based in Brisbane, Australia. [14] It is a travel company that allows their customers to book, buy goods, pay for services with cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Binance coin. Furthermore, TravelbyBit built a point of sale terminal for airport merchants, and intends to expand globally. [15] I love this quote by TravelbyBit CEO Caleb Yeoh. “Imagine traveling with multiple stopovers and only needing a single currency.” [16] It would be convenient to use money at international airports.

Binance Self-regulation Compliance

Binance has strict Anti-Money Laundering (AML) / Know-Your-Customer (KYC) regulations in place. Binance has partnered with Refinitiv, a security organization that uses a protocol to enhance KYC. [17] Binance is also using Chainalysis, which is a real-time, transaction-monitoring solution for cryptocurrencies. [18] “The software uses pattern recognition, proprietary algorithms, and millions of open-source references to identify and categorize thousands of cryptocurrency services to raise live alerts on transactions involved in suspicious activity.”- Chainanalysis

As a demonstration of Binance’s screening thoroughness, a hacker who had attempted to transfer assets from Cryptopia (a New Zealand-based cryptocurrency exchange) to Binance had his account blocked, thereby freezing his illicitly-gained funds. [19] Also, Binance froze accounts that received more than 93,000 ETH from two wallets from a Russian Exchange called WEX. [20]

Binance Hacker Bounty

Binance announced any substantial information and evidence that leads to the legal arrest of hackers who attack on Binance, in any jurisdiction, will receive the equivalent of $250,000 USD in BNB. Binance has currently allocated the equivalent of $10,000,000 USD in crypto reserves for future bounty awards against any illegal hacking attempts on Binance. [21]

Binance Labs

Binance Labs is a program to help jump start projects. According to the program, it provides a seed investment of $500,000 USD with 10% equity. The perks if you get accepted is armed with mentors, expanding the network, and support services which is an dream for entrepreneurs. “The Binance Labs is a social impact fund and an initiative to incubate, invest, and empower blockchain and cryptocurrency entrepreneurs, projects, and communities.”[22]

Additionally, Binance created a global Hackathon events where computer programmers, engineers, and like minded individuals race against the clock to take an idea and plans come to fruition. [23]

Binance Academy

In order to help individuals learn about cryptocurrency, the information needs to be simple and precise. Binance Academy is a cryptocurrency educational platform that is free to use for the general public. Individuals have different learning techniques. Binance excels in this department using audio, visual effects, and comprehensive detail reports. As the site gains traction learning about cryptocurrencies, individuals will gain exposure to currencies and economics.

In the Academy, there are ~450 blockchain and cryptocurrency articles, as well as videos offered in 15 different languages including: English, German, Spanish, Vietnamese, Polish, Italian, Portuguese, French, Dutch, Chinese (Traditional and Simplified), Arabic, Korean, Russian, and Turkish.[24] These articles and videos are easy-to-understand content for new cryptocurrency users and established crypto enthusiasts alike, worldwide.

Coupled with Binance research, it is an institutional grade research reports on certain digital assets. It is thorough providing the description, sale, roadmaps, teams, overview, data, competition, and more. [25]

Binance Charity

Binance Charity solves the accountability issue, which is one of the biggest problems with charitable foundations. The Blockchain Charity Foundation (BCF) is an organization that helps those in need around the world, and anyone can donate to a humanitarian cause. [26] All of Binance’s listing fees goes directly to charity. This helps financial efficiency because all of the transactions are transparent. According to Forbes, Binance has launched a donation at the UNCTAD World investment Forum in 2018. Binance will be addressing: poverty, hunger, health, and education. Helen Hai head of the BCF gave an impressive speech at the World Forum, “BCF will leverage blockchain technology to help fill the UN Sustainable Development Goals funding gap and directly empower over one billion people living in poverty. We believe poverty is not a destiny.’’ [27] The donation goes straight to the beneficiary.

Binance Features

Over-the-Counter (OTC) trading desks make it easier for institutional investors to invest their funds into digital currencies with an entry barrier of a minimum of 20 Bitcoins. “Our OTC desk allows Binance users to trade larger amounts of many cryptocurrencies listed on the exchange, with transactions being settled via their Binance accounts.”[28] Binance has sub-account features for corporate accounts as well. Also, the team made over 200 upgrades to the exchange platform, most without interrupting trading activity.

Binance Coin

Binance is a private company, but “BNB” is up for grabs. The Binance coin has a quarterly coin burn. When you reduce the supply a coin, the coins that remains in circulation becomes more scarce, and therefore, generally has more perceived value. ‘Burning’ in another novel way of earning from cryptocurrencies. The proof-of-burn is satisfying. There have been a total of six quarterly burns thus far, and there will be 100,000,000 BNB in total remaining from the original 200,000,000 BNB.

BNB numbers based on Etherscan.io
  • Binance coin 0.1% for maker and taker fees. [29]
  • Binance will double referral commission rewards to 40% for all accounts that hold 500 BNB or more. The commission rate for all other users will remain at 20%. [30]
  • Discount fees- 1st year 50% in year , 2nd year 25%, 3rd year 12.5%, 4th year 6.75%, 5th 0%.
  • Left over crypto called, “dust” can be converted into BNB.
  • Coin burn dividend distribution as mentioned above.

There is an in depth article written by Andrew Kang about the estimate of BNB’s valuation. [31] “Highlighting the notes assumptions that have been made in the analysis:

  1. Overall Binance Volume is 100% real.
  2. BNB volume is 100% real.
  3. Every user account experiences the same fees (market makers & Binance accounts likely trade with reduced/zero fees).
  4. All users actually use BNB to reduce fees.”

An interesting research study by Bitmex suggests that every single project is in this study is currently underwater, except for the Binance coin. [32] As a fun pseudo-related fact, Binance employees have the option to be paid in binance coin as their salary, which indicates the confidence the company and the employees have in the viability of the BNB cryptocurrency.

Binance Launch Pad

Binance launch pad offers the tantalizing possibility for Initial Coin Offerings (ICOs) to list their projects on the Binance platform, allowing users to purchase their tokens before they are listed on the Binance Exchange. [33] There are two projected already launched on the exchange called Bread and Gifto. [34,35] Recently, they launched Tron-affiliated BitTorrent and soon Fetch A.I. [36]

Binance Coin (BNB) Use Case

The use case is an imperative part of Binance Coin (BNB). The picture shown below is all of the places individuals can use or store binance coin: from booking hotels, paying your dinner bill, buying a house, etc. it will continue to grow.

The use cases of the Binance coin (BNB) are rapidly growing. [37]

Considering the beginnings of the underdog company that took on an opportunity, kept customers satisfied, and assembled a highly-talented team, these moves all lead Binance to become a phenomenal, global success. I do not think it was simply by dumb luck, as some individuals may have come to perceive, but rather equipped with the knowledge, skills, and calculated risk-taking, Binance’s “luck” may have been designed instead of divinely-gifted. In 19 months Binance has pushed the boundaries of what a cryptocurrency exchange can be with determination, consistency, and deft problem-solving abilities when confronted with challenges. Binance is constantly building, growing, and making new connections in different areas in the world: Paris, Bermuda, Ho Chi Minh City, Sydney, Hanoi, Malta, Saigon, Seoul, Shenzhen, Milan, Mexico City, Bombay, Mumbai, Berlin, Valletta, Buenos Aires, Chengdu, New Delhi, Istanbul, Cologne, Kunming, Uganda, and Liechtenstein, and that list continues to expand with the help of the global Binance community. Also, Binance is giving opportunities to entire startup teams, as well as individuals by seeking talent from around the world. Altogether, Binance has rapidly grown and gained millions of users within an impressively brief time frame. In the long term, as Binance infrastructure continues to develop and improve, success will be even more prominent. I do not think of Binance solely as an exchange, rather it is my opinion that Binance has a morphed into a colossal financial ecosystem.

DISCLAIMER: Now, before I conclude this Medium article for the moment, I have to add this lame, tired, repetitive disclosure that you see on every other crypto article and video. The above references are just opinions and for informative purposes only. They are not intended to be taken as investment advice. Seek a licensed professional adviser. These are my opinions and they are formed based upon public information from Binance. Cryptocurrency is highly volatile. Do not invest more than you are willing to lose. I have not been compensated for writing this article. I do own BNB. I will be updating this article as time progresses with the most recent updates from Binance.

References

[1] Binance.com

[2] Forbes

[3] Binance Uganda

[4] Binance Jersey

[5] Top 5 exchanges

[6] Cryptocompare

[7] Fortune

[8] James Howells

[9] Percentage

[10] Binance Chain

[11] Binance DEX Video

[12] Acquisition Trust Wallet

[13] Trust Wallet download

[14] Invested in TravelbyBit

[15] Binance TravelbyBit

[16] TravelbyBit

[17] Refinitiv

[18] Chainalysis

[19] Blocked

[20] WEX

[21] Binance Hacker Bounty

[22] Binance Labs

[23] Binance Hackathon

[24] Binance Academy

[25] Binance Research

[26] Binance Charity

[27] UNCTAD World investment Forum

[28] Binance OTC desk

[29] Binance Fees

[30] Binance Referral Rewards

[31] Binance’s valuation

[32] Bitmex Research

[33] Binance Launch Pad

[34] Binance Launch Pad Bread

[35] Binance Launch Pad Gifto

[36] Binance Launch Pad BitTorrent/Fetch A.I.

[37] Binance Use Case