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What is Binance Smart Chain? A comprehensive guide to BSC

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Binance Smart Chain (BSC) is a core of the entire ecosystem of biggest crypto project Binance and today we are going to explore it. In particular, we’ll find out how the whole system works and why the demand for BSC is so high.
 

Introduction to Binance Smart Chain

Binance Smart Chain (BSC) is a blockchain network developed by Binance that operates parallel to the Binance Chain. BSC was launched to enhance the functionality of Binance Chain. 

This dual-chain architecture allows users to build decentralised applications (dApps) and digital assets on one blockchain and take advantage of the fast trading capabilities of the other.
 

What is Binance Smart Chain (BSC)?

BSC is designed to support high-performance decentralised applications without the congestion typically associated with Ethereum.

One of the standout features of Binance Smart Chain is its interoperability. BSC allows for cross-chain transfers and communication, promoting a more interconnected blockchain ecosystem. This functionality is vital for the growth and integration of decentralised finance (DeFi) applications, which rely on smooth and efficient operations across different platforms.

BSC itself includes several chains, which are:

  • BNB Beacon Chain serves as a staking and governance layer.
  • BNB Greenfield provides decentralised data storage tools.
  • opBNB is a scalability solutions layer for conducting faster transactions and cutting fees.
  • zkBNB is another scalability solution.
Pic 2

BNB Chain Chains. Source: bnbchain.org

In summary, BSC brings scalability and low transaction costs, all of which make the platform powerful for developing decentralised applications and enhancing blockchain interoperability. For those wondering "What is Binance Smart Chain," it is a robust blockchain network that offers enhanced performance and versatility for a wide range of crypto applications.
 

The Binance ecosystem

The Binance ecosystem is a comprehensive suite of financial services and blockchain solutions designed to foster the growth of cryptocurrencies. At its core is the Binance Exchange, a leading platform for trading digital assets. 

A crucial component is the BSC ecosystem, which includes Binance Smart Chain, a blockchain network that supports high-performance dApps with smart contract functionality. This allows for faster transaction times and lower fees.

Pic 3

BNB Chain ecosystem. Source: bnbchain.org

Binance Coin (BNB) serves as the native token for transaction fees across Binance services, including BSC. We’ll talk about the coin in detail a bit later.
 

Dual-chain architecture: Binance Chain and BSC

Binance utilises a dual-chain architecture, comprising Binance Chain and BSC. This setup allows for seamless interoperability and enhanced functionality. This dual-chain architecture enables users to transfer assets between the two chains effortlessly, combining the best aspects of both platforms for a robust blockchain ecosystem.
 

Binance Chain

Binance Chain is a blockchain network developed by Binance to facilitate fast and efficient trading of digital assets. Launched in April 2019, it focuses on providing high-speed transactions and a decentralised exchange (DEX) platform. By the way, the prominent Binance DEX works right upon the Binance Chain.
 

Binance Smart Chain

In contrast, Binance Smart Chain, launched in September 2020, focuses on supporting high-performance dApps with smart contract capabilities. 
 

Interoperability and cross-chain communication

Binance Smart Chain excels in interoperability and cross-chain communication, crucial for blockchain scalability. BSC allows seamless asset transfers and interactions between Binance Chain and other blockchains, enhancing the overall blockchain ecosystem. This interoperability supports DeFi applications, enabling them to operate efficiently across different networks. 

By facilitating smooth cross-chain transfers, BSC ensures that users can enjoy the benefits of various blockchain platforms without compromising on performance or security. This ability to interact with multiple blockchains significantly boosts the scalability and utility of the Binance ecosystem.
 

Smart contracts and EVM compatibility

Binance Smart Chain is designed to support smart contracts, enabling developers to create dApps. Technology is crucial for Ethereum Virtual Machine (EVM) compatibility achievement.
 

The importance of smart contracts

Smart contracts are essential for blockchain technology as they enable the execution of self-enforcing agreements without intermediaries. They ensure trust and transparency by automatically executing and enforcing the terms of a contract once predetermined conditions are met. This automation reduces the risk of fraud and eliminates the need for third-party involvement, leading to faster and more cost-effective transactions. 

Additionally, smart contracts enhance security and accuracy, as they are immutable and operate on decentralised networks, making them resistant to tampering and errors. These features make smart contracts essential for applications in finance, supply chain, real estate, and beyond.
 

EVM compatibility and developer adoption

Binance Smart Chain offers EVM compatibility, allowing developers to seamlessly migrate and deploy their Ethereum-based dApps on BSC. This compatibility ensures that developers can use existing Ethereum tools, libraries, and frameworks, making the transition to BSC smooth and efficient. As a result, BSC has seen significant developer adoption, with numerous projects leveraging its faster transaction speeds and lower fees compared to Ethereum. This growing ecosystem of dApps on BSC highlights its appeal as a versatile and developer-friendly blockchain platform.
 

Decentralized finance (DeFi) on BSC

BSC became a popular DeFi platform right after its roll-out. As for the time of writing, its total value locked (TVL) exceeds $5,2B. This makes Binance Smart Chain the third largest chain after Ethereum.

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Total value locked all chains. Source: defillama
 

The growth of DeFi on BSC

DeFi on Binance Smart Chain has rapidly grown due to its high performance, low transaction fees, and support for dApps. This combination has attracted numerous developers and users, fostering a vibrant ecosystem.
 

Popular DeFi projects on BSC

Popular DeFi projects on BSC include PancakeSwap, Venus, and others, offering services like decentralised exchanges, lending, and yield farming. These platforms benefit from BSC's faster block times and scalable infrastructure, providing users with efficient and cost-effective DeFi solutions. The robust ecosystem and active community support make BSC a prominent player in the DeFi space.

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Top-10 DeFi projects run on BSC. Source: defillama
 

BSC network and consensus mechanism

The Binance Smart Chain network utilises a unique consensus mechanism called Proof of Staked Authority (PoSA). This mechanism combines elements of Proof of Stake (PoS) and Proof of Authority (PoA) to achieve high performance and efficient blockchain infrastructure.
 

Proof of Staked Authority (PoSA)

PoSA is a consensus mechanism where validators are chosen based on their staked assets and reputation. It ensures faster block times and lower transaction costs while maintaining network security.
 

Network validators and BNB staking

In the BSC network, validators play a crucial role in maintaining blockchain infrastructure. Validators are selected from the top stakers of Binance Coin (BNB), and they validate transactions and create new blocks. Users stake their BNB to support validators, earning rewards in return. This process not only secures the network but also promotes decentralisation and community involvement.
 

The role of BNB Token in the BSC ecosystem

The BNB token is central to the Binance Smart Chain ecosystem, serving various crucial functions. It has a constant place among the top-10 most capitalised coins. Initially issued as an ERC-20 token, BNB has since migrated to its own blockchain on Binance Chain and BSC.

Pic 6

BNB chart. Source: TradingView
 

BNB token use cases

There are several primary use cases for the BNB token. Let’s highlight them: 

  • paying transaction fees on both Binance Exchange and the BSC network; 
  • participating in token sales on Binance Launchpad;
  • staking to support network validators. 

BNB is also used for various financial services such as loans and liquidity provision within the BSC ecosystem.
 

BNB tokenomics

BNB tokenomics involves a deflationary model where Binance regularly conducts token burns, reducing the total supply over time. This process aims to increase the value of the remaining tokens. 

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Data about the amount of BNB was burned. Source: bnbburn

The tokenomics also include incentives for validators and delegators who stake BNB to secure the network, enhancing its overall stability and security.
 

Advantages and challenges of Binance Smart Chain

While BSC offers significant advantages, it also faces challenges. Let’s dive into both: positive and negative sides.
 

Advantages of BSC

Binance Smart Chain offers several advantages that make it an attractive platform for dApps and DeFi projects. Here are some benefits:

  • High performance, characterised by fast transaction speeds and low transaction fees.
  • BSC's consensus mechanism, PoSA, ensures efficient and secure network operation.
  • BSC provides seamless cross-chain communication, enabling interoperability with other blockchains, including Binance Chain and Ethereum.
  • This interoperability enhances the ecosystem's flexibility and utility, allowing assets to move freely across different networks.
     

Challenges and limitations of BSC

Despite its advantages, Binance Smart Chain faces several challenges and limitations. Here they are:

  • Centralization, as the PoSA consensus mechanism relies on a limited number of validators, which may compromise decentralisation and security.
  • Another challenge is network congestion during peak times, which can lead to slower transaction speeds and higher fees, despite BSC's general efficiency.
  • Furthermore, while BSC's cross-chain communication capabilities are strong, they still require continuous improvement to ensure flawless interoperability and integration with a growing number of blockchain networks.
  • Finally, the rapid growth of the BSC ecosystem also brings challenges related to scalability and maintaining a robust and secure infrastructure.
     

Conclusion: the future of Binance Smart Chain

Binance Smart Chain has positioned itself as a powerful platform for decentralised applications and finance, offering high performance, low transaction fees, and robust cross-chain communication capabilities. Despite facing challenges related to centralization and network congestion, BSC continues to evolve, aiming to enhance its scalability, security, and overall ecosystem utility.

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Here are three other cool articles: 

Connect MetaMask to Binance Smart Chain (BSC): a comprehensive guide

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The difference between coin and token: understanding crypto assets

This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.

Maria Kachura
Maria Kachura

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