For today’s post I am going to take a look at the Binance Smart Chain (BSC), a smart contract enabled blockchain that is modelled after Ethereum’s. It offers greater transaction throughput, and cheaper gas prices, but does sacrifice some things like decentralization.
For the usual disclosure, I am not a financial advisor, I don’t even work in finance at all. My day job is as a telecommunications software engineer. Treat everything you read here as some educational resources and not financial advice.
The Binance Smart Chain (BSC) is the second blockchain created by the crypto exchange Binance. They created their first one, simply called Binance Chain, to support greater throughput in a quick manner. After they launched, they quickly realized that not having support for smart contracts was holding them back They decided to launch another whole blockchain that supported them, as opposed to just upgrading the one they had.
Instead of building one from scratch, they decided they would fork Ethereum and use that as their starting point. From that based they optimized the way it worked with a focus on lower transaction fees, and greater throughput. They did however do this at the cost of centralizing the network and giving up some of the features that go along with that.
A lot of these changes came down to solving the scalability trilemma that puts forward that each blockchain has security, scalability and decentralization. In order to increase one of these factors, you generally have to make sacrifices to the others, which is why you see layer 2 solutions, sharding, and all sorts of other things all running and in the works for Ethereum, where Binance Smart Chain (BSC) decided to make some of the sacrifices.
One of the main differences was the move from Proof of Work (PoW) to a Proof of Staked Authority (PoSA) model. Proof of Staked Authority (PoSA) is essentially a Proof of Stake (PoS), but with far fewer nodes that are actually validating the transactions. On the Binance Smart Chain, there are 21 active validators which take turns generating the new blocks, and the validators are chosen once per day based on which 21 nodes have the largest amount of Binance Coin (BNB) staked on their node.
They also offer delegations with their node staking, so other users can stake their Binance Coin (BNB) on a node to help it be one of the active ones, for getting a piece of the transaction fees the node earns. There are also no block rewards, and the validators only earn rewards from the transaction fees.
Another major change that the Binance Smart Chain (BSC) made was they lowered the block speed to 3 seconds, and increased the gas limit per block to be 60,000,000 gas. This has made it so that the amount of transactions that can be processed through the blockchain to be quite high and allows for the transaction costs to remain low because the validators are still making good profits, despite not getting block rewards on top of them.
These kinds of block speeds would not be possible on a fully decentralized network such as Ethereum, simply because it would lead to a large excess of orphaned blocks, as it takes time to propagate blocks out globally across the network, so having a block speed that low is just not feasible.
Centralized Decentralized Finance (CeDeFi) is a term that was coined by the Binance CEO that basically just refers to the ecosystem of Decentralized Applications (DApps) being run on a centralized blockchain like the Binance Smart Chain (BSC).
As it is a fork of Ethereum, and supported the same smart contracts out of the box, it has not taken long for a lot of new projects that were forked from existing ones to be created, or even the developers themselves seeing the opportunity and making the crossover. Things like Pancakeswap being a fork of Uniswap for instance.
With the lower gas prices, it has also made these applications much more in the reach of the people who have less money to play with in the crypto game and don’t want to burn a lot on transaction costs. This includes myself, as I refuse to pay Ethereum gas prices.
This also make the Binance Smart Chain (BSC) a good place for a new team to try out their new applications, for far cheaper than they could launching their project on Ethereum. It’s always easier to get users to try your new platform or protocol when you can offer actual rewards, so you can only do so much testing on a testnet.
There are a lot of things to consider about the Binance Smart Chain (BSC). With the centralization of the network, it does have the drawbacks of loss of security and is less resilient to attack. There is also a very high barrier to entry when it comes to becoming a validator, as there are limited slots, and it takes a significant investment of Binance Coin (BNB) to become one of the 21 active validators.
The network also generates a very large amount of data on the blockchain, at a rate of about 500GB/year, so within a short timeframe, even just storing the entire blockchain ledger to become a validator will be outside what most people will have available to them, and will be more limited to commercial grade equipment.
There are also BEP-20 tokens on the Binance Smart Chain (BSC), which are just like ERC-20 tokens on Ethereum. Exactly like them actually, the smart contract interface is identical, and they are basically interchangeable. When you read the smart contracts for a lot of BEP-20 tokens, especially shitcoins, the developers have not even bothered to change ERC20 to BEP20 in the code.
I personally think the Binance Smart Chain (BSC) is a better option than Ethereum for people who are new to the Decentralized Finance (DeFi) or people who are playing with a smaller amount of capital for investing. You can invest smaller amounts and move money around to different opportunities, and not have the gas prices just eat into all of your profits.
It’s also a very good ecosystem for developers of new projects to get people to get involved, because the transaction costs mean that it’s worth it to throw a few dollars at a project, where on Ethereum, if you wanted to back a project with $5 just to see how it goes, you’d be looking at paying almost double by the time you factor in transaction costs.
I’m not overly concerned with the centralization of the network, it seems to be run by some very reliable validators at this time, but with all things in crypto, there are risks involved and it’s important to balance your risk and reward and Do You Own Research.
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Want some more content right now? Check out some of my previous posts:
Thorchain
Ethereum 2.0
Impermanent Loss
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Originally Posted On My Website: https://ninjawingnut.xyz/2021/07/13/bsc/
