What is Binance Smart Chain?

The rapid rise of Binance Smart Chain began in early 2021 mainly because of rising trans­ac­tion costs as­so­ci­at­ed with the market leader Ethereum. The blockchain network of the Chinese crypto exchange Binance shows promise thanks to lower costs, fast trans­ac­tions, and com­pat­i­bil­i­ty with EVM. However, it’s also drawn criticism due to close ties to its parent company.

Binance Smart Chain, or BSC for short, is a blockchain network of the Chinese trading platform Binance. The network is par­tic­u­lar­ly suitable for running ap­pli­ca­tions based on smart contracts. Due to fast and com­par­a­tive­ly cheap trans­ac­tions as well as the com­pat­i­bil­i­ty with the Ethereum Virtual Machine (EVM), Binance Smart Chain enjoys great pop­u­lar­i­ty.

To explain the rel­a­tive­ly sudden success of Binance Smart Chain, we have to take a closer look at Ethereum. Since 2015, the open-source system has allowed de­cen­tral­ized ap­pli­ca­tions to be directly pro­grammed on the blockchain. Starting in 2020, however, the system re­peat­ed­ly made headlines as trans­ac­tion­al fees sky­rock­et­ed to sometimes dizzying heights. Because the network only allows a limited number of si­mul­ta­ne­ous trans­ac­tions per second, demand increased, and so did the costs. While Ethereum works on a better solution, many users are looking for equiv­a­lent or at least roughly com­pa­ra­ble al­ter­na­tives – like BSC.

In early 2021, Binance Smart Chain took advantage of Ethereum’s problems and es­tab­lished itself as a sig­nif­i­cant­ly cheaper yet reliable fallback option. This also works because de­cen­tral­ized financial markets often rely on the open source idea and the switch from Ethereum to Binance Smart Chain works smoothly and quickly.

Binance Smart Chain is operated by the largest crypto exchange in the world. BSC is a modified Ethereum fork and was therefore a logical al­ter­na­tive from the beginning. It combines two important ad­van­tages: First, it solves the problem of expensive trans­ac­tions, and second, it allows users to use Ethereum ap­pli­ca­tions such as the MetaMask wallet. Pro­gram­mers can use Ethereum’s code when working with Binance Smart Chain as well. In doing so, BSC works in parallel with the native Binance Chain (BC). Because de­vel­op­ers can create DApps – de­cen­tral­ized ap­pli­ca­tions – users have the chance to manage their digital assets across the chain.

Binance Smart Chain works with a so-called Proof of Staked Authority (PoSA). This is a mix of delegated Proof of Stake (PoS) and Proof of Authority (PoA). With BSC, selected verifiers in the network al­ter­nate­ly confirm trans­ac­tions and generate new blocks using the PoA method. The decisive factors for selection as a verifier or validator are the size of the stake and the rep­u­ta­tion within the community. This model achieves block times of ap­prox­i­mate­ly three seconds.

Binance Smart Chain works closely with Binance Chain in this regard, although both systems remain com­plete­ly in­de­pen­dent. However, there is cross-chain com­pat­i­bil­i­ty. Because assets can be trans­ferred between both blockchains, users get a com­bi­na­tion of Binance Chain’s speed and BSC’s smart contract func­tion­al­i­ty. Binance Smart Chain supports the BEP-20 token standard, which is com­pa­ra­ble to Ethereum’s ERC20 standard.

It’s not sur­pris­ing that Binance Smart Chain has been able to convince so many users within such a short time. After all, the ad­van­tages are immense.

• In­de­pen­dence: Binance Smart Chain is an in­de­pen­dent blockchain, which also functions sep­a­rate­ly from Binance Chain.
• High speed: BSC is char­ac­ter­ized by extremely fast processes and uses the ad­van­tages of Binance Chain in this respect.
• Low trans­ac­tion costs: Es­pe­cial­ly compared to Ethereum, BSC is many times cheaper. This makes Binance Smart Chain a solid choice for de­vel­op­ers and users.
• Com­pat­i­bil­i­ty: Binance Smart Chain is com­pat­i­ble with the Ethereum Virtual Machine and cor­re­spond­ing smart contracts are also supported by BSC. This also makes it easier for pro­gram­mers to make the switch.

However, Binance Smart Chain isn’t perfect. The severity of the dis­ad­van­tages depends on each user.

• Cen­tral­iza­tion: Binance Smart Chain is dependent on Binance, the parent company. Unlike many other de­cen­tral­ized financial markets, the path to BSC oblig­a­to­ri­ly leads through the central crypto exchange or the equally central Binance bridge. Binance therefore controls all trans­ac­tions with cryp­tocur­ren­cies.
• PoSA: While some users fully support the PoSA principle, others point out the vul­ner­a­bil­i­ties. The concern is that it’s not the best suited in­di­vid­u­als that control the blockchain, but those with the most money.
• Scamming: Another potential vul­ner­a­bil­i­ty is due to its advantage. That’s because BSC’s low trans­ac­tion fees also make it more lucrative for scammers than Ethereum. Although Binance has strict controls in place, this also leads to greater cen­tral­iza­tion.

The battle between the powerful standard Ethereum and its opponent BSC will probably not ma­te­ri­al­ize because Binance Smart Chain isn’t an underdog, but also because it’s part of a huge trading platform. The gap between the pioneer and its successor also ensures that Ethereum will maintain its place at the top for the fore­see­able future. The vast majority of de­vel­op­ers and users still rely on Ethereum, which ul­ti­mate­ly is and remains one of the main reasons for its high trans­ac­tion fees. Binance Smart Chain’s lack of de­cen­tral­iza­tion probably also plays a major role in this.

Nev­er­the­less, the rapid and steady rise of Binance Smart Chain is re­mark­able and probably not yet at its end. Although Ethereum is working under high pressure on its pressing problems and can score points with its es­tab­lished and large network, some users will still remain loyal to BSC, es­pe­cial­ly because of the sig­nif­i­cant­ly lower trans­ac­tion costs. If Ethereum fixes its scal­a­bil­i­ty issues, its status as the market leader won’t change. However, BSC will then cement itself as a serious al­ter­na­tive.