Exploring the Binance Smart Chain Ecosystem

Binance Smart Chain (BSC) has become a hot topic of discussion recently given the +750% price increase in BNB in the first 50 days of this year. High gas prices on Ethereum have paralyzed most retail traders with smaller ticket sizes and caused newer and smaller traders to explore alternative smart contract blockchains for their trading needs.

BSC’s recent rise has also sparked discussion on how users weigh the tradeoffs between scalability, security and decentralization. BSC very plainly has targeted a niche audience - in replicating the Ethereum ecosystem but with lower fees. It doesn’t hide the fact that their headline products are forked from Ethereum, their block explorer has the same look and feel and the apps also use MetaMask. The breadth of conversation has many people wondering what to make of the situation and whether to take BSC seriously.

In this report, we take a look at what Binance Smart Chain is, why it has made sense for users and for Binance, the metrics to follow, key resources, and major projects to date.

What is Binance Smart Chain?

In April 2020, Binance announced BSC -- an Ethereum Virtual Machine (EVM) compatible blockchain, capable of processing smart contracts and applications. BSC complements a separate blockchain Binance Chain, which was launched in April 2019. While the Binance Chain achieved high throughput for efficient trading, it lacked support for smart contracts. With this in mind, BSC was developed to be compatible with Ethereum applications. Due to its ease of use, BSC has increasingly been a complementary choice for DeFi users and developers.

There have been many blockchains introduced in the past few years. Binance differentiates itself by having 15 million accounts as of 2019, the largest crypto user base in the world. The design itself isn’t novel. It’s a hybrid of delegated Proof of Stake and Proof of Authority (which it calls “Proof of Staked Authority”) where participants stake BNB to be nominated to become a validator. This is similar to EOS. However, unlike EOS, BSC is EVM-compatible which means it’s easier for developers to port projects from Ethereum to BSC. For users, the education process is also low as wallets like MetaMask can easily be configured for BSC.

BSC relies on BNB to govern the network. BNB has several uses such as trading discounts, access to Binance’s token offerings, and more recently, growing use cases for liquidity mining and yield farming on BSC. Given the multitude of use cases and a wide user base, BNB does not require an inflationary supply to incentivize network participation. On the contrary, BNB is fully premined and a portion is burned each quarter at Binance’s discretion.