Within the last 5 years of my crypto-journey I have been using passive income tools built on at least 6 different blockchains. Today I wanted to write about one of these chains – Binance Smart Chain. For more context it only makes sense to write about BSC in comparison to Ethereum, after all it is basically just a copy of Vitalik’s blockchain.
Binance Smart Chain (BSC) has grown exponentially (together with the value of Binance Coin) since its launch in September 2020. While for many it has been an amazing source of income and the only alternative to Ethereum’s overpriced fees, others still consider it just an unworthy copy of the Ethereum blockchain.
I have been using ethereum based apps a lot before the emergence of BSC, and I know both of these chains pretty well. Even though BSC is a simple copy of Ethereum blockchain, the differences between them are pretty big.
Binance Smart Chain was created when CZ (Changpeng Zhao – the Founder of Binance) realized how big decentralized finance would once be. CZ did not try to reinvent the wheel while building his blockchain. Instead, he copied Ethereum, only changing a few of the parameters. The creation of BSC added fuel to the Binance Coin rocket, launching its price from around $40 in January 2021 to a whooping all time high of $675 in May. BNB gained a very important use case, as it was needed to perform operations on BSC.
These operations were not only way cheaper but also sometimes 100x faster than the ones done on the Ethereum network.
So how was this even possible?
When Binance programmers copied Ethereum’s code to create BSC a few things have been changed:
- Block creation time: in the Ethereum network new block is mined every 13 seconds while Binance Smart Chain produces new block every 3 seconds (over 4 times faster)
- Space in each block: we can measure how many transactions can fit in one block by its gas limit. In the case of Ethereum the gas limit for each block is 12.5M, and BSC allows for a 2.5 times higher gas limit.
- Consensus mechanism: Ethereum is still using Proof-of-Work (until the launch of ETH 2.0) while BSC is based on the Proof-of-Staked-Authority consensus model.
- Number of nodes: Ethereum has thousands of nodes securing the network and BSC only has 21 validators
As you can see BSC can support around 12 times more transactions than the Ethereum network, but in order to do that it had to sacrifice decentralisation and security. We cannot really call their financial stack decentralised finance when there are only 21 validators in the whole network, can we? Even CZ himself describes it as ‘CeDeFi’ or Centralized DeFi.
However we call it, there is no doubt that BSC introduced many new possibilities for retail investors who couldn’t afford using Ethereum smart contracts. For most users the issue of centralization is just not that important when they can save (and make) massive amounts of money.
Who wouldn’t want cheaper and faster transactions, right?
A lot of protocols followed their customers and swiftly implemented BSC-compatible versions of their platforms. On June 7th 2021 BSC recorded an impressive number of 2,105,367 active addresses. This is over 2.5 times more than Ethereum’s all-time high from May 9, 2021. This difference is huge, especially when we compare the time needed to get to these numbers. BSC is not even one year old, while Ethereum just had its 6 birthday a week ago.
Binance Smart Chain had an amazing start but this doesn’t guarantee a long term success. It will take a lot for BSC to stay relevant as Ethereum upgrades to a more efficient version and new strong players (like Polkadot) enter the ecosystem. Even if we say we’re in crypto for technology, it’s the money that at the end counts for us investors. As long as we can get appropriate returns and mitigate risk while interacting with BSC-based dApps we will continue to use CZ’s chain. Our crazy crypto market doesn’t take prisoners though, as there is always something ‘new and better’ just behind the corner. Binance has been lately facing a lot of headwinds and had to stop their operations in many countries. It will be interesting to see how this giant reinvents itself in face of all the regulatory issues and how this will, in turn, affect the whole BSC ecosystem.
As an investor, you have to make sure that you are aware of all the risks that come from using cryptocurrencies and blockchain based tools. Please remember that using dApps, especially DeFi protocols, carries a lot of risk. Make sure to do your research beforehand, there are just so many things that can go wrong.
To stay on top of the market, always educate yourself, as knowledge is everything in this game.
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10.08.2021, Written by Piotr Borowiec