How To Trade Directly on the Blockchain with Binance DEX

Keep your coins firmly within your control by doing away with custodial exchanges entirely

Rob Sturgeon
Apr 6 · 9 min read
A metal coin with the Bitcoin logo standing on its edge in the middle of a chess board
Image by WorldSpectrum from Pixabay

Binance is the world’s largest cryptocurrency exchange, and the last 6 months have been the most profitable of its entire history.

The reason for this recent success is the launch of two blockchains. The first is Binance Chain, a closed source blockchain based on Tendermint that centres around trading BEP2 tokens. These tokens are pegged, meaning they will follow the value of a coin exactly. This concept may be unfamiliar to you but have probably heard of USDT, a pegged token on many blockchains which follows the value of the US dollar.

On Binance Chain there is a pegged token for all of the top cryptocurrencies including Bitcoin, Ethereum, Cardano, Polkadot, Ripple and Chainlink.

The value of pegged BEP2 tokens only exists because Binance promises to exchange them for the real coin on a 1:1 basis, so they aren’t the best solution for a long term hold. It’s unclear whether any other company would value them the same way if Binance were to somehow go out of business. This would be a pretty unlikely scenario, but who knows what would happen if you planned to keep the tokens for 10+ years.

The other blockchain that Binance introduced was the Binance Smart Chain (BSC), which uses tokens based on the BEP20 standard. This one has driven the growth of Binance over the last 6 months, because it is compatible with the Ethereum virtual machine. Most Ethereum tokens are based on the ERC20 standard, and it’s no coincidence that BEP20 has a similar name. The address format for BEP20 is exactly the same as Ethereum, so it’s important to be careful about which network you send tokens to.

Ethereum tokens that are accidentally sent to BSC addresses are permanently lost, and the same goes for BEP20 tokens sent to Ethereum addresses. They may be similar, but they are fundamentally different tokens that cannot be passed between blockchains. While the tokens cannot be used interchangeably, any decentralised app (or dApp for short) that can run on the Ethereum blockchain can also run on BSC, which has been a huge deal for developers for one simple reason.

Source: Binance Withdrawal Fees

The fees of the older Proof-of-Work blockchains make it extremely expensive to move funds around.

Ethereum is working on moving to Proof-of-Stake, but this transition won’t be complete until 2022 at the earliest.

In the meantime many Ethereum dApps have moved their operations to BSC, allowing decentralised exchanges such as PancakeSwap and BakerySwap to flourish with low fees. A decentralised exchange (or DEX for short) allows you to swap tokens of one kind for another, taking advantage of liquidity pools that are made up of staked tokens. By staking their tokens users of these services get a share of the profits, so it’s in everyone’s interest to keep the liquidity pools large and allow the exchange to scale.

Binance DEX is another decentralised exchange, and it runs on the BEP2 Binance Chain. Addresses here start with the letters BNB, which is also the symbol for Binance Coin. Just as ETH is used to pay gas fees on Ethereum, BNB is used to pay gas fees on the Binance Chain. The differing address format on Binance Chain makes it impossible to ever accidentally send Ethereum here, so it’s a safer bet if you don’t want to ever risk losing your coins by sending them to the wrong blockchain.

Many critics point to the fact that the Ethereum-like BSC is somewhat centralised, as it uses 21 validators approved by Binance instead of anyone in the world being able to become a miner. This system is known as Proof-of-Staked-Authority (PoSA), as validators need to have staked a huge quantity of BNB in order to be eligible. In theory this reduces the risk of a validator going rogue, as they risk losing their staked tokens if they are caught.

As the two chains form a dual-chain system, the same validators also work on Binance Chain using Byzantine Fault Tolerance (BFT) instead of PoSA.

If you value true decentralisation above all else this may not be the tutorial for you, but it’s worth pointing out that the security of this dual-chain system has not been compromised to date.

Let’s get started

In order to trade on Binance DEX, you are going to to need a wallet of some kind. A hot wallet is one that can be connected to the internet, such as Trust Wallet , SafePal , CoolWallet S, Math Wallet, Meet.one, Equal, or Atomic Wallet.

Trust Wallet has an integrated DEX interface, so using the service from there is as simple as sending yourself some tokens. All of the hot wallets mentioned above support WalletConnect, meaning that they can be used in combination with a desktop computer to sign transactions. To use a desktop computer without WalletConnect you will either need the Binance Chain Wallet browser extension or a method of cold storage, such as a Ledger or Trezor device.

If you own one of these devices, you are probably familiar with the process of installing apps. Install the Binance Chain app on your device, and you’re ready to go. Not everyone is dedicated to cryptocurrencies enough to own a hardware wallet, so I’ll quickly go over the process for hot wallets. Feel free to skip this section if you don’t need help setting this up.

Setting up Binance Chain Wallet

Install the Binance Chain Wallet Chrome extension and click on the icon it adds to the top right corner of your browser. If you can’t see it there, click the extensions button, which resembles a puzzle piece, and click the pin icon next to Binance Chain Wallet to show the icon.You’ll be presented with two options: ‘I own a wallet’ and ‘I do not own a wallet.’

Assuming you do not own a wallet, click on the second option.

This will prompt you to add a strong password, followed by a series of words. This is your seed phrase, and it is important that you write it down and keep it safe. If you lose your wallet, for instance by uninstalling the extension or reinstalling your operating system, there is no way to recover your lost funds without your seed phrase.

Now that your wallet has been created, you’ll need to change the network.

At the top it will probably say Binance Smart Chain Network, but you’re going to want to click this and change it to Binance Chain Network.

Remember that the Binance DEX only works on this blockchain, and is not compatible with the Ethereum-like BSC.

Unlock your wallet

Source: Binance DEX

By going to Binance DEX you’ll see a complete trading interface, but we still need to unlock our wallet.

In the top right there is a button that says ‘unlock wallet’, which offers the ability to use Binance Chain Wallet or any of the WalletConnect compatible mobile apps. If you are using a different kind of wallet, such as a hardware wallet, click ‘use original way to unlock.’

This is likely a mistranslation into English, as ‘use another way to unlock’ would make a lot more sense.

The process for unlocking your wallet should be pretty straightforward, no matter what kind of wallet you’re using.

Pick a coin pair

Binance DEX has a number of interesting coin pairs, many of which include Binance Coin (BNB). As I write this the value of BNB is at an all-time high, so you would probably benefit financially from using this as your primary coin. If you prefer the stability of Fiat currencies, there are also many pairs with the US dollar-pegged token BUSD.

For some reason Bitcoin can only be traded with US dollar-pegged tokens, as well as BNB, ANKR, BOLT and COS at the current time.

Converting Bitcoin to BNB or BUSD would give you access to the numerous pairs that they include, so it isn’t very restrictive.

In the top right the coin pairs can be seen divided into 4 categories: BNB, BTC, ALTS and Fiat. There is a search box, but unfortunately this only searches the currently selected category and only returns results that use your search terms as the left side of the coin pair. This leads to annoying situations like being unable to filter the Fiat category by BUSD, as only a few pairs have BUSD on the left and most have it on the right. Despite this difficulty, there aren’t that many pairs in each category, so you can just scroll the list to find the pair you’re looking for.

Start trading

Now that you’ve selected a pair, you’ll need to make a trade.

A limit order is the default type, meaning you will need to specify the maximum price you’re willing to buy for (or the minimum price you’re willing to sell for). If you’re okay with buying at the current market price, you can create a limit order with the price that loaded when you selected the coin pair. If you take too long deciding what you do, the market price may move away from the limit price that loaded automatically with the coin pair, so you may want to click ‘Best Ask’ to reload the latest buying price or ‘Best Bid’ to reload the latest selling price.

Once you click the buy or sell button, your wallet will be prompted to authenticate the transaction. When that’s done the order will appear in your open orders in the bottom left panel, assuming that the limit price has not yet been reached. Remember that the point of a DEX is to be non-custodial, which means that signing the transaction does not move your coins from your wallet at all. If you change your mind before the limit price has been reached, you can cancel any transaction by clicking the ‘X’ on the right side of the order details.

Since you’re dealing with the blockchain directly, cancelling an order requires the same authentication with your wallet as creating an order does.

You can view the balance of your wallet by clicking ‘Balances’ in the top right. This is especially useful for hardware wallets, as there is no other way of checking what tokens you have. If you want to send funds to your wallet or receive funds from anyone else, you can copy the public address from the Balances page, or you can bring up a QR code to scan with a mobile device. With hot wallets such as the mobile apps and Chrome extension it’s obviously very easy to check your balance and public address, so the Balances page of the DEX probably won’t be as useful to those users.

If you want to monitor your account from other devices, you can add your address to the end of the following URL:

https://explorer.binance.org/address/

This is especially useful for cold storage, as you can see whether your orders were filled without connecting to the device.

You can send this link to anyone, because there is no way to move the funds without the private key stored in your wallet app or device.

When you’ve placed your order(s) and are happy to end your session you can simply click on the address of your wallet in the top right and choose ‘disconnect’.

You can also use the same menu to unlock other wallets if you want.

Next steps

If you want to try out another DEX, there is one on the other chain (BSC) called IDEX. This DEX was originally on Ethereum, which is why it’s another dApp that has been easily ported to BSC. The IDEX team are working on adding compatibility with Polkadot, which could see it become a truly blockchain-agnostic exchange. At the current time it can switch between Ethereum and BSC blockchains with the click of a button, and you can use the same addresses on both networks.

Think of an address as a house number and street name. Many street names are not unique, so there may be an identical house number on a street with the same name in another city. Just because the addresses sound the same doesn’t mean that you’ll find the same house at both addresses. Think of each blockchain as a city in this metaphor, and you’ll find it easier to understand.

You can use Binance Chain Wallet or a hardware wallet on either network, although it’s worth pointing out that hardware wallets would require the Ethereum app (not the Binance Chain app) to access the BSC due to the identical address format.

I haven’t shown you how to use PancakeSwap or BakerySwap, but I’ll save that for another tutorial.

Cryptic Crypto

Decrypting the secrets of the blockchain

Rob Sturgeon

Written by

An iOS developer who writes about gadgets, startups and cybersecurity. Swift programming tutorials and SwiftUI documentation too. robsturgeon.com

Cryptic Crypto

Cryptocurrencies are everywhere and every coin has a vibrant community. But what innovation is coming next?

Rob Sturgeon

Written by

An iOS developer who writes about gadgets, startups and cybersecurity. Swift programming tutorials and SwiftUI documentation too. robsturgeon.com

Cryptic Crypto

Cryptocurrencies are everywhere and every coin has a vibrant community. But what innovation is coming next?

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store