Binance: The history of one of the largest cryptocurrency exchanges


Perhaps every person who is somehow connected with the crypto industry and cryptocurrencies has heard the word Binance at least once. During the first years of its existence, the crypto exchange has successfully surpassed all its competitors, and now it is the leader of the segment. But how its history began and how the exchange managed to become so popular – we will analyze in this article.

The creator of Binance

The founder and head of Binance is Changpeng Zhao, born in the Chinese province of Jiangsu in 1977. CZ’s father (as Zhao is called in the crypto community) was anti-communist, which is why the family was often persecuted. In 1980, the Zhao family emigrated to Canada and began a new life in Vancouver. CZ holds a Bachelor’s degree in Computer Science from the University of Montreal. Even before starting his journey in the crypto world, Changpen managed to work at Bloomberg, where he created a trading interface for traders. During 4 years of working at the company, he was promoted 3 times, but in 2005 he decided to leave Bloomberg. In the same year, CZ created the company Fusion System, which was engaged in creating software for exchanges and traders. He left the Fusion System in 2013, after which he completely plunged into the world of cryptocurrencies and blockchain.

This decision was facilitated by one evening in August in 2013. Back then, Zhao was playing poker, and he was accompanied by Bobby Lee (the founder of the BTCC exchange) and Ron Cao (a partner at LightSpeed Ventures). Then Bobby said to Zhao:

“Changpeng, you should make a startup in the crypto industry. Just imagine: if you invest 10% of your savings in this business, they are very likely to grow 10 times, and your savings will double. But if something suddenly goes wrong, then you will lose only 10%.”

The words of the poker companion greatly interested Changpeng. The next day, he began to study information about cryptocurrencies and blockchain, and a month later he sold his house for $1 million and used all the proceeds to buy bitcoin, which then cost $600 per BTC. According to CZ now-he still hasn’t touched these bitcoins, that is, $1 million has turned into $16.5 million.

The birth of the exchange

The idea of creating an exchange that will cover crypto and fiat currencies came back in 2013, but according to Zhao, it was too early. In 2015, the Poloniex exchange appeared on the market, which Changpen also drew attention to. After looking at its daily turnover, he again came to the conclusion that it was too early. And only in 2017, when the crypto market grew sufficiently and the ICO era began, work started on the creation of the Binance exchange.

On July 1, 2017, an ICO was held: Binance Coin (BNB) tokens were sold, 100 million BNB were offered, which were sold out in a day. The amount of proceeds was $15 million. At that time, it was a small amount of money that was raised through the initial public offering of tokens, but it was enough to launch Binance. It is interesting that the exchange was launched 11 days after the end of the ICO.

According to CZ, the availability of ready-made working systems, the production of which was carried out by the Binance development team two years before its release, helped to launch the exchange so quickly. All that was needed was a marketing team and a support department, which did not take much time to create. The initial services of the exchange were spot trading and Trust Wallet-the official wallet of the exchange.

Another interesting fact is that the decision to hold the Binance ICO was made on June 14, 2017, that is, almost 2 weeks before its start, and a month before the start of the exchange itself.

Further chronology of events

At the time of the launch of the exchange, there were only 30 employees in it, along with CZ. On June 25, 2017, trading on the BNB token was launched, after which Changpen felt pressure from the exchange’s investors for the first time. They expected to get 5-10 times more from the invested funds, but instead the token fell in price by 20%. CZ tried different methods to solve the problem: a paid placement of altcoins on the exchange was carried out, a live video broadcast from the Ask Me Anything service, the purchase of tokens for personal funds – everything was done to attract users to the exchange and increase the value of BNB. None of this helped, until August 8, 2017, when He, formerly the commercial director of OKCoin, joined the team, where they met Zhao. At Binance, she became a co-founder and marketing director, which went into the hands of the exchange: after just 2 weeks of her work, the price of BNB increased from $0.13 to $2.45, or by 1800%. Early investors of Binance were satisfied, and the exchange quietly continued its development.

After the rise in the price of the BNB token, rumors began to reach CZ that the Chinese authorities were going to completely ban cryptocurrency activities in the country. The information could not be verified, but it was received several times a day from different sources, which made the head of Binance think. On August 20, 2017, one of the trusted representatives of the Chinese authorities informed Changpen that all cryptocurrency exchanges in the country are being monitored. CZ was not very happy about this fact, because it went against his policy, so it was decided to change the country and jurisdiction. If at that moment you could look at the Binance office, then the working day was no different from those that were before it: people were also sitting and tapping something on the keys. However, only 5 people were engaged in the maintenance of the exchange at that time, the remaining 25 transferred all processes and information to the AWS cloud storage (Amazon Web Services), so that when the company moved, it was possible to bypass the firewall of China without any problems. On the night of August 29-30, the transfer of all the necessary information was completed. Most of the project team left immediately with CZ, while the rest left China within the next week. The choice of a new country fell on Japan – a country that legitimized cryptocurrency activity at the beginning of 2017.

As soon as the company settled in Japan, a bull run began on the crypto market: from September to December 2017, the price of bitcoin increased from $3,000 to $20,000, which was 570%. CZ, remembering this time, compares Binance with a Walmart store on “black Friday”. This is now not mandatory for Binance verification, and at the time of the start of the exchange, passing the KYC procedure was a prerequisite for trading. In October 2017, the queue of those who wanted to pass verification on the exchange was 45,000 people. And of course, such a sudden popularity of the exchange did not pass without a trace: in December 2017, the total turnover on cryptocurrency exchanges amounted to $60 billion, of which $10 billion was traded on Binance.

However, there was also a downside to this-the young Binance exchange with billions of turnover became a target for hackers. On March 7, 2018, CZ received a call at night: they reported failures in the operation of the exchange. It turned out that the attackers placed fake ads on Google with phishing sites, where users entered data about their personal accounts on the exchange. After receiving the data, the hackers emptied the accounts. The Binance team reacted quickly and blocked the entire withdrawal of cryptocurrencies from the exchange for 2 hours. Those transactions that have already been carried out managed to roll back and return the cryptocurrency to the owners. Whatever it was, but the damage to the reputation was done.

On March 21, 2018, the Financial Services Authority of Japan issued a requirement for Binance, which implied obtaining a license to conduct cryptocurrency activities within the country. It is because of this that Binance moved from China, so it had to resort to similar actions here and the exchange moved again. A new point for the justification of the exchange was the island of Malta-free from the regulation of state regulators and loyal to cryptocurrency activities. Zhao was even invited to the Ministry of Finance of Malta, as an adviser on the laws on cryptocurrencies and blockchain.

This time, the entire project team did not fly to a new place, and then CZ realized that this was not a completely bad idea. The presence of exchange employees around the world on a remote basis had its own plus-proximity to the local market, which helped in the work of Binance in this territory.

After moving to Malta, things went smoothly for Binance. Just a year after the launch, the exchange was among the leaders of the segment, and CZ’s fortune was estimated at $2 billion. According to the head of the exchange, their dizzying success lies in the right timing: Binance was launched not too early and not too late, and of course it was not without luck. Also, the head of Binance identified two main factors that push people to use the services of the exchange:

  • The quality of services. Compared to competitors, the services provided by Binance are much higher, but according to CZ himself, they are at an average level, and he is engaged in their development.
  • The philosophy of the exchange. There are many companies in the crypto industry that do not work quite honestly towards their clients. Binance values its reputation, so it conducts transparent work.

Changpeng made an interesting comparison regarding Binance: “If cryptocurrency is the blood of the economy, then Binance is the heart that pumps this blood, that is, gives the economy movement.”

On May 7, 2019, a large-scale hacker attack was carried out: as before, phishing was used, but now with the participation of different viruses. Thanks to this, the attackers managed to gain access to some accounts and withdraw 7,000 BTC. The skillful actions of hackers helped to bypass the Binance security system, which is why the developers found out about it only after conducting transactions. CZ was woken up at 2 o’clock in the morning and reported a break-in, to which there was a response:

«We have an algorithm of actions for such cases – to stop and prevent subsequent attacks, update the security system, inform customers about the problem, fix errors and completely restart the system.»

The next morning, Changpeng issued a statement that Binance would ban deposits and withdrawals for a week, but anyone can continue trading. Such a decision meant the loss of millions of profits and customers, but it was not possible to solve this problem in any other way. The exchange team worked 24/7 all week, beds were bought in Binance offices around the world so that employees could rest, but did not leave their workplace. After a week of painstaking work, it became clear that a group of professional hackers was behind the hacking, but it was not possible to get on their tracks. CZ even announced a monetary reward of $250 thousand for any information about the attackers, however, this did not bring any results. Binance reimbursed all the stolen BTC to customers from the exchange’s fund, which was created after the previous hacker attack. 10% of Binance’s total profit is allocated to it every month.

Conclusion

Binance appeared on the market at a time when there were already such players as OKEx, BitMEX, Poloniex, BitFinex, but this did not prevent it from becoming the most popular and largest crypto exchange in just a year. In the following years, it simply breaks away from its competitors in terms of development, but does not compete with them in any way. Changpeng himself spoke about this as follows:

«Many people in the crypto industry think that we compete with other exchanges, but this is not the case. We have completely different goals and values that distinguish us from others. We want to do something more than just a cryptocurrency exchange, namely, to create a new, perfect economy that will not be subject to regulators and countries.»

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