Explore the pros, cons, and use cases for this growing blockchain.
As tokens continue to play a massive role in the crypto economy, there has been a growing concern about being able to leverage the potential of things like stablecoins without having to pay a premium to do so at the same time. Additionally, as the Ethereum network has grown and surged with activity, this has resulted in a surge in network fees, leaving many looking for alternatives. One of those that has shown some potential is the BNB Smart Chain.
What is BNB Smart Chain (BSC)?
BNB Smart Chain (formally known as Binance Smart Chain and often referred to simply as BSC) is a general-purpose standalone blockchain with smart contract support launched in 2020. It is heavily based on Ethereum and, as a result, enables developers to port tokens and dApps with relative ease over to BSC. Transactions on BSC are paid for with the native token, BNB (formerly called Binance Coin).
BSC is considered relatively fast due to its short block time of three seconds, is considered quite cheap to use compared to some alternatives, and is even arguably somewhat energy efficient. While it’s easy to look at BSC as just an Ethereum fork, it has proven itself useful to many cryptocurrency users and, as such, has begun to foster an excellent ecosystem of projects and tokens that are increasingly active. Even many NFT projects are finding a home on BSC due to the ability to deploy a project inexpensively while affording your users' cheap transactions or minting.
Drawbacks of Using BNB Smart Chain
While lower transaction costs can be a great motivator to choose BSC when using a token like USDT that exists on multiple chains, there are some trade-offs to consider. Firstly, while Ethereum is quite decentralized, BSC is far less so due to how validation is performed on the network.
As the blockchain is based on Ethereum, it risks being overdependent on Ethereum. When the larger Ethereum development community discovers issues, BSC will be secondary to receiving attention. As these two drift further apart, BSC will likely continue, but will it be unhindered by a growing separation?
One other thing to consider is that once Ethereum had cheap transactions as well, will expensive transactions become a problem for BSC in the future? Given that the tokenomics of BNB is primarily focused on reducing the supply and that price has increased significantly since the launch of the project, will this lead to a deflationary price squeeze resulting in high transactions costs? So far, it’s holding up reasonably well, but it’s reasonable to expect that prices may increase over time if the adoption of BSC continues.
How is Binance Smart Chain Different from Ethereum?
BSC utilized a BEP-20 token standard; however, outside of the name and relying on their respective networks; currently, there’s not much of a noteworthy difference. However, it’s imperative to remember to verify which network you are using when transferring tokens, as mixing this up may result in you losing access to the tokens, especially when using custodial wallet solutions.
The consensus algorithm used by BSC is different from Ethereum. While Ethereum started using a proof-of-work algorithm, it is transitioning to a proof-of-stake system. BSC utilizes a proof-staked-authority consensus mechanism which differs from both options. In addition, BSC doesn’t require mining.
Thanks to BSC being Ethereum Virtual Machine (EVM) compatible, transferring smart contracts between chains is a lot easier than between some other networks that would require a complete redevelopment due to their differences. As a result, many projects that have become popular on Ethereum have begun offering matches alternatives on BSC, whether in terms of tokens (like USDT, USDC, DAI) or in terms of dApps.
Binance Smart Chain vs Binance Chain
BNB, the native asset on Binance Smart Chain, was initially launched on a blockchain called Binance Chain. However, demand quickly grew for smart contract capabilities that weren’t easily supported by this chain. As a response to this, BSC was created, and now BNB exists on both chains as they operate somewhat in parallel to complement each other.
While Binance Chain supports the BEP-2 token standard, BSC utilizes the BEP-20 token standard, close to ERC-20 supported by Ethereum. However, it’s important to note that they aren’t interchangeable, and you must note which chain you are using when performing transactions. For example, if you’re trading or just using the non-custodial BSC wallet on LocalCoinSwap, only BNB and BEP-20 tokens on BSC are supported.
Binance Smart Chain supports the BEP-20 token standard, which uses the same functions as its Ethereum counterpart ERC-20, while Binance Chain supports the BEP-2 token standard use the Binance Bridge to transfer assets between the two chains.
However, as of 2022, Binance Smart Chain has been renamed BNB Smart Chain to help grow its independence as a project separate from its roots. Alongside this, Binance Chain has now become BNB Beacon Chain, focusing on staking and governance. If you’re confused about these changes, the simple way to look at it is that anything previously using or supporting Binance Smart Chain is now simply operating on a chain referred to as BNB Smart Chain; little else has changed.
The Best BNB Smart Chain Wallets
- LocalCoinSwap (non-custodial BSC wallet)
- Trust Wallet
- Binance Chain Wallet
- Math Wallet
How Consensus Works on BSC
BSC uses a form of consensus that combines a fairly typical proof-of-stake model with something they are calling proof-of-authority. This approach enables a more efficient network that is cheap to use but does trade off some of the decentralization to achieve it.
When staking on BNB on BSC, their reputation or another form of authority is considered. The blockchain has 21 validators elected by those staking BNB once per day. While anyone can opt to be a candidate, only the highest-ranked in the top 21 will be selected as the next batch of validators. If a validator attempts to play unfairly, they will lose their staked tokens and be immediately penalized via a process called “slashing.” This risk makes it extremely costly to attempt to manipulate the network and has been reasonably successful thus far.
Staking as a validator requires a minimum of 10,000 BNB to participate, but becoming a delegator by staking in supported wallets is another option for more casual network participation. As a delegate, you can stake your BNB in favor of a validator on the network, and in turn, you can receive a portion of any rewards your chosen validator claims.
DeFi and DApps on Binance Smart Chain
There is a thriving community of dApps and decentralized finance projects launching on BSC, many of which have popular counterparts on the Ethereum network and many unique projects in their own right as well.
For example, you can perform BEP-20 crypto-to-crypto swaps on PancakeSwap, borrow or lend crypto on Venus (similar to Compound on Ethereum), and explore other projects like Spartan Protocol, BakerySwap, or Autofarm. With cheap transactions, fast block times, and a significant userbase, BSC is a blockchain to watch for exciting projects, especially when you want to explore without worrying about the cost of basic transactions when experimenting with new things.
BSC provides the ability to explore many of the same opportunities provided on Ethereum while being much more approachable, at least for now, in terms of fees. With many popular stablecoins also offering tokens on BSC, it’s an interesting proposition to consider when it fits your needs. Just beware that this is one blockchain that doesn’t rely heavily on decentralization, but that hasn’t stopped it from carving out its own niche in the world of crypto and becoming one of the most popular blockchains in the world today.