What is Binance Smart Chain?

What is Binance Smart Chain

Smart contracts and programmable networks have become a mainstay of the crypto sphere. Developers wanted a network they could use to build on. Something that would empower them to decentralize more than just money, but every financial instrument in the world. This has led to the creation of many chains, one of which is the Binance Smart Chain.  

The Beginnings 

As you probably know, Binance is, by far, one of the biggest centralized exchanges in crypto. Its current daily trading volume of more than $24 billion is almost four times that of its nearest competitor. 

Binance has always endeavored to make decentralization part of its offering. This is why, in 2019, they launched Binance Chain. This allowed Binance to launch a decentralized exchange, offering their users the opportunity to properly own the crypto they traded.

However, Binance soon decided that they wanted to build a chain that could offer more. A chain that would allow developers to build their own DApps in the same way Ethereum can and bring more value to Binance’s native BNB token.

This led to the launch of The Binance Smart Chain in September of 2020. A chain that promised to offer all of the development opportunities as Ethereum at a fraction of the speed and price.

What Is It?

BSC features Ethereum’s Virtual Machine (EVM) and smart contract abilities. This gives it all the utility of Ethereum. It even allows Ethereum developers to easily port DApps to the binance smart chain, as many applications will be compatible with both chains. In many ways, BSC is simply a clone of Ethereum. 

However, BSC is able to offer transaction fees of a few cents, whereas Ethereum has fees that regularly go above $50. Why is this? Well, there are a few key differences between the two chains that make this possible. 

Firstly, BSC is a proof-of-stake chain. Instead of needing to perform complex cryptographic functions, validators can just use BNB tokens to demonstrate their honest participation. This is not a major difference though. In fact, Ethereum will be transitioning to a proof-of-stake chain this year. 

The key difference in BSC’s validation method is how they sacrifice decentralization for high speed and low transaction fees. On the Ethereum chain, anyone who holds 32 Ethereum can run a node in the network. 

On BSC, only the 21 largest holders of BNB tokens are able to run a node. BNB holders can delegate their token to validators. This pushes that validator closer to the top of the list and allows delegators to earn a portion of the chain’s fees. This means that more than just 21 users are benefiting from the chain’s fees. 

However, at no point can there ever be more than 21 nodes validating each transaction. Less nodes in the network, mean less nodes validating each transaction and thus, much less processing power required for the network, and much less nodes that need to be paid to validate.

This compromise of centralization is how BSC is able to offer the same service as Ethereum so much cheaper and faster.

Where Does BNB derive its value?

BNB is a centralized coin. The majority of supply is held by Binance. Besides that, it has many holders on Binance Chain and BSC as it is needed to pay fees on both chains. Just like Ether, a portion of BNB is burnt when it is used for these transactions.

However, there is another burn process attached to BNB that is very different from Ether. As we’ve mentioned, the majority of supply is held by Binance but much of this is getting burnt. Each quarter, Binance will burn huge amounts of BNB tokens relative to how much the Binance centralized exchange is being used. 

This has led to some truly massive burns with each one becoming a huge event in the crypto sphere. The biggest of these saw an eye-watering $640 million worth of BNB sent to a burn wallet. This is an extra factor in determining BNB’s value. Its supply decreases the more crypto’s most popular exchange is used.

Conclusion 

It’s undeniable that BSC is able to offer a service that many users would prefer to Ethereum. The fees on Ethereum make it genuinely impossible for smaller traders to participate in. However, the lack of decentralization is a major caveat in determining BNB’s value. Many in crypto consider the entire space as a means to decentralize the financial world. BSC does not offer this to the same extent as other chains and this is a significant consideration.

what can blockchain do

What Can Blockchain Do?

In many people’s minds, cryptocurrency and blockchain are synonymous with one another. Although closely related, they are not one and the same, and it is

Read More »

Share Post:

Twitter
LinkedIn
Telegram
Facebook
Pinterest
what can blockchain do

What Can Blockchain Do?

In many people’s minds, cryptocurrency and blockchain are synonymous with one another. Although closely related, they are not one and the same, and it is

Read More »