Exploring the All-New Binance Smart Chain Ecosystem

10 min readDec 20, 2021

After launching the mainnet community in April 2019, Binance announced a parallel blockchain project known as the Binance Smart Chain, which went live in September 2020. This debut announcement would allow Binance users to deploy smart contract decentralized apps for DeFi protocols easily.

This article will explore the many innovative solutions Binance Smart Chain offers to the world of crypto and the DeFi market. We will also dive into how BCS protocols work, and what it means for users.

What is Binance Smart Chain?

Binance Smart Chain (BSC) is the new blockchain that operates side-by-side or parallel with the existing Binance Chain ecosystem. It offers EVM-compatible programmability and cross-chain connection for seamless communication with the Binance Chain, using Proof-of-Staked-Authorities (PoSA) consensus.

In essence, BSC is the necessary upgrade to the current Binance Chain with the capacity to retain and improve the high performance of the native Binance DEX blockchain, bringing decentralized finance services and applications to the ecosystem.

The design principle will enable the creation of highly friendly smart contracts and a staking-based mechanism to facilitate fast exchange speeds for users.

According to Binance CEO Changpeng Zhao, “Binance Smart Chain retains the former’s (i.e., Binance Chain’s) fast execution times and low transaction fees while adding Smart Contracts functionality to support compatible dApps.”

A quick look at some of the benefits of Binance Smart Chain

Offers cheap transaction fees that come for as low as 1 cent
A rich and growing number of leading digital assets that have their own blockchains pegged on Binance DEX, the world’s leading decentralized exchange.
High-performance consensus mechanism that can produce a block every 3 seconds
An increasing ecosystem of users growing into millions across Binance DEX and Binance.com platforms.
Cross-chain compatible infrastructures that can increase DeFi interoperability and flexibility.
Supportive Binance ecosystem that provides adequate seed funds and bootstraps to many innovative DeFi projects.
A network of vibrant and steadily growing ecosystem of major crypto projects already supporting the growth of BSC

Binance Chain vs. Binance Smart Chain — similarities and differences in functionality

Rewind to 2019 when the Binance Chain ecosystem was launched. At that time, the aim was to facilitate a fast and decentralized trading experience for users; while still allowing them to have their digital assets in their own custody. Along the line, the Binance DEX had demonstrated its low-latency matching by handling large capacity (up to millions) of trading volume within the shortest time frame.

However, users’ most requested feature for Smart Contract and Virtual Machine functionality limits the ability to add new decentralized features for their assets.

In contrast to Binance Chain, the Smart Chain brings smart contract functionality to the system and is compatible with the Ethereum Virtual Machine (EVM) protocol. Hence, this new consensus protocol will retain high throughput performance and can still allow developers to run applications on the blockchain with more freedom and flexibility at a very low cost.

So, basically, both blockchains will run side-by-side, building a layer two or off-chain blockchain system. It should also be noted that the Smart Chain operates as an independent entity and can function even if the Binance Chain ecosystem goes offline.

This makes it possible for the smart chain platform to support flexible smart contract functionality and Ethereum Virtual Machine (EVM) compatibility.

The Binance Smart Chain / Binance Chain Token Economy

According to the smart chain whitepaper, both blockchain networks would share the same token universe for BNB and BEP2 tokens. This means that:

1. The cross-chain-powered mechanism makes it possible for the same token to move and circulate on both networks and can also flow between them bi-directionally.

2. Total tokens in circulation can be managed across the two networks. It means that the total adequate supply of a token should be the sum of the token’s total adequate supply on both BSC and BC.

3. ERC20 tokens can be initially created on the smart chain, similar to how BEP2 tokens can be made on BC and built on the other. It’s also possible to natively link the two networks and secure the total supply of tokens on both networks.

How Binance Smart Chain Works Plus What It Has to Offer

Binance Smart Chain’s design principle brings freedom and flexibility to developers and much more. To achieve this, the network depends on a system of 21 validators with Proof of Staked Authority (PoSA) consensus, proficient enough to support short block time and lesser transaction fees.

The most bonded candidates on the staking mechanism become validators and will produce blocks. The double-sign ability to detect blocks and other slashing logic ensures security, solidity, and chain finality.

To better understand how BSC works, the elements of its architectural design and consensus should be considered. What does it mean for developers to build on Binance Chain? What’s there for the users?

Proof-of-Staked Algorithm (PoSA)

What is Proof-of-Staked Algorithm (PoSA)? It is a combination of Proof of Authority (PoA) and Proof of Stake (PoS). As a separate entity, they each function as a type of blockchain consensus mechanism.

Combined, they aid efficiency, validation, staking reputation, and high governance performance within the system. Blocks are produced by a few sets of validators that are elected in and out, steered by staking-based governance.

This allows users to stake their BNB assets to become validators. Validators are similar to those we refer to as ‘miners’ for Bitcoin or Ethereum blockchain. They are a group of IT participants who help verify/validate all Binance DEX transactions.

Validators are rewarded with BNB tokens for their input to maintain the network. In addition, the blockchain is designed with the capability of producing new blocks every three seconds.

Cross-Chain Compatibility

Although the Binance Smart Chain runs parallel as a complementary system to Binance Chain, it operates independently of Binance Chain. This dual-chain architectural design allows for cross-chain communication, allowing participants to move their assets seamlessly across the two blockchains.

So, basically, Binance smart chain brings programmability and interoperability that allows for a powerful trading experience.

The protocol allows for system compliance with the BEP-2 token standard for issuance and implementation on Binance Chain. This would be similar to the ERC-20 token standard for issuing tokens on the Ethereum blockchain. BEP2 tokens and BEP-8 tokens can be swapped for BEP-20 tokens, and vice versa.

The Perfect Companion for Ethereum Virtual Machine (EVM)

Ethereum Virtual Machine or EVM exists as one entity maintained by thousands of connected computers running an Ethereum client. On it, all Ethereum accounts are created and executed. Basically, EVM defines the rules for computing a new valid state from one block to another.

That Binance Smart Chain is EVM-compatible makes it super easy for developers to move their projects from Ethereum onto the smart chain system. For example, users can easily configure the MetaMask application to work with BSC.

In addition to that, It becomes possible for most dApps, ecosystem components, and toolings to be integrated into BSC with minimum or zero changes.

BSC nodes will require similar (or a little higher) hardware specifications and skills to run and operate complementarity with EVM. The implementation should accommodate BSC to make up for additional Ethereum upgrades in the future.

BSC Staking Mechanism for BNB

BSC birthed an all-new staking mechanism for Binance native token, BNB. The staking-based consensus provides a more environmentally friendly platform, allowing for more flexible options for community governance. It is expected that this consensus would enable better network performance over full proof-of-work, i.e., faster blocking time and higher transaction capacity.

Therefore, using the proof-of-staked-authority consensus mechanism, validators can earn BNB rewards for helping to maintain the network.

What Binance Smart Chain Means for DeFi

The Binance community launched BSC right on time to accommodate the growing demand for reliable data oracles in the DeFi market. Binance CEO Changpeng Zhao (CZ) announced that:

“Binance Smart Chain makes it possible for developers around the world to build DeFi services and many more dApps within the Binance Chain ecosystem while delivering various benefits such as an all-new method for staking BNB, high performance, lower fees, direct connection with fast DEX, and more.”

This means that DeFi projects and bigger blockchain communities such as solidity developers can leverage on the new Chain to build formidable smart contract-supported, cross-chain, and interoperable projects.

Other benefits of the smart chain on DeFi projects include:

Cheaper transaction fees “as low as 1 cent” and a 3-second block time
A Delegated Proof-of-Stake variant called Proof-of-Staked-Authority (PoSA)

In the future, Binance Smart Chain looks to present a new initiative called the Project Token Canal” that will support more crypto assets.

In September 2020, Binance tweeted on its official Twitter account that the “ ‘Token Canal’ will allow everyone to easily transfer tokens from various chains to Binance Smart Chain (and vice versa).” CZ also stated that “with the token canal project, you can provide DeFi, staking, and yield farming abilities to tokens on Binance Smart Chain.”

DeFi Projects on BSC

The Binance community welcomes all dApp developers and DeFi projects to try on its new Smart Chain ecosystem. Presently, there are more than 40 dApps, infrastructure, and tools running on the BSC ecosystem.

At the World of DeFi summit, Binance announced its readiness to support DeFi Projects with a $100 million seed fund. One of Binance’s goals for earmarking this fund is to foster the innovation of bridging the world of DeFi and CeFi.

Since the announcement was made, several DeFi projects, developers, and builders are already working with the Binance Chain community to help make it a robust blockchain platform. The pioneer set of Defi projects to benefit from the grants include;

1. AnySwap

2. Arkane Network

3. BakerySwap

4. Bitquery

5. PancakeSwap and

6. Proxima

For the next project, the BSC community announced on November 3, the second round of a $100 million accelerator fund introducing five new projects, which include; Bounce, DeFiStation, Gitcoin, Justliquidity, and PARSIQ.

According to the latest update of November 20, two more projects are added to the list of supported projects for the accelerator fund. They are; Encode and OpenGSN. . As of today, a total of 13 innovative projects supported by Binance’s $1 million support fund.

BSC aims to welcome more innovative projects to join the pool and is looking for dApps from various categories, including derivatives, aggregators, synthetix, prediction marketing, and more. DeFi projects and dApps can apply and join the Binance Smart Chain Accelerator Fund for the next round of investment projects.

Protecting DeFi projects against security vulnerabilities

Building DeFi protocols can attract some level of vulnerability challenges such as account security and a lack of regulation. To enhance the ecosystem’s security and grow Smart Chain’s dApps, the Binance community partnered with Band Protocol, integrating its data oracle.

Patching security vulnerabilities is just a slice of the cake. Band protocol features other major benefits for developers and enterprises, which include:

Low-cost real-time data: This means developers can receive real-time updates almost immediately after submitting oracle queries, reducing the error margin along the line.
Improved scalability and efficiency: This high-performance blockchain prevents applications from consuming delayed data that could occur due to blockchain congestion. An example is the delayed Ethereum-based oracle feeds that took almost 6 hours in March 2020.
High-Quality Data with End-to-End Customizability: Band Protocol’s design makes it possible to connect to open, high-quality and credentialed APIs to extract real-world information from reputable data aggregators for any form of data.
A Fully Decentralized Oracle Mechanism that consists of over 59 validator nodes working on the BandChain decentralized oracle network.

Issues and Criticism Surrounding the Smart Chain network

The BSC whitepaper published in April 2020 has received mixed reactions from many cryptocurrency analysts. Many have criticized that the new addition is mere recycling of the existing project without offering anything new to the blockchain ecosystem.

Dr. Craig Wright, a computer scientist and a man who claimed to be part of those who created bitcoin, during an interview with Coingeek, critiqued that the new Binance Smart Chain is in no way decentralized and a “merely puffery designed to mislead regulators.” He also called out the idea of BSC’s whitepaper lacking technical solutions, but “it’s about pumping price.”

Elsewhere, crypto data aggregator, Messari, posted its view on the official Twitter handle. It says: “Make no mistake; BSC is a clear competitor to Ethereum and, like EOS, one with seemingly endless financial support,” adding that “in the near term, BSC is a more credible threat to other emerging ETH Killers.”

Speaking to Cointelegraph, Jim Blasko, a blockchain developer, criticized BSC’s DPoS algorithm system stating that it’s merely a means of eliminating traditional mining. He said: “Proof-of-stake is really just meant to eliminate traditional mining, which I still believe is crucial to a fully operational blockchain, albeit public or private, decentralized or centralized, and or even permissioned.”

Let’s wrap it up…

Overall, the all-new Binance Smart Chain ecosystem aims to significantly improve the existing Binance chain’s system functionality, offering extensive state-of-the-art security and flexible protocols.

With its smart contract functionality, EVM-compatibility model, faster and high-performance speed, and cheaper transaction fee, Binance Smart Chain gives power back to developers and enterprises to run applications on the blockchain with more freedom and flexibility.

Additional References