What is Binance Smart Chain?

In April 2020, Binance announced its new Binance Smart Chain. This new blockchain will work in parallel with the exchange’s primary blockchain, the Binance Chain. Both chains are being improved at exceptional speed. This post will take you through a detailed overview of how the Binance Smart Chain works and what projects it has integrated so far, to see if it could possibly overtake Ethereum, and what this all means for DeFi. Let’s take a look at it in more detail.

Binance Chain (BC) Vs. Binance Smart Chain (BSC)

Binance Chain is a blockchain project that was launched by Binance in April 2019. It enables users to issue, utilize, and exchange digital assets on the blockchain. The native token of the Binance Chain is BNB. Binance DEX, Binance’s own decentralized exchange, also works on top of the Binance Chain and is its most utilized decentralized application (DApp) to date. Binance DEX enables users to exchange digital assets while keeping full custody of them. This means that unlike the centralized Binance, your coins remain in your wallet, not with the exchange.

On the other hand, the Binance Smart Chain is a “parallel blockchain” that delivers programmability to the Binance Chain, basically building a dual-chain system. This allows Binance to make use of smart contracts, giving it full adaptability with the Ethereum Virtual Machine (EVM), all while maintaining the execution capabilities of Binance Chain. From a user point of view, the two parallel chains work in an identical style, but they are distinct in their framework. 

Binance Chain is an uncomplicated design in terms of its application – the main purpose is to promote fast trading and managing large loads of trading. Binance Smart Chain stretches this functionality with the capability to build smart contracts and more complicated decentralized applications. Thanks to the similar plans, Binance Chain and Binance Smart Chain can effectively interact with each other.

Binance Chain

Before delving into Binance Smart Chain, let’s take a look at the old dog: the Binance Chain. The Binance Chain is a blockchain software system. The goal of the Binance Chain and Binance DEX is to build a marketplace for circulating and exchanging digital assets in a decentralized environment. Binance DEX leads to the decentralized exchange characteristics formed on top of the Binance Chain. In other words, it is a swift and secure decentralized digital asset exchange mounted on the extreme performance matching engine developed on distributed consensus. The following are the Binance Chain’s design principles and highlights:

Binance Smart Chain

According to Binance, the Binance Smart Chain is an effectual smart contract blockchain enabling programmability that’s suitable with the Ethereum Virtual Machine (EVM). As mentioned earlier, it is meant to work in parallel with Binance Chain. The Binance Smart Chain will maintain the Binance Chain’s speedy performance times and low transaction fees. The dual-chain design will allow its users to create their decentralized apps and digital assets on one blockchain and take benefit of the high-speed trading of the other. The following are the main attributes of Binance Smart Chain :

Binance Coin (BNB) use cases on the Smart Chain

BNB was launched by Binance from June 26th to July 3rd, 2017. Now, as the native coin of Binance Chain, BNB has various use cases such as executing transactions on the Chain, paying for transaction charges on Binance Exchange, delivering in-store payments, proposing new trading pairs, voting on proposed pairs, and many more.

Since the Binance Smart Chain will use a Proof of Staked Authority (PoSA) consensus algorithm, the BNB token will be used for staking in the future. A test version of this is currently underway. No additional tokens will be created for the Binance Smart Chain. Instead, BNB currently used on Binance Chain will be used for both chains. This is expected to increase the demand of BNB tokens!

In addition to all of that, BNB is a deflationary coin. Every quarter, Binance burns a certain amount of BNB based on the trading volume of the exchange. Recently, Binance undertook its 12th token burn. This burn will continue happening until 50% of the original BNB supply (200 million BNB) is burned.

How can BNB move from Binance Smart Chain (BSC) to Binance Chain (BC)?

Binance has developed a local cross-chain transfer protocol (bridge) between Binance Chain and Binance Smart Chain. The bridge joins the two chains (BC and BSC). When a user deposits tokens into the bridge contract on BC, they receive the equivalent amount of tokens on BSC. The same can be done in reverse, i.e. sending tokens from BSC to SC. The following image displays how Binance token can move from BC to BSC and vice-versa.

Image Source: Binance

The two blockchains will work side by side to give different services. Cross-chain assignments will be possible. For example, Binance DEX will be operable for the exchange of assets on both chains. This dual-chain design could enable users to get the benefit of high-speed transactions on one side (BC) and create their decentralized apps on the other side (BSC).

Binance Smart Chain Integrations and Announcements

Ever since Binance Smart Chain was launched in April, the team has been consistently working on developing and integrating various projects. The following are some of its crucial integrations and announcements:

Rialto

In May 2020, the Binance Smart Chain team presented its first testnet, named Rialto. It highlights support for strengthening decentralized apps and the application of Proof of Staked Authority consensus, as well as the capacity to stake and select BNB for voting on Binance Smart Chain validators and to secure tokens over the two blockchains for transfer of tokens.

Chapel

Binance more recently released an update to the Binance Smart Chain testnet called Chapel that replaced the Rialto testnet. It introduced more reliable security and new characteristics to the Binance Smart Chain. The following image displays the already completed path:

Image Source: Binance

Chainlink (LINK)

Binance announced on July 23 that it has integrated the Chainlink decentralized data oracle for its Binance Smart Chain testnet. The integration of Chainlink will enable developers on Binance’s forthcoming smart contracts platform to obtain and use real-world data for their DApps, contracts, protocols, etc… This important alliance between the currently largest digital assets exchange Binance and the most widely used decentralized oracles project, Chainlink, will speed up the progress of blockchain based protocols.

Band Protocol (BAND)

According to the official announcement, the Binance Smart Chain has also partnered with Band Protocol. Band Protocol is another oracle, but with additional cross-chain capability that collects and combines real-world data and APIs and sends them to smart contracts. This will integrate Band Protocol’s decentralized and configurable oracles to Binance Smart Chain’s environment for scalable DeFi applications.

Swipe (SXP)

Swipe is a digital asset wallet. Swipe will soon be launching decentralized lending and borrowing applications called SwipeFi on the Binance smart chain platform. According to the official post, SwipeFi will allow users of Binance Chain tokens to earn interest on their assets after depositing them to the protocol, and borrow against their security on the Binance Blockchain. SwipeFi will be equivalent to what Aave does on Ethereum.

Ankr (ANKR)

Ankr will streamline the staking process by providing an easy to use UI as well as the needed cloud space to run a Binance node. To clarify, running a node doesn’t require Ankr, instead Ankr will make it easier to use.

Binance node on Ankr – Source: Binance

Kava (KAVA)

Despite no official announcements so far, the lending platform KAVA has been working closely with Binance. It wouldn’t be surprising to have them as Binance Smart Chain’s next announcement.

Can Binance Smart Chain Overtake Ethereum As The Main Smart Blockchain?

The release of Ethereum’s ETH 2.0 has been seeing delay after delay. In fact, ETH 2.0 will use sharding and Proof of Stake to scale the current blockchain. The recent DeFi craze has pushed the blockchain to the edge of its performance abilities, causing slower transactions, while causing Ethereum fees to skyrocket! The exorbitant fees have caused many DeFi protocols and users to struggle. Some of these projects have started to look at other blockchains to move to, such as Cardano or Polkadot! Others, such as Tether, have moved from the blockchain’s main layer to layer 2 solutions, such as OMG Network!

Many blockchains already outperform Ethereum technically. However, Ethereum still leverages its first mover advantage and network effects. What network effects means, is that Ethereum has the highest number of users. This causes DApp developer to launch their protocols on Ethereum, which in turn attracts more users, etc… So far, all of Ethereum’s competitors have struggled to onboard new users because of these effects, and Ethereum has remained the leader.

For Binance however, onboarding users shouldn’t be an issue. In 2019, Binance boasted over 15 million users in 180+ countries. Among them, these users average a daily trading volume of $2.85 Billion. If Binance Smart Chain comes out technologically superior, nothing should stand in its way to overtake Ethereum, especially if Ethereum fails to launch ETH 2.0 and resolve its now sky high transaction fees. Some projects such as Swipe have already decided to migrate to BSC once its mainnet is launched.

What’s next for Binance Smart Chain?

Binance team is preparing to launch more updated versions of the testnet next month. In this month, the Binance Smart Chain testnet will deploy the latest version called Millau. The mainnet launch is planned for 2020’s third quarter. According to Binance this will eventually give the possibility of building smart contracts for the current and expected tokens on the Binance Chain ecosystem.

Conclusion

Binance Smart Chain has the potential to further the adoption of blockchain and DeFi around the world. In addition to periodical BNB burns, which reduce the supply, the Binance Smart Chain will increase the demand for Binance’s native toke. The potential for the token price to multiply in value is huge. Integrating smart contracts into the crypto world’s leading exchange platform by trading volume is no small step for the nascent world of blockchain. Whether or not Binance succeeds in its endeavor, remains to be seen.

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