BSC has become one of the strongest competitors to Ethereum in 2021
Before diving into what Binance Smart Chain offers, it is essential to understand that it is different from Binance Chain. Binance Chain was launched in April 2019 with a primary focus on facilitating fast, decentralized trading. In doing so, it had to make some choices regarding operations.
Due to limitations from those choices, Binance Chain didn’t have much flexibility as it became apparent that trying to run smart contracts in that system optimized for fast trading would significantly congest the network.
Binance Chain needed to be evolved to handle the demand from users and that’s where the idea for Binance Smart Chain originated.
Binance Smart Chain was launched in September 2020 and cultivates an environment for developing high-performance decentralized applications (dapps). Moreover, It is built for cross-chain compatibility with Binance Chain to ensure smooth operations for the community.
Unlike Binance Chain, BSC boasts smart contract functionality and compatibility with the Ethereum Virtual Machine (EVM). Leaving the high throughput of the Binance Chain unaffected while introducing smart contracts into its ecosystem and encouraging the deployment of dapps.
Fundamentally, the blockchains operate side-by-side and It’s worth noting that BSC isn’t a layer two or off-chain scalability solution. It’s an independent blockchain that could run even if Binance Chain went offline.
Because BSC is EVM compatible, it launched with support for Ethereum tools and dapps. In theory, this makes it very easy for developers to port their projects over from Ethereum. For users, it means that applications like MetaMask can be easily configured to work with BSC.
How it works
Binance Smart Chain can achieve a 3 second block processing time by using something called Proof of Staked Authority (PoSA), where participants stake BNB to become validators. If they propose a valid block, they then receive fees from the transactions included in it. Importantly, there is no subsidy of newly minted BNB, as BNB is not inflationary and the supply decreases over time as Binance regularly conducts coin burns.
The idea of dual-chain architecture is that users can seamlessly transfer assets from one blockchain to another. In this way, rapid trading can be enjoyed on Binance Chain, while powerful decentralized apps can be built on BSC. The two products compliment each other.
BEP-2 and BEP-8 tokens from Binance Chain can be swapped for BEP-20 tokens, the new standard introduced for Binance Smart Chain. Without getting into too much detail, BEP-20 uses the same functions as its Ethereum ERC-20 counterpart. Furthermore, the Binance Chain Wallet allows the simple transfer of tokens from one chain to another.
BSC is built for DeFi
Tokens from several different chains can be used within the growing DeFi ecosystem on BSC. Applications like PancakeSwap allow users to trustlessly exchange assets in the same way as its Ethereum counterpart Uniswap, engage in yield farming, and vote on proposals. Similar projects include BurgerSwap and BakerySwap.
Since launch BSC has held a heavy lean toward DeFi applications, attempting to go head-to-head with the Ethereum ecosystem whilst offering users lower costs. A strategy that would appear to be working in Binance’s favour.
Recently several BSC dapps have shown immpressive growth. The biggest contributors in January 2021 were two DeFi dapps: PancakeSwap and Venus. These generated $1 billion and $14 billion respectively of the total transaction volume of $15 billion in January 2021.
Venus was responsible for the lion’s share of the trading volume in January and continues to show its move upwards in February 2021. With over $60 billion in transaction volume in the last 7-days, Venus is now the largest dapp in terms of transaction volumes, according to the DappRadar Rankings.
Comparing directly with Ethereum’s biggest DeFi applications, shows that in the last 7-days Venus has surpassed Uniswap’s transaction volume by a considerable margin. Interestingly another BSC DeFi application is sitting in second position. Autofarm has generated over $35 billion in transaction volume over the last 7-days driving them above established Ethereum dapps dYdX, Uniswap and Compound.
Binance Smart Chain Summary
Binance Smart Chain considerably extends the functionality of the original Binance Chain and bridges the gap between blockchains. Having launched in late 2020 DappRadar started tracking BSC dapps in December 2020 and has witnessed impressive growth since.
In typical Binance style, impressive growth is not being taken for granted and the fledgling blockchain is aggressively targeting strategic partners and incubating the development of new products. At the end of 2020, Binance announced a $10 million fund to support projects in the Polkadot ecosystem. The positive sentiment surrounding this announcement could also be seen in the value of DOT, the Polkadot token, which reached new heights of more than $22 in 2021.
Furthermore, Binance Labs announced $2.4 million funding for Plasm Network, which is a multi-virtual machine scalable smart contract platform on Polkadot. This funding will help the network to expedite research, expand the resources and increase development. But most of all this investment builds a bridge between the Binance and Polkadot communities.