Binance Smart Chain (BSC) within half a year of life, has already surpassed Ethereum as the biggest smart contracts blockchain.
During 2020 there was a boom of DeFi protocols (that’s still running rampant), sometimes compared to that of ICOs back in 2017. These projects offered traditional finance tools, like lending and credit lines, but hosted in a decentralized environment powered by blockchain. The usual nest for most of them was, of course, Ethereum, the smart contracts network.
Uniswap gained a lot of traction during the DeFi boom. It provides a gateway to trade the tokens and participate in the different protocols, so it hit the top really quickly.
However, the high amount of transactions was a little too much for Ethereum, that can only confirm 15 transactions per second. Moreover, Ethereum surpassed Bitcoin in daily tx volume since July 2020, by at least 30%.
By mid January 2021, Ethereum’s daily volume was $12,3 billion, while Bitcoin accounted for only $9,3 billion.
Ethereum's daily transaction volume is going parabolic.
It now settles $12 billion in transactions daily – $3 billion more than Bitcoin.
— Ryan Watkins (@RyanWatkins_) January 19, 2021
The network suffered (and still does) from heavy congestion. Users must pay really high fees to get the transactions confirmed in a decent amount of time. Sometimes even higher than the transaction itself. This hinders the growth of the DeFi ecosystem and puts users and developers in a bad situation.
A solution might be to scale the network using Ethereum 2.0. However, this is still far from being deployed and DeFi needs a solution now.
Here’s where Binance Smart Chain (BSC) gets in the scene. From early 2020, the Binance community started developing a network that could foster innovation through smart contracts, while keeping the features of the traditional Binance Chain. Let’s dig deeper into it.
How does Binance Smart Chain (BSC) work?
Binance launched the Binance Chain in April 2019 to facilitate super fast transactions. Its main use case is the Binance DEX, a decentralized exchange that allows users to trade instantly between different tokens. Similar to what happens on Uniswap. Binance DEX, however, is a P2P market.
While Binance Chain is a reliable and useful chain that serves its purpose, it fails at allowing developers to experiment. It’s fast at the cost of being rigid. To tackle this issue, the community created Binance Smart Chain (BSC).
BSC works parallel to the Binance Chain, but it’s not a layer two protocol. If the latter stops working, BSC will still run smoothly. Besides, it is compatible with the Ethereum Virtual Machine (EVM).
What does that mean, though? Well, by being compatible with EVM, it makes it easy for Ethereum protocols to migrate to it. Also, tools and apps built for Ethereum, like Metamask, can be easily used in BSC.
The compatibility with Binance Chain, on the other hand, makes it easy to trade tokens between both blockchains. But also, it allows BSC to be almost as fast, while being more flexible.
What are Binance token standards?
Both Binance Chain and BSC have various protocol standards, just like Ethereum has ERC-20 and ERC-721.
For the first chain there’s BEP-2. This standard is somewhat similar to ERC-20 and the tokens created with it can only be used in the Binance DEX. It costs around 1.500 BNB to mint it.
Developers who build in the Binance Smart Chain can also use the BEP-20 standard. This one, unlike BEP-2, is a lot more flexible.
It is often used to create pegged tokens. They give users the ability to trade with cryptocurrencies while remaining in the Binance Chain, by creating pegged alternatives. For example, you can find BTCB (the bitcoin peggy) or BETH (the ether one).
BEP-2 and BEP-20 tokens can be transferred across both Binance chains. The transaction fee is paid in BNB to encourage miners to validate the blocks.
Can you mine in Binance Smart Chain (BSC)?
Binance Smart Chain does not have a Proof-of-Work (PoW) consensus mechanism, so it can’t be mined like Bitcoin or Ethereum. It uses a state-of-the-art mechanism called Proof-of-Staked-Authority (PoSA), created, specifically for BSC.
Through PoSA, participants of the network can stake BNB and be elected to be one of the 21 validators. They can propose blocks and, if they’re validated by their peers, they receive the BNB fee paid by the transactor. Unlike other blockchains, new coins aren’t minted when blocks are validated. The supply actually reduces over time, since the Binance team regularly burns coins.
You need to stake at least 10,000 BNB to be able to be chosen as a validator.
Binance Smart Chain (BSC) quick take off
The BSC has only been around for about half a year. However, it is already the most popular DeFi network. According to a DappRadar analysis, it had a higher transaction volume and unique active wallets than Ethereum in February 2021, while hosting less DApps.
Although Ethereum protocols still have a higher Total Value Locked, fee prices have hindered the use of the (for now) second cryptocurrency by market capitalization.
As DappRadar states:
Ethereum has always had competition from other blockchains, for example, Tron and EOS. However, Ethereum always remained king of the hill. Binance Smart Chain is now changing the game, as Ethereum is struggling with its own success.
Binance Smart Chain is definitely a game-changing network. Its success could probably be attributed to the huge presence of Binance in the overall crypto ecosystem. However, it has also been widely accepted by the public due to its effectiveness at being flexible while remaining fast and cheap.
Featured image: Binance