What is Binance Smart Chain (BSC)?
BSC was designed based on Geth, an Ethereum execution client that handles transactions, deploys and executes smart contracts, and contains the EVM.
Evolution of BSC into BNB Chain
The Binance blockchain, built by the world’s largest cryptocurrency exchange, has evolved since its launch in 2017. As decentralized finance (DeFi) applications enabled by smart contracts took off in 2020, Binance launched a parallel Binance Smart Chain to run alongside the Binance Chain and compete with the Ethereum blockchain.
BSC quickly gained popularity among developers and users in early 2021 as network congestion and high gas fees on the Ethereum blockchain increased the cost of transactions while slowing processing times.
In 2022, BSC merged with the Binance Chain in a new dual-chain structure. The original Binance Chain has been renamed the BNB Beacon Chain and merged with BSC, meaning that Binance Smart Chain is now the BNB Smart Chain. Together, the two chains comprise the BNB Chain.
The rebranding was in line with Binance’s goal to develop a broader ecosystem for the blockchain separate from the Binance exchange. According to Changpeng Zhao, Binance CEO, “BNB” is an abbreviation for “Build ’N Build.”
The blockchain’s growing popularity has led to an explosion of new projects being built on BSC as of 2023, for example Bitcoin BSC.
How Does BNB Smart Chain Protocol Work?
BNB Smart Chain brings programmability and interoperability to the BNB Beacon Chain using a combined delegated proof of stake (DPoS) and Proof-of-Authority (PoA) consensus mechanism known as Proof-of-Staked-Authority (PoSA).
PoSA uses a system of validators elected based on the number of tokens they stake. They take turns verifying transactions and adding them to the chain in new blocks. Backup validators called “candidates” provide security, as in the event of a malicious attack that brings the validators offline, the candidates can report to the Beacon Chain, resume processing on BSC, and propose the re-election of active validators.
Advantages of BSC
According to Binance, BSC’s consensus protocol has been designed to fulfill the following goals:
- Short blocking time: BSC aims to achieve a short blocking time of three seconds on its live blockchain (mainnet). This means that transactions can be processed quickly, enabling faster confirmation and reducing potential delays.
- Fast confirmation of transaction finality: BSC emphasizes fast confirmation of transaction finality. This ensures that once a transaction is included in a block, it is considered finalized and cannot be reversed or altered. This feature enhances the security and reliability of transactions on the BSC.
- Non-inflationary model for BNB: BSC adopts a non-inflationary model for its native BNB coin. Unlike traditional inflationary models, where new coins are created through mining, BNB’s block rewards are collected from transaction fees. This mechanism helps maintain a stable and predictable supply of BNB over time.
- EVM compatibility: BSC is fully compatible with EVM. This compatibility allows developers to seamlessly port their existing Ethereum-based applications and smart contracts to the Binance Smart Chain ecosystem. It also provides users with a familiar environment and access to a wide range of dApps.
- Proof-of-stake (PoS) governance: BSC employs a PoS governance mechanism. PoS allows BNB holders to participate in the consensus and decision-making process of the network. By staking their BNB tokens, holders can contribute to block validation and participate in voting on network upgrades and proposals.
What Is BNB Coin?
Previously known as Binance Coin, BNB is the native utility token for the Binance ecosystem. It is used to pay transaction fees on the Binance exchange and BNB Chain, staking, and asset transfers. BNB is also used to execute smart contracts on BSC.
BNB holders who want to earn additional BNB or contribute to network security can stake BNB on a smart contract. They can also delegate their stake to a BSC validator to earn a share of the block rewards. Validators can decide how much of the BNB they collect from gas fees is redistributed to delegators.
In addition to BNB, the BSC supports other token standards, including BEP-20, which developers use for creating tokens, and ERC-20 from the Ethereum blockchain for compatible apps. BEP-20 is equivalent to BEP-2 on the BNB Beacon Chain, so holders of BEP-20 tokens can swap them for BEP-2 tokens and vice versa in the Binance Wallet.
BNB Chain Applications
BNB Chain is undergoing a series of technical upgrades to support further decentralization and fast transaction processing as part of the dual-chain transition.
BNB Chain will focus on providing the infrastructure to support a virtual ecosystem of applications across decentralization gaming finance (GameFi), social media finance (SocialFi), Web3, non-fungible tokens (NFTs), and the metaverse.
It is scaling from one chain to a multi-chain structure, increasing the throughput of BSC, introducing new governance mechanisms, increasing scaling, and expanding the number of BSC blockchain validators from 21 to 41.
The top five BNB Chain applications based on the total value of the assets in smart contracts are:
- Venus Protocol: a decentralized algorithmic money market and stablecoin protocol that gives borrowers and lenders access to liquidity and earnings on demand.
- BinaryX: a decentralized GameFi platform providing services to help Web2 developers make the transition to Web3.
- PancakeSwap: the biggest and first successful decentralized crypto exchange built on BSC.
- Elephant Money: a decentralized community bank focused on generating passive income for token holders.
- Cairo Finance: a deflationary system that provides a DeFi yield farming aggregator and optimizer to offer all DeFi products on a single platform for BSC users.
Cryptocurrencies are often highly volatile and face regulatory uncertainties. In addition, decentralized apps can be susceptible to fraud.
As such, it’s important to conduct due diligence when buying cryptocurrencies and using blockchain apps, only investing what you can afford to lose.