A whole ecosystem!
Today not so much the consideration of a cryptocurrency, but it seemed interesting to me to take a closer look at the Binance Smart Chain. Why? Simply because it is an interesting piece of functionality within crypto, and a good answer to the high gas fees that everyone knows about the Ethereum blockchain. Because this Binance Smart Chain is a good reason why the BNB coin skyrocketed lately like a comet, before Bitcoin decided it was time for a correction. All in all, that seemed reason enough to take a closer look.
What is it, what does it do, and what can you do with it?
The Binance Smart Chain (BSC) is part of the Binance Ecosystem… Yes, we have a lot more than just the Smart Chain. In addition to the BSC, the centralized exchange, a decentralized exchange, the BNB token, the Binance Chain (yes, this is another blockchain) and a lot of other financial services are also part of this.
Just to indicate that the Smart Chain is only a small part. But the particle to which I am going to limit myself today. Simply because describing the entire Binance Ecosystem would be too long a blog. And also a bit because I assume that most here will know Binance and their crypto services well. Perhaps better than I can describe it. LOL.
What is Binance Smart Chain (BSC)?
The Binance Smart Chain is a blockchain service from Binance that makes it possible for developers to build dApps, or decentralized apps, using smart contracts that run on the blockchain.
So that's out. And that is also the most important change that required the Binance Smart Chain for Binance. The original chain was launched in 2019, and it was primarily intended as a foundation for the Binance DEX. The Binance Chain no longer had to be able to do anything if only processing large amounts of transactions quickly at low costs. They succeeded well in this, but because this was all that was expected from this Chain, there was also no compatibility with the Ethereum Blockchain built in. And the original Binance Chain was therefore not scalable, not compatible with the Ethereum Blockchain and could not process smart contracts.
This had to be done differently! And so the Binance Smart Chain was born. It was therefore created to add additional functionality to the Binance ecosystem, with new types of dApps and compatibility with the Ethereum Virtual Machine (EVM), which means it also supports dApps built on Ethereum. At the same time, this blockchain can handle the same transaction speeds and volumes as the "normal chain".
However, don't make the mistake of thinking that the Smart Chain is a new version of the original Binance Chain. This is absolutely NOT the case. Nor is it a layer-two or sidechain platform just for extending the Binance Chain. The Smart Chain is a completely separate, independent blockchain that can stand on its own. Should the Binance Chain go offline, the Smart Chain could even continue as usual. The two blockchains have a very similar design, which allows them to communicate with each other. As a result, a parallel operation of the two chains takes place and you can enjoy the best of both worlds.
How does Binance Smart Chain work?
Consensus algorithm
Binance Smart Chain uses a so-called Proof-of-Staked-Authority (PoSA) consensus algorithm, a hybrid of a Proof-of-Stake (POS) and Proof-of-Authority (PoA) model. The PoSA consensus model can support a short block time and lower costs than, for example, the PoW consensus model that Ethereum (ETH) still uses (with the arrival of Ethereum 2.0 this will become PoS).
BSC validators are participants who "stake" a certain amount of BNB, when they propose a valid block, they receive as a reward transaction fees for the transactions included in that block. This means that no new BNB will be created as a reward for the validators, but that the reward will come from existing BNB tokens.
Cross-chain compatibility
As mentioned earlier, the Binance Smart Chain is a fully independent blockchain and runs parallel to the original Binance Chain. In order for the two chains to work well together, Binance has provided easy cross-chain compatibility, allowing tokens to be quickly transferred between the two blockchains.
The BEP-2 and BEP-8 tokens of the Binance Chain can thus easily be converted to BEP-20 tokens on the Smart Chain. This combines the speed of the Binance Chain with the smart contract functionality of the Binance Smart Chain.
Ethereum Virtual Machine Compatibility
Finally, the EVM compatibility ensures that dApp developers on other blockchains can easily transfer these apps to the Binance Smart Chain. This could be especially attractive are for dapp operators as Ethereum continues to grow and gas fees continue to rise, although the planned shift from Ethereum to a proof-of-stake model in Ethereum 2.0 could alleviate some of the current scalability issues.
What can you do with Binance Smart Chain?
Now it gets interesting for you because this is of course what we all want to know. What can I do with it? In principle, the BSC, like Ethereum and Polkadot (DOT), is intended as a platform on which projects can be built. The main goal is therefore to become the best platform for the user and the developer, with the lowest costs and the best projects.
Binance Smart Chain is really targeting developers of decentralized apps right now, whether they're looking for a platform to build a new app or transitioning a project from Ethereum. Through the dual-blockchain system, EVM support, and Binance's proprietary backing, the company hopes to draw developers into its ecosystem, creating additional value for all stakeholders.
As Binance founder Changpeng Zhao explained to Decrypt in October 2020, the company sees Binance Smart Chain as a way to bridge the gap between centralized and decentralized funding. Binance has established a $ 100 million fund to support DeFi projects launched on the blockchain, up to $ 100,000 for select individual projects.
DeFi on Binance Smart Chain
DeFi is the child prodigy of crypto, where crypto was first often regarded as a new form of money, but in recent years a whole mountain of practical value has been added by the advent of decentralized finance. It is a counter-movement against the entrenched, centralized, traditional financial sector.
It is expected that DeFi will ensure that all kinds of old, broken financial processes are replaced by a more efficient form of P2P trading. Binance is also participating in this movement and makes DeFi possible in its system with the arrival of the Binance Smart Chain.
PancakeSwap
Due to the flexibility offered by the BSC, tokens from different blockchains (such as BTC, ETH, XRP) can be used in the fast-growing DeFi environment.
Currently, PancakeSwap (CAKE) is the largest and best-known DeFi project built on BSC and this project enables users, among other things, to exchange all kinds of tokens, participate in yield farming and vote on proposals (governance token).
If you look at the Ethereum network, you can actually see that PancakeSwap is almost a copy of the Uniswap project which is built on Ethereum. However, PancakeSwap is currently on the rise as many crypto users are switching to the Binance Smart Chain due to its lower cost.
Similar projects can also be found on the Smart Chain itself, such as BakerySwap and BurgerSwap (it seems we like food-related names ...), but PancakeSwap seems to have won the hearts of the wider public for now. In addition to these three projects, there are a lot of other projects that are being built at the BSC.
Projects built on the Binance Smart Chain
We have already seen BNB, PancakeSwap, Bakeryswap and BurgerSwap, but many more projects have already been built on the BSC. Furthermore, there are also already a lot of projects that are built on Ethereum compatible with Binance's Smart Chain.
Now if you want to know which projects have been built on the Binance Smart Chain. Then I can recommend Math dapp Store to you. You only have to select "Binance Smart Chain" in the bar on the right, and you can find all projects and tokens.
The future of Binance Smart Chain
It is still very early to make a statement about this. The Smart Chain has only been active since the beginning of September 2020. Still, Binance is giving a big push to the platform thanks to its $ 100 million support fund for DeFi apps and highlighting the benefits of the dual-chain approach.
Interestingly, the launch of Binance Smart Chain and strong efforts to attract DeFi developers go against Binance's core business of being a centralized crypto trading platform. According to the company, it is constantly trying to "disrupt" itself.
"For some people, the rise of DeFi represents a shift away from centralized blockchain platforms,"
“This could be interpreted as a threat to services such as Binance. We disagree with that. For us, DeFi is an opportunity to provide better solutions to the blockchain world. "
Quotes CZ, Binance CEO
Time wil tell
We will see if the blockchain world agrees and if Binance Smart Chain will turn into a leading blockchain platform for the next few years. r decentralized apps. So far they seem to be on the right track with the launch of the Smart Chain. Time will tell whether this will remain the case, or whether it is a passing hype that was only interesting as long as it was new ... A positive point about the Binance Smart Chain is in any case the low fees compared to the Ethereum variants.
I think the 0.0008 BNB feels a lot better than the sometimes absurdly high fees you encounter on the Ethereum Network.
I AM NOT A FINANCIAL ADVISOR
Do your own research!