Binance Smart Chain - blockchain black sheep or the cool new kid on the blockchain blockchain blockchain circuit?

In my 5 years of adventure with cryptocurrencies, I have used passive income building tools built on at least 6 different blockchains. Today I wanted to write about one of these blockchains, namely Binance Smart Chain (BSC). For a better context, I decided to write about BSC comparing it to Ethereum, after all, it is simply a copy of the Vitalika blockchain.

BSC has grown exponentially (and with it the value of Binance Coin) since its inception in September 2020. While for many BSC is an incredible source of income and the only alternative to the inflated fees on the Ethereum network, others still consider it a poor copy of Ethereum that is far from a true blockchain.

I used Ethereum-based applications a lot before the advent of BSC and I am quite familiar with both chains. Although BSC is a simple copy of Ethereum, the differences between the two are quite large.

The Binance Smart Chain was created when CZ (Changpeng Zhao - founder of Binance) realised how big decentralised finance would one day be. CZ did not try to reinvent the wheel when building his blockchain. Instead, he copied Ethereum, changing only a few parameters. The creation of BSC added fuel to the Binance Coin rocket, increasing its price from around $40 in January 2021 to a record $675 in May of the same year. The BNB gained so much in value because it was needed to perform operations on the BSC.

These operations were not only much cheaper, but also sometimes 100x faster than those performed on the Ethereum network.

How is this even possible? 

When the Binance developers copied the Ethereum code to create BSC, a few things were changed:

  • Block creation time: on the Ethereum network, a new block is mined every 13 seconds, while the Binance Smart Chain creates new blocks every 3 seconds (more than 4 times faster)
  • Space in each block: we can measure how many transactions can fit in one block according to its gas limit. In the case of Ethereum, the gas limit for each block is 12.5 million, while BSC allows 2.5 times the gas limit.
  • Consensus mechanism: Ethereum still uses Proof-of-Work consensus (until the introduction of ETH 2.0), while BSC is based on a Proof-of-Staked-Authority consensus model.
  • Number of nodes: Ethereum has thousands of nodes securing the network, while BSC has only 21 of them 

As you can see, the BSC can handle around 12 times more transactions than the Ethereum network, but it has had to sacrifice decentralisation and security to achieve this. So we cannot call BSC-based financial applications decentralised finance. This network, after all, has only 21 validators. Even CZ itself describes it as "CeDeFi" or Centralized DeFi. Centralised decentralised finance? Sounds a bit ridiculous... 

Whatever we call it, there is no doubt that BSC has introduced many new opportunities for retail investors who could not afford to use the Ethereum network. For most users, the centralisation issue is simply not that important when they can save (and make) huge amounts of money.

Who wouldn't want cheaper and faster transactions?

Many protocols followed their customers' lead and quickly deployed BSC-compatible versions of their platforms. On 7 June 2021, the BSC recorded an impressive 2,105,367 active addresses. This is more than 2.5 times the number. This difference is impressive, especially if we compare the time it took to get all these users. BSC is not even a year old, while Ethereum already celebrated its sixth birthday a week ago.

While Binance Smart Chain has had an amazing start, this does not guarantee long-term success. A lot of work lies ahead for BSC to stay on top, with Ethereum soon upgrading to a much more efficient version (ETH2.0) and new strong players (such as Polkadot) entering the ecosystem. 

Even if we say we are in crypto for the technology, for us investors, ultimately it is the money that counts. As long as we get adequate returns using BSC, we will continue to use the CZ chain. Our frenetic crypto market takes no prisoners, as there is always something 'new and better' lurking around the corner. Binance has been facing a lot of adversity recently and has had to discontinue or severely curtail its operations in several countries. I will be curious to see how this giant changes in the face of all the regulatory issues and how these changes will affect the entire BSC ecosystem.

Remember that your role as an investor is to make sure you are aware of all the risks of using cryptocurrencies and blockchain-based tools. Using DeFi protocols, carries a lot of risk. 

Keep learning as knowledge is everything in this game.

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10.08.2021r. Written by Piotr Borowiec


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