If you’re into cryptocurrency, then you must have heard about Binance, the most popular crypto platform in the whole world. However, to this day, the Binance ecosystem has become much more than that. What started as a small cryptocurrency exchange has slowly developed into a global network with its own blockchain, native cryptocurrency, protocols, and applications.
Table of Contents
First Steps: Binance and Binance Chain
In 2017, Changpeng Zhao (a.k.a. CZ) founded Binance, an exchange platform where you could buy, sell and swap cryptocurrency. It even featured its own native utility token, BNB. Due to the hard work put into the project, the innovative products and the diversification of investing instruments, it grew popular to become the most used exchange in the world within only a couple of years.
Driven by this rapid growth and by CZ’s ambition, Binance decided to leave the Ethereum blockchain in which it ran to create a blockchain of its own, the Binance Chain. BNB too migrated to become the “fuel” token of the brand new network, much like ETH in Ethereum.
The vision behind Binance Chain was to provide a fast, on-the-spot platform to trade digital assets, where Binance’s latest project, the Binance DEX (or decentralized exchange), would run. Nonetheless, it still had a crucial disadvantage against Ethereum: Programmability. Binance Chain wasn’t flexible at all, and it didn’t support smart contracts. In other words: Ethereum was much friendlier for developers to build on it than its new competitor. As blockchain technology, smart contracts and decentralized finance became more popular, new applications and protocols flourished on Ethereum, driving more usage and popularity.
Binance Smart Chain: A programmable sibling for Binance Chain
Aiming to solve the programmability difficulties that put it in the shadow of Ethereum, but without compromising the network’s small fees and high-sped, Binance launched Binance Smart Chain (BSC) in September 2020, a year and a half after Binance Chain went live. This new Ethereum Virtual Machine (EVM) compatible blockchain was designed to run parallelly to its sibling to add smart contract functionality to the network. Both blockchains are separate and independent, even though they both work side by side. Furthermore, its compatibility with EVM makes it a lot easier for developers to migrate their projects from Ethereum, enabling BSC to put up a much arduous fight against its main rival.
To be extremely clear, being compatible with Ethereum Virtual Machine, you can, for example, configure an Ethereum-built application like Metamask to function on Binance Smart Chain.
Now, you might be wondering how does a dual-chain system work. As we said, Binance Chain and Binance Smart Chain are built similarly and work in parallel but are two different blockchains entirely. Using an application called Binance Bridge, you can convert your coins from Binance Chain’s BEP2 standard to BSC’s BEP20 (which work similarly to wrapped tokens). This way, it allows them to easily send and receive assets from one chain to the other. That way, you can take advantage of Binance Chain speed and low fees while accessing the decentralized applications built on BSC. Interoperability is the keyword here, as it opens the door to a great variety of possibilities.
BNB, the blockchain’s native crypto
Like ETH in the Ethereum network, BNB is the cryptocurrency that powers the BSC. Validators can stake BNB to become validators and provide confirmations to the blockchain, earning transaction fees also paid in that coin.
However, as we said, BNB was launched as the utility token of Binance Exchange, and it still keeps all its original functionality. By holding BNB on Binance, you can enjoy significant discounts in exchanging fees and invest in several platforms like Launchpools or BNB Vault. It can also be used as collateral to take out loans.
But that’s not all. Thanks to a series of partnerships between Binance and different businesses and organizations, you can use BNB to buy products from select merchants, donate to charity via Binance or even pay for travel tickets and hotel reservations online.
You can track BNB’s price movements, trading volume and market cap in The Crypto App. Download it here.
Additionally, Binance has stated in its white paper that 20% of the profit it makes goes to buying back BNB to burn them, forever erasing them from cyberspace. With this, they aim to both raise demand and reduce supply, making the token scarce and progressively appreciating it. Burns will continue until they reach 100 million BNB burned, 50% of its total supply.
Binance Smart Chain Limitations
We’ve covered most of the BSC features. We’ve made clear that it provides a faster and more accessible alternative to Ethereum, and we’ve argued for its native cryptocurrency utility and value. Now it’s time to address the weaknesses that, of course, are there.
First of all, many have raised their voice to express perhaps the most worrying of BSC’s disadvantages. We’re talking about centralization. Although they claim to be a decentralized network, Binance controls most of the supply of BNB. Ask yourself: What would happen if Binance were to close down? Assuming that the blockchain would keep running without them, which is already pretty optimistic, there would be no one to buy back BNB, breaking the burning pattern and bringing down its price. Of course, there is no reason to believe that could happen since Binance has done nothing but grow since its foundation, but that doesn’t mean the risk isn’t there.
Another disadvantage is that BSC is still behind Ethereum. Even with its high costs and reduced speed, Ethereum is still the most popular choice by developers for new projects. For example, if you wanted to deposit funds in Celsius Network to earn interest on them, you couldn’t do it with BSC since it only supports Ethereum. It could be because of confidence, or maybe because it was there before everybody else. Whatever the reason, the Ethereum ecosystem is much more diverse and vast, and although the gap has shortened lately, BSC has a lot of ground to cover to catch up with the competition.
Although coming up strong as a pragmatic alternative, BSC still has a long way to go. It’s had a good start, that’s for sure. And it’s got CZ, a brilliant mind of great ambition driving it onward. Time will tell if it can take the crown and replace Ethereum as the go-to platform for DeFi applications.