In this post, we shall be introducing Binance Smart Chain (BSC) and all that it entails for crypto traders and investors. The Binance Chain is the home of BNB currency and is optimized for efficient and ultra-fast crypto trading. To achieve this feat, Binance Chain had to sacrifice certain things. It is an ultra-fast and optimized trading system that came at the expense of flexibility in terms of programmability like other blockchain protocols.
The Binance Smart Chain (BSC) aims to correct all the pitfalls of the Binance Chain. It is a complete blockchain system suitable for the development of high-performance decentralized applications. BSC was built to allow cross-chain compatibility with Binance Chain. The cross-chain compatibility feature of BSC will ensure that get the best from both blockchain systems.
The Binance Chain became accessible to the general public in April 2019. It aimed to ensure fast and decentralized (non-custodial) crypto trading. Many people think that the biggest decentralized application (dApp) was the Binance DEX. It was arguably the friendliest decentralized exchange for any trader. Traders can make use of it through a web interface available on Binance .org. Alternatively, they can access it through its native integration using Trust Wallet.
There were some limitations with blockchain systems, but the Chain doesn’t offer much flexibility. The smart contract features that optimized for fast trading significantly congested the network. We can remember CryptoKitties right? During the height of its popularity, it crippled the Ethereum blockchain. One of the challenging hurdles of blockchain development has been scalability, and that is where Binance Smart Chain comes into play.
What is Binance Smart Chain?
We can define Binance Smart Chain as the blockchain protocol that runs in parallel to the Binance Chain. However, unlike the Binance Chain, BSC has smart contract functionality and is compatible with the Ethereum Virtual Machine (EVM). The goal of the Smart Chain was to integrate smart contracts into the high throughputs of the Binance Chain. In reality, both blockchain systems operate side-by-side. It is important to note that BSC is not a layer-two or off-chain scalability solution. BSC is completely an independent blockchain that is capable to run in the absence of the Binance Chain. From a design standpoint, you can hardly tell both chains apart.
Since BSC is compatible with EVM, it was launched with full support for the universe provided by Ethereum tools and dApps. Theoretically, is easy for developers to port their applications over from Ethereum. On the side of the users, the implication is that applications like MetaMask can be easily configured to work with Binance Smart Chain. All that is required is just to weaken some setting and you are good to go.
How Binance Smart Chain (BSC) Works
Now that we have taken some time to explain what BSC means, let us go over its working principle. We are going to look at this from two different standpoints; consensus and cross-chain compatibility.
Using the proof-of-stake consensus algorithm, Binance Smart Chain achieves three-second block times. It utilizes the proof-of-staked Authority (PoSA), allowing participants to stake BNB to become validators. If a validator proposes a valid block, he/she will receive a transaction fee from all transactions included in it.
However, unlike most protocols out there, there is no block subsidy of freshly created BNB tokens. The reason is that BNB is not inflationary. On the other hand, the supply of BNB decreases as time goes on. The decrease of BNB is due to the regular coin burns conducted by the Binance team.
The Binance Smart Chain was built as an independent but complementary system to the already existing Binance Chain. It employs dual-chain architecture. The goal was to help users transfer assets from one blockchain system to another in a seamless manner. Therefore, users can enjoy rapid trading in the Binance Chain. Also, developers can build powerful decentralized applications on BSC. This interoperability exposes users to an ecosystem with a myriad of use cases.
The BEP-2 and BEP-8 tokens from the Binance Chain can be swapped by users for the BEP-20 tokens. The BEP-20 tokens are the new standard introduced on the Binance Smart Chain. If you have read the ERC-20 tokens, you will have a better understanding of the format of BEP-20 tokens. It adopts the same functions as its Ethereum counterpart.
If you want to move tokens from one chain to another, the simplest approach is the use of the Binance Chain Wallet. You can get it from Chrome and Firefox.
Decentralized Finance (DeFi) on BSC
There are several digital assets like BTC, LTC, ETH, EOS, XRP, existing on Binance Chain as Peggy coins. These tokens are pegged to assets on their respective native chains. For example, you may decide to lock up 10 ETH so that you can receive 10 ETHB on Binance Chain. You can trade your 10 ETHB for 10 ETH whenever you want. It also means that the price of 10 ETHB closely tracks that of native ETH.
When you carry out the above-mentioned activities, you effectively port these assets onto the Binance Chain. If you want to know more about the process behind it, check out “tokenized bitcoin on Ethereum.”
As a result of the flexibility made possible by the Binance Smart Chain, assets from different chains can be used in the rapidly growing DeFi space. For example, some application like PancakeSwap allows users to exchange assets in a trustless manner. Just like Uniswap, these users can engage in yield farming and is also eligible to vote on proposals. There are also similar projects like BurgerSwap and BbakerySwap.
There is no doubt that the Binance Smart Chain improved the functionality of the original Binance Chain. It also joined a range of cutting-edge protocols that were designed to serve as bridges between different blockchain systems. Although it is still young in the industry, the BNB staking and EVM compatibility makes BSC ideal for dApps developers.
You can share your thought on the relatively new BSC using the comment section provided below.
Okereke has a passion for researching blockchain and cryptocurrency. He enjoys creating long form educational content to inform others on the opportunities in this space.