What exactly is Binance Smart Chain?

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Binance Smart Chain, a companion to the existing Binance Chain that supports smart contracts and Ethereum compatibility, is the world’s most popular centralised crypto exchange’s expansion into DeFi. Will it be widely used by dapp developers?

Binance Chain, launched in 2019, is a blockchain network developed by the prominent centralised cryptocurrency exchange to serve Binance DEX, a decentralised exchange that allows users to trade directly with one another. It also powers Binance Coin (BNB), which began on Ethereum but was transformed through a token swap.

Binance Chain was built swiftly and geared for speedy trading, but it lacked the vast capabilities required to allow a broader range of decentralised apps (dapps).

That is where the new Binance Smart Chain enters the picture. It is, as the name implies, a more advanced blockchain than the original, although it is a parallel platform rather than a successor.

What is Binance Smart Chain?

Binance Smart Chain, which will be available in September 2020, is a blockchain service that allows developers to create their own decentralised apps using smart contracts. The old Binance Chain was not meant to offer such functionality, but the Binance Smart Chain has been created to deliver the same type of fast transactions while also vastly expanding the existing features and capabilities. It is also compatible with the Ethereum Virtual Machine (EVM), which means it can run dapps that have been migrated over from Ethereum.

However, Binance Smart Chain isn’t a rebranded version of the original Binance Chain, nor is it a layer-two or sidechain platform meant solely to expand upon the original Binance Chain. It’s a completely separate, standalone blockchain that can continue on even should the Binance Chain go offline, but the two blockchains are ultimately designed to work in parallel.

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How does Binance Smart Chain work?

Binance Smart Chain employs a Proof-of-Staked Authority (PoSA) consensus process, which is a mix of the proof-of-stake and proof-of-authority models. Validators on the network are those who have staked a particular amount of BNB and receive transaction fees when approved blocks are validated on the network.

Binance Chain and Binance Smart Chain, as previously stated, are designed to work in tandem, and Binance has built in easy cross-chain compatibility between both. Assets can be instantly transferred between blockchains, combining the former’s quick trade capabilities with the latter’s smart contract features. Binance Chain’s BEP-2 and BEP-8 tokens can likewise be swapped for the Smart Chain’s BEP-20 tokens.

Furthermore, Ethereum Virtual Machine compatibility means that developers of dapps on other blockchains can easily move them over to Binance Smart Chain. This may be especially appealing to dapp operators as Ethereum grows and gas fees rise, however Ethereum 2.0’s planned move to a proof-of-stake paradigm may alleviate some of its present scaling difficulties.

What’s so special about Binance Smart Chain?

The cross-chain compatibility between Binance Chain and Binance Smart Chain offers an intriguing tandem of possibilities to developers, letting them harness the respective strengths of both blockchains to maximize the functionality and performance of their dapps.

Additionally, EVM compatibility means that dapps can be brought over from Ethereum and then potentially enhanced and expanded on the Binance Smart Chain. There are a lot of up-and-coming blockchains that aim to steal some of the thunder from Ethereum thanks to EVM support, including Avalanche and Telos, and Binance is adding its name to that list with Smart Chain.

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Binance has the advantage of immense name recognition in the space, not to mention considerable funding and liquidity given its flourishing exchange and ecosystem.

What can you do with Binance Smart Chain?

Binance Smart Chain is really targeted at developers of decentralized apps, whether they are looking for a platform to build a new app on or want to port over a project from Ethereum. Between the dual-chain system, EVM support, and Binance’s own backing, the firm hopes to draw developers into its ecosystem, creating value for all stakeholders.

As Binance founder Changpeng “CZ” Zhao explained to Decrypt in October 2020, the company sees Binance Smart Chain as a way to bridge the gap between centralized and decentralized finance. Binance has established a $100 million fund to support decentralized finance (DeFi) projects that launch on the blockchain, including up to $100,000 for certain individual projects.

Did you know?

In Chinese, Binance’s name is 币安, in which 币 means “crypto” and 安 means “safety.”

The future

It’s early days for Binance Smart Chain, which was just launched at the start of September 2020 after the concept was unveiled earlier in the year. Even so, Binance is putting a big push behind the platform thanks to its $100 million support fund for DeFi apps and emphasizing the benefits of the dual-chain approach.

Interestingly, the launch of Binance Smart Chain and strong attempts to court DeFi developers go against Binance’s core business of being a centralized exchange. According to the company, it is continually trying to “disrupt” itself.

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“For some people, the emergence of DeFi represents a shift away from centralized blockchain platforms,” reads a blog post about the launch of Binance Smart Chain. “This could be interpreted as a threat to services such as Binance. We beg to disagree. For us, DeFi is an opportunity to offer better solutions to the blockchain world.”

We’ll see whether the blockchain world agrees and turns Binance Smart Chain into a leading blockchain platform for decentralized apps in the years ahead.

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