What is Binance Smart Chain? BSC and BNB Coin Explained

What is Binance Smart Chain? BSC and BNB Coin Explained

What is Binance Smart Chain? BSC and BNB Coin Explained

The Binance Coin or BNB Coin is the native token of the massive Binance ecosystem, which comprises one of the largest—if not the largest—cryptocurrency exchange by market cap. In 2020, Binance exchange recorded a new high of $3 trillion USDT in total trading volumes.

Part of what makes the Binance ecosystem unique is its dual blockchain structure made up of the Binance Chain (BC) and the Binance Smart Chain (BSC). Both blockchains run in parallel to each other with each offering different features and functionalities.

In this article, we’ll take a look at the Binance ecosystem, its powerful dual-chain structure, the BNB coin as well as what’s next for this crypto juggernaut.

    The Binance Ecosystem

    Binance was launched in Jul 2017 by Chang Peng Zhao, otherwise known as CZ.
    CZ has a wealth of experience and previously served as the Chief Technology Officer of OKCoin. He also had a hand in developing the Tokyo Stock Exchange and the blockchain explorer Blockchain.info. He is now recognized as one of The Richest People in Cryptocurrency according to Forbes Magazine, with a net worth estimated at $1.1 billion as of Sep 2018.

    Under CZ, Binance has become a major crypto force with two blockchains (Binance Chain and BSC), two exchanges (Binance Centralized Exchange/CEX and Binance Decentralized Exchange/DEX) as well as a large suite of financial services including crypto loans, a crypto credit card, liquidity mining, fan token farming and more.

    Binance Chain

    Formerly built on the Ethereum blockchain, Binance decided to launch its own blockchain, the Binance Chain, with the goal of enabling blazing fast and permissionless trading.

    Built on forks of Tendermint and Cosmos SDK, the Binance Chain went live on 23 Apr 2019 and its native token BNB migrated away from the Ethereum blockchain. The Binance DEX is still Binance Chain’s largest DApp to date.

    While Binance Chain is built for speed and instant finality—and is thus perfect for permissionless trading—it lacks extra programmability and flexibility. In particular, it has no smart contract functionality and compatibility with Ethereum’s universe of tools and DApps.

    Thus, a proposal was made to launch a second chain with complementary features to bolster the entire Binance ecosystem.

    Binance Smart Chain (BSC)

    The DeFi movement had been gaining momentum and the innovators at Binance were not to be left out. Binance launched its Smart Chain (BSC) on 1 Sep 2020 with the goal of providing an alternative, user-friendly smart contract-enabled blockchain to help spawn new and innovative DeFi applications.

    BSC is touted (by Binance) as a superior alternative to Ethereum with the following features:

    - 3-second block time

    - Proof-of-Authority (PoA) consensus mechanism with 21 validators

    - Average transaction fee: 20 gwei

    A key feature of BSC is that it is Ethereum Virtual Machine (EVM) compatible. This means that DApps built for Ethereum are also supported on BSC, with the advantages of faster and cheaper transactions. For this reason, Binance has been able to successfully onboard many Ethereum-based DApps, including the popular IDEX exchange.

    It is not surprising that the top DApps on BSC are also DeFi protocols. Popular ones as ranked by DAppRadar include PancakeSwap, BakerySwap, Venus and JulSwap. There are currently some 47 active DApps on the platform, thanks also to a $100 million BSC Accelerator Fund.

    Recently on 26 Jan 2021, BSC registered a record high of 532,654 transactions, reaching almost 45% of the Ethereum network volume.

    Source: bscscan.com

    Binance Dual-Chain Structure (BSC)

    With this dual parallel-chain system users can take advantage of the fast transfers and trading of the Binance Chain, while harnessing the smart contract programming functionalities of BSC within the same user interface and tooling environment.

    Cross-chain compatibility also means that digital assets between both chains like BEP-2 and BEP-8 tokens from the Binance Chain are easily swapped with the BSC’s BEP-20 tokens in a trustless manner.

    Source: Binance Smart Chain Whitepaper

    As an extra robust feature, both blockchains also run independently of each other. So, if either blockchain should fail for a period of time, the other one will be still running.

    The BNB Coin

    Binance was funded with an initial coin offering (ICO) of the BNB coin, which raised $15 million from 26 Jun to 3 July 2017. While originally an ERC-20 token on the Ethereum blockchain, the BNB coin was swapped to the Binance Chain mainnet as BEP2 BNB on a 1:1 ratio in Apr 2019.

    The BNB coin serves multiple uses within the Binance ecosystem. Firstly, BNB is used to pay transaction fees on Binance Chain and Binance DEX. Traders who pay with the BNB token are able to enjoy discounts on their Binance transaction fees.

    Secondly, BNB is used as “gas” with developers paying the token to deploy Smart Contracts on the Binance Smart Chain.

    BNB is also used to power the staking and validating activities that maintain the Binance Smart Chain, with stakers receiving rewards. All Binance Smart Chain validators are rewarded with transaction gas fees in BNB.

    As of 2020, Binance users have been able to use BNB for mining rewards in new tokens that have been backed by Binance’s Launchpad, which supports and mentors blockchain startups. This reward system, along with other staking and lending utilities on the Binance CEX, have proven very popular.

    Finally, the BNB coin may also be used as a currency for owners to pay their bills, purchase smartphones, book flights and accommodation, or to donate to charity through a wide range of participating partners and merchants.

    BNB is a deflationary coin, because every quarter, Binance will use 20% of its total exchange profits to buy back and burn BNB coins until 50% of the total supply—or 100 million BNB—is depleted.

    The latest 14th BNB Burn in Q4 2020 saw a record-breaking 3,619,888 BNB worth $165,791,000 permanently removed from circulation.

    What’s Next

    Binance’s unique dual-chain structure is certainly an attractive feature offering flexibility to developers. But is it enough to compete with a developer community as large as that boasted by Ethereum?

    While the smart-contract enabled BSC sees itself as a bit of a competitor to the ecosystem’s largest blockchain, Ethereum still undoubtedly has the most powerful network effect. It remains to be seen whether perceived flaws such as high transaction fees will be the ultimate deal-breaker or not. In which case, the tide could turn in favor of the Binance dual-chain use case.

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

    Get insider crypto knowledge and product updates from the world’s leading crypto wallet
    Sign me up