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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.
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Binance Smart Chain in brief
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.
Problems with Ethereum and the rise of BSC
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 transactionalfees 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.
BSC belongs to Binance and is compatible with Ethereum
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.
How Binance Smart Chain works
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.
Proof of Stake & Proof of Authority: In relation to blockchain networks, Proof of Stake is a method that is used to generate new blocks. With the help of a weighted random selection, which is determined by the duration of participation or the assets of a participant, a consensus is reached on which user may generate the next block. Proof of Authority is different: here, trusted participants are selected to perform this task.
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.
What are the advantages of Binance Smart Chain?
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.
What are BSC’s weaknesses?
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.
Summary: Can Binance Smart Chain replace Ethereum?
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.