What is Binance Smart Chain (BSC)?

Mar 1, 2021 | Community Guides

There was somewhat of a goldrush recently in the decentralised finance space and it was the explosion of the Binance Smart Chain (BSC). Lots of projects went 20-30x in a matter of weeks like Beefy Finance, Auto and Pancake Swap, to name a few.

So what is the Binance Smart Chain and why has it suddenly boomed?

Binance smart chain is a parallel blockchain that can link to Binance’s already existing “Binance Chain”. Projects built using the BEP2 token standard can then update and use the Binance bridge to send the token across to the new smart chain.

I know they couldn’t have made them sound more similar if they tried…

Binance Chain – BEP2 tokens and is the older Binance blockchain

Binance Smart Chain – BEP20 tokens and is the new exciting blockchain

This blockchain has sprouted many DeFi projects that allow its user to take full advantage of the new and amazing world of decentralised finance. 1 million % APY, crypto lending, yield farming and decentralised exchanges using automated market makers. Sound familiar?

Well, it should. These kinds of dApps have previously been explored on Ethereum and to good effect.

BEP20 refers to the token standard on BSC. This is the same as how ERC20 tokens are the token standard on the Ehtereum blockchain and the similarities don’t stop there… Well, the similarity is a bit of an understatement.

BSC is effectively a fork (copy + paste) of the Ethereum blockchain. Now, I am not saying this is a bad thing… I am saying it is great.

On both BSC and Ethreum, you pay in BNB and ETH (respectively) to transact with another peer or another smart contract.

With the Ethereum network currently extremely congested, miners on Ethereum are processing the most profitable and lucrative transactions first which has created a bit of a blockchain class divide if you will…

Those who can offer higher gas fees to miners to process their transactions can be served first. Those who can’t, simply won’t be able to use the Ethereum blockchain. I just tried to load up on an Ethereum based ERC20 token on the day of its release maybe a couple of hundred dollars worth.

Before verifying the transaction you are met with the transaction fee. The transaction fee is a weeks rent for me… so I quickly back out of that before my finger slips.

It isn’t just me that can’t face paying $100 a transaction on Ethereum based dApps like Uniswap. This is causing a mass exodus from DeFi users and who was there to greet them with a wonderfully familiar platform, with low fees and a 3 second transaction time? Yup, Binance Smart Chain.

CZ the founder of Binance recently posted a tweet showing that BSC is now achieving over 2X the transaction of ETH. This is huge and a front running indicator meaning that it is a great predictor of future price. Volume precedes price in this game.

So where is the catch in all this? It seems like lower fees, quicker transactions and overall more accessible to the full crypto landscape is a good thing?

Well… Yes and no.

The Ethereum network is made up of over 8,000 nodes, all competing to verify the transactions across the network. For more on Ethereum and how it works head HERE. 

This ensures excellent decentralisation and excellent security. Now, we did mention that the transaction fees and congestion are a problem, but Ethereum *won’t* always be like this.

They are shifting from the labour intensive and non-scalable proof-of-work consensus which it currently uses to verify all your ETH transactions, to a proof-of-stake consensus protocol.

This combined with several layer 2 solutions are set to help increase the scalability, durability, efficiency and consequently the gas fee situation.

Now, if Ethereum pulls this off they could once again steal the DeFi crown back from the BSC.

I wouldn’t bet against Vitalik and the Ethereum community as they seem ahead of the curve on the majority of things. Although, it is difficult to see why if people are happy, they would revert back to Ethereum if everything is great on BSC.

Even with layer 2 solutions and proof-of-stake, I don’t believe ETH fees will reach as low as BSC, which often are below 10 cents.

For those in less economically developed countries, BSC could be their access to DeFi and the benefits and liberations that can bring.

CeFi or DeFi?

There are arguments that BSC is more CeFi than DeFi though. Remember those 8,000 ETH nodes that kept the ecosystem running and ensured if any one country decided to halt ETH mining, the rest would be able to pick up where they left?

Well, I don’t know how to tell you this but… Binance has… 21 validators…

Yup. 2. 1.

21.

CeFi…

That is a lot of risk putting your hard-earned yields into the hands of only 21 verifying nodes in the Binance Smart Chain network. I mean at the end of the day wasn’t this whole thing supposed to be Decentralised?

I don’t know… I am torn on the whole thing. I love BSC, it feels like what Ethereum mainnet used to be like before high gas fees. It is quick, effective and rife with opportunity.

I just don’t like how centralised it is… Saying that I will continue to use it.

Even if Ethereum sorts itself out and makes its DeFi experience actually affordable, I believe the two can live in harmony.

Coinbase and Binance get along just fine. Uniswap and Sushiswap get along… well, okay and the same goes for other competitors in the space.

With the development of a lot of cross-chain projects, there is no reason they couldn’t live in two different places with a bridge between platforms like in Denmark and Sweeden’s Øresund Bridge.

I think cross-chain is a must in this space and it is inevitable. ANYswap, RUNE and FTM are all attempting to make this as user friendly and accessible as possible.

There is one final point I will make before I wrap this up. I am not sure if it is because the BSC projects are relatively new or that they just like taking ETH based projects and pasting them on to the BSC.

ETH seems to be where the innovation and breakthroughs come from, whilst BSC seems to refine what has already been done and profess it as their own on BSC.

For BSC to really start to progress and stand on its own two feet, it needs to stop looking at Ethereum based projects and innovate.

I believe if we can see some breakthrough projects native to the BSC it could be here to stay, if it continues to emulate what has already been accomplished on ETH, it may struggle to compete if and when the ETH gas fees drop.

If you would like to learn more about the BSC you can read out articles from this list here:

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