What are BEP-20 tokens?

Andrew Carr
| Editor:
March 4, 2024
5 min read

A crucial part of the Binance Smart Chain (BSC) ecosystem, the BEP-20 token standard outlines rules governing issuing and managing tokens on Binance. BEP-20 tokens are fungible, which refers to an asset’s exchange value where every BEP-20 token is identical and interchangeable.  

BEP-20 tokens are also divisible, which allows them to be broken down into smaller increments of value. Divisibility in money denotes scalability, a necessary aspect of a cryptocurrency intended to be used across multiple DApps. BEP-20 tokens are essential for participating in Binance ICOs and DeFi projects. 

Comparing BEP-20 and ERC-20 Tokens

BEP-20 tokens are similar to Ethereum’s ERC-20 tokens. The primary difference between these token standards is the blockchains they’re designed for: BEP-20 tokens are issued on the Binance Smart Chain, while ERC-20 tokens are issued on the Ethereum blockchain. Nonetheless, BEP-20 tokens are created to be compatible with various Ethereum development tools.

BEP-20 Advantages and Versatility

Fast and Affordable Transactions

One of the significant benefits of BEP-20 tokens lies in their transactional efficiency. These tokens offer lower fees and faster transaction times than the Ethereum network. This speed and affordability make BEP-20 an attractive option for developers and users looking to interact seamlessly with Binance DApps.

Interoperability and Compatibility

Another advantage of BEP-20 tokens is their interoperability within the BSC ecosystem. Developers who follow the BEP-20 standard when issuing tokens on the BSC can ensure compatibility with other BSC-issued tokens. This interoperability expands blockchain technology's functionalities and use cases, fostering a more interconnected and efficient network. 

DEXs enable P2P digital asset trading without the need for an intermediary. DEXs provide greater privacy, control, and potential for financial inclusion compared to traditional centralized exchanges. BEP-20 tokens can be easily bought and sold on DEXs in the BSC ecosystem, like PancakeSwap and BakerySwap. 

Use Cases 

BEP-20 tokens are incredibly versatile in their applications, facilitating the creation of various types of digital assets. BEP-20 tokens can serve as native currencies within specific blockchain projects.  

Furthermore, BEP-20 tokens can be used to create NFTs and pegged to real-world assets and currencies to create stablecoins like BUSD. Additionally, BEP-20 tokens can be utilized as utility tokens within specific blockchain projects to access services or perform certain operational functions. 

BEP-20 and PoSA

BEP-20 tokens utilize the Proof of Staked Authority (PoSA) mechanism on the BSC, a consensus algorithm designed to enhance transaction efficiency and reduce transaction fees. 

PoSA combines elements of Proof of Stake (PoS) and Proof of Authority (PoA) based consensus mechanisms. In PoSA, validators are chosen based on their stake in the network and their reputation as trusted entities within the Binance Smart Chain ecosystem. Validators stake a certain amount of BNB (Binance Coin) as collateral to participate in the consensus process and validate transactions.

The PoSA consensus mechanism contributes to faster transaction times and cheaper fees in two distinct ways:

  1. Efficient Consensus: PoSA relies on a selected group of reputable validators to validate transactions, reducing the need for extensive computational power and facilitating quicker consensus than traditional Proof of Work (PoW) mechanisms.
  2. Transaction Finality: PoSA enhances transaction finality by reducing the likelihood of forks or chain reorganizations, ensuring that confirmed transactions are irreversible and adding to the overall reliability of the network. 

By leveraging the PoSA mechanism, BEP-20 tokens on the Binance Smart Chain Protocol can provide users with a seamless and efficient transaction experience with faster confirmation times and lower transaction costs.

Deploying BEP-20 Tokens

Creating and issuing BEP-20 tokens can be done by individual developers or project teams through smart contract deployment on the Binance Smart Chain, offering autonomy and ease in token creation. 

The code for deploying an ERC-20 token and a BEP-20 token is the same. By utilizing the ERC-20 specification from OpenZepplin in the smart contract, users can ensure that other wallets and programs can easily interface with the new token. OpenZeppelin is a widely recognized open-source framework for building secure and audited smart contracts and DApps on Binance and Ethereum.  

OpenZeppelin's framework is designed with modularity in mind, allowing developers to easily integrate and extend its functionalities according to their project requirements. Developers can leverage individual components or entire libraries based on their needs.

Steps to create a new BEP-20 token contract: 

  1. Prepare Your Environment: Ensure you have Node.js and npm installed, which are necessary for managing packages like the OpenZeppelin Contracts library. These programs are suites for facilitating the installation and sharing of JavaScript libraries and tools.
  2. Install Necessary Tools: Use npm to install the OpenZeppelin Contracts library, providing the foundational elements for building your token.
  3. Outlining Tokenomics: Create a new file named BEP20.sol in the Remix IDE under the contracts folder, defining your token's characteristics, such as name, symbol, and initial supply within the constructor portion of the contract.
  4. Compile Your Token: Validate your token's code to ensure accuracy before deploying.
  5. Token Deployment: Deploy your token onto the BSC Testnet through the Remix IDE, and upon successful deployment, verify the transaction and obtain the contract address from the "Deployed Contracts" tab.
  6.  Start Using Your Token: Users can now access and utilize the token with compatible wallets and platforms that support BEP-20 tokens, enabling transactions and interactions within the Binance Smart Chain ecosystem.

BEP-20 vs BEP-2 Tokens

What is BEP-2?

BEP-2 is a second-generation blockchain protocol used by Binance Chain. It enables the issuance of tokens and facilitates trading between different cryptocurrencies in a decentralized exchange environment.  

BEP-2 tokens require BNB coins for transaction fees and are exclusively compatible with Binance Chain. This protocol is fundamental for blockchain projects that aspire to facilitate token trading on the Binance Chain.

BEP-20 vs BEP-2: A Comparison

The BEP-20 standard is an extension of ERC-20 and operates on the BSC. It provides comprehensive instructions for asset usage, spending, and transfers on the blockchain network.  

Notable features include support for multiple signatures, atomic swaps, and meta-transactions. BEP-20 tokens are compatible with BEP-2 and ERC-20, offering a more comprehensive range of interoperability than BEP-2 tokens.

An atomic swap is a decentralized exchange mechanism that allows two parties to exchange cryptocurrencies directly across different blockchain networks without the need for an intermediary, ensuring the swap either fully occurs or is canceled without partial execution. 

A meta transaction is a type of transaction in blockchain networks where a user delegates the transaction execution and gas fees to a third-party relayer, enabling actions like token transfers without requiring the user to hold cryptocurrency for transaction fees. 

The BEP-20 standard empowers smart contract usage and DApp development on the BSC, a significant advantage over BEP-2. While BEP-2 focuses primarily on token trading, BEP-20 expands the possibilities by enabling developers to create and deploy tokens with support for smart contracts and an advanced governance system.

Risks for BEP-20 Tokens

As with any cryptocurrency, there are certain risks and considerations when dealing with BEP-20 tokens. Understanding these factors is crucial for both beginner and seasoned cryptocurrency investors.

Regulatory Aspects of BEP-20 Tokens

While the BSC operates in a decentralized manner, the regulation of BEP-20 tokens can vary based on jurisdiction. Being familiar with the specific rules and regulations in a user’s jurisdiction is essential before engaging in cryptocurrency transactions or investments. This will help ensure that all activities comply with local laws and reduce the risk of any legal complications.

Smart Contract Vulnerability

Smart contract vulnerabilities present one notable risk, as BEP-20 tokens rely on smart contracts deployed on the BSC, which may contain exploitable bugs that could lead to token theft or loss.  

Liquidity Concerns

BEP-20 tokens with limited liquidity face challenges in facilitating trades, and significantly larger transactions without causing substantial price fluctuations or slippage. When a token lacks sufficient liquidity, the market depth may be inadequate to absorb large buy or sell orders without significantly impacting the token's price. 

Furthermore, low liquidity can deter market participants from engaging in trading activities, as the absence of liquidity providers may result in wider bid-ask spreads and reduced trading activity. This illiquidity may further exacerbate price volatility, as even smaller trades can lead to more pronounced price swings in thinly traded markets. 

Moreover, limited liquidity poses challenges for investors seeking to exit positions quickly or hedge against adverse price movements.

Comparing BEP-20 tokens to Ethereum's ERC-20 tokens reveals similarities in functionality, albeit with the distinction of being designed for different blockchain networks. The advantages of BEP-20 tokens lie in their transactional efficiency, interoperability, and compatibility within the BSC ecosystem, fostering seamless interactions and transactions among users and DApps. 

The BEP-20 token standard represents a pivotal component of the BSC ecosystem, providing a framework for issuing and managing tokens within the Binance network. 

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