Throughout this series of articles, we’re looking at the top blockchains in crypto to help you make sense of the alphabet soup of so-called “altcoins” that exists beyond that of Bitcoin’s BTC and Ethereum’s ETH.
We will look at what they are, how they work, what they do, and their pros and cons.
You’ll come out of this series not only with a better sense of what cryptocurrency is all about, but you’ll also understand why the way a token works — the way its blockchain processes transactions — is key to its success or failure as a digital asset.
See also: PYMNTS Blockchain Series: What is Polkadot? The most ambitious of the Ethereum Killers
PYMNTS Blockchain Series: What is Solana?
PYMNTS Blockchain Series: What is Cardano?
PYMNTS Blockchain Series: What is Avalanche?
PYMNTS Blockchain Series: What is Cosmos?
PYMNTS Blockchain Basics Series: What is Polygon? An Ethereum Killer Hedges Its Bets
First off, if you’ve never heard of BNB Chain, don’t worry. Until yesterday it was called Binance Smart Chain, and even then the decentralized finance (DeFi)-focused blockchain was a fairly new if increasingly popular alternative to Ethereum.
BNB Chain falls into the category of Ethereum killer in that it seeks to be a better smart-contract platform on which to build blockchain projects ranging from DeFi platforms like decentralized exchanges, or DEXs, like PancakeSwap (no, seriously) to play-to-earn games like CryptoBlades.
Read more: PYMNTS DeFi Series: What Is a Smart Contract?
That said, it is in many ways quite different than all of the blockchains listed above. For thing, projects like Polkadot, Solana and Cardano have been years in the making, have extensive community input in the development process alongside big-name developers and bigger goals, notably building a better blockchain that is faster, greener, more scalable and make it easier for individual DApps to work together, sending information and payments across different blockchains using different cryptocurrency tokens.
Binance Smart Chain, of BSC, not so much.
For one thing, while each was freestanding, BSC was part of a pair created by Binance, the world’s largest centralized cryptocurrency exchange.
It started with Binance Chain, on which their joint cryptocurrency, Binance Coin, or BNB, ran. Binance Chain’s real purpose, however, was not to play host to a cryptocurrency but to a decentralized exchange: Binance DEX, a decentralized version of Binance that made the company’s CEO, Changpeng “CZ” Zhao, a billionaire. Despite that, back in 2020, Zhao had become a big believer in decentralized finance, predicting that DeFi was the future of crypto trading — including Binance.
Binance Chain was successful, but was also fairly limited. Designed for quick crypto trading, it was developed in-house and launched comparatively quickly, but could not handle the more diverse and complex smart contracts a true Ethereum competitor could. Thus, BSC was born.
Becoming Smart
Launched in September 2020, BSC was far more robust, as well as being compatible with the Ethereum Virtual Machine. EVM is a virtual space on the Ethereum blockchain where smart contracts run, but — and this is vital — the EVM code is isolated, with no access to the network, file systems or anything else. It can spit out results but not be hacked.
Anything said to be “Ethereum compatible” or “Ethereum based” is EVM-based.
From BSC’s perspective — and really from almost every up-and-coming blockchain’s perspective — EVM is a must as it makes it simple for DApp developers to port projects over from Ethereum. In an industry desperately short of developers and engineers, not have to rebuild from scratch is a core feature.
It is not a sidechain or parallel chain of Binance Chain, however. Both are, as we said, standalone, but have bridges for cross-chain transactions and compatibility, and are designed to work together and complement each other. Tokens can be swapped back and forth seamlessly. So, DApp developers are able to take advantage of the strengths of both.
Binance Smart Chain has proven enormously successful, with BNB now the fourth-largest cryptocurrency, with a market capitalization of almost $71 billion — which represents its success in poaching old DApps’s developers and wooing new ones.
This was helped along substantially by Binance’s enormous size, very strong reputation in the crypto community and very deep pockets — a $100 million development fund to support DeFi projects was created. Frankly, much the same can be said for Zhao, who is one of the most respected and — with 5.2 million Twitter followers at @cz_binance — most listened to figures in the crypto industry.
Beyond Binance
So if BSC and Binance Chain ain’t broke, why fix them into the new BNB Chain?
For one thing, it’s a step in making the blockchain more decentralized. For another, it’s a branding — or perhaps unbranding — move.
The two-chain ecosystem is “evolving” the company said in its Feb. 15 announcement, growing “beyond Binance.”
The BNB token — renamed “Build and Build” from “Binance Coin” — “has its own living, breathing ecosystem, together with BSC,” the announcement said. “That’s why it’s necessary to set it free” so that it can reach its full potential.
Marketing language aside, it makes sense. It’s hard for a centralized blockchain to be a convincing platform for decentralized finance.
BNB has two purposes on the new BNB Chain, used for transactions fees (called “gas” on Ethereum) and as a governance token. It is also very much an investment, with Binance regularly burning tokens to decrease the supply and increase its value.
Dual-Chain Structure Remains
BNB Chain has two components: BNB Beacon Chain (aka Binance Chain) and BNB Smart Chain (formerly BSC). More practically, the new structure is better able to handle large-scale applications, like decentralized games, social media and metaverse platforms.
Scaling has been bumped up, on-chain (meaning decentralized) governance has been introduced, and the number of validators doubled.
Read also: PYMNTS DeFi Series: What is Staking?
Sticking with that last part, BNB Chain uses staking rather than environmentally destructive mining like Bitcoin and the current Ethereum. That said, it is not a “pure” proof-of-stake, or PoS, consensus mechanism.
See: PYMNTS Crypto Basics Series: What’s a Consensus Mechanism and Why Is It Destroying the Planet?
BNB Chain, like its predecessors, uses a PoS variant called Proof-of-Staked-Authority, or PoSA.
While PoS relies on the validators who replace Bitcoin miners in earning rewards for validating transactions and writing new blocks onto the blockchain. It seeks to keep them honest by slashing their stake — essentially a bond for good behavior. One problem with this is that the necessary stake to become a validator might be a big chunk of one person’s wealth, but an insignificant fraction of another’s fortune.
PoSA essentially adds know your customer (KYC) to this process by mandating that all stakers are identified publicly — something far less common than you might think in a multi-trillion-dollar industry.
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