Binance Smart Chain and its key features

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21 Aug 2023

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Binance Smart Chain was launched in September 2020 as a means of implementing smart contract functionality into the Binance ecosystem. It aims to combine the high transaction capacity of the Binance Chain with the Ethereum Virtual Machine (EVM) that enables smart contract functionality.

BSC runs in parallel with the Binance Chain, acting as a sidechain that is anchored to the Binance Chain. This allows it to retain the high transaction capacity and cheap transaction fees of the Binance Chain while also enabling more complex functionality like smart contracts.

Some key facts about BSC:

Runs in parallel with Binance Chain as a sidechain
Implements the Ethereum Virtual Machine and is EVM-compatible
Supports smart contracts and dApps
Uses a Proof of Staked Authority consensus model
Has a block time of 3 seconds with lower transaction fees than Ethereum
Compatible with Ethereum tools like MetaMask and supports assets like ERC-20 tokens

By building on Ethereum’s EVM, BSC is able to leverage the existing developer tools and infrastructure built on Ethereum. This makes it easy for developers to port their dApps and smart contracts over to BSC.

Key Components of Binance Smart Chain

There are a few key components that make up the architecture of BSC:

Validators: BSC utilizes a Proof of Staked Authority consensus model where 21 validators are responsible for securing the network by validating transactions and proposing blocks. These validators must stake BNB in order to be selected.
Staking: BNB holders can stake their tokens on validators to earn staking rewards. This encourages more users to participate in securing the network.
Dual Chain Architecture: The dual chain structure allows BSC to run in parallel with the Binance Chain while remaining interconnected. This provides the best of both chains - fast transactions on Binance Chain and smart contracts on BSC.
Relayers: Relayers facilitate communication between BSC and the Binance Chain. They enable assets like BNB to be transferred between the two chains.
Oracle: Oracles provide external data to smart contracts on BSC from sources outside the network. Band Protocol is used as the oracle provider.
Proof of Staked Authority: BSC uses a Proof of Staked Authority model where validators stake BNB and are rewarded for honestly validating transactions. This provides fast block times and security.

Key Features of Binance Smart Chain

Here are some of the standout features that Binance Smart Chain offers:

High Throughput

BSC is built to provide very high transaction capacity and throughput. It achieves this by using a consensus protocol with a 3 second block time, which is far faster than Ethereum's ~15 second time. The short block time allows for more transactions per second to be processed.

Currently, BSC is able to achieve an average of 5-10 transactions per second, which is considerably higher than Ethereum. This makes BSC well-suited for dApps that require fast and frequent transactions.

Low Transaction Fees

Thanks to the high throughput, BSC has very low transaction costs in the range of just a few cents per transaction. This is nearly 100 times cheaper than transacting on Ethereum where fees can be $10+ during peak usage.

Apps that require many transactions like decentralized exchanges and gaming dApps can benefit from the low fees on BSC. This grants users seamless interactions without high gas costs.

EVM-Compatible

BSC is fully compatible with the Ethereum Virtual Machine (EVM), which serves as the runtime environment for smart contracts in Ethereum. This means that BSC supports the same bytecode format as Ethereum and the same instruction set.

This EVM-compatibility makes it extremely easy to port over existing Ethereum dApps and tools to work seamlessly on BSC. All Solidity smart contracts just work out of the box. For developers, this significantly reduces friction to migrate to BSC.

It also unlocks the ability to use all the existing developer tools built around Ethereum like Truffle, Web3.js, MetaMask, etc.

Support for Staking & Governance

As a Proof of Staked Authority chain, BSC employs a built-in staking mechanism that allows BNB holders to earn rewards by staking their tokens to validators. Users can delegate their tokens to validators to earn a portion of the transaction fees and block rewards.
There are also plans to enable on-chain governance down the line, allowing BNB stakers to vote on protocol changes. This will make BSC fully community-driven in a decentralized manner.

Interoperability

A key advantage of BSC is its interoperability with the Binance Chain. The dual chain architecture enables seamless communication and transfer of assets between the two chains via relayer nodes.

For example, this allows BNB tokens to be transferred from the Binance Chain to BSC to be used for staking, voting, and paying gas fees. Having interoperability unlocks greater utility for BNB throughout the Binance ecosystem.

There are also cross-chain protocols being developed on BSC like Polygon that will offer interoperability with more networks. This will allow the transfer of arbitrary data and assets between BSC and other chains.

Rapid Sync Mode

BSC also provides a rapid sync mode that allows for extremely fast synchronization times. This enables light client implementations that can sync with the BSC network in just seconds or minutes, compared to hours on Ethereum.

The rapid sync makes integrations with BSC very smooth and instant. Apps can easily build light clients like browser extensions or mobile wallets to tap into BSC without lengthy wait times.

Native Token (BNB)

As the native token of both BSC and Binance Chain, BNB powers the ecosystem. It has multiple use cases:

Paying for transaction fees and gas costs
Staking to validators to earn staking rewards
Voting in governance proposals
Payment currency accepted by merchants and services

These built-in utility mechanisms make BNB one of the most compelling native tokens in the crypto space. The fact that the same BNB token can be used across both chains is a unique advantage.

Popular Applications on Binance Smart Chain

The low fees, EVM compatibility, and native interoperability of BSC make it an attractive platform for many decentralized applications. Here are some of the most popular apps that are using BSC:

PancakeSwap - The top decentralized exchange on BSC offering lightning fast swaps and earnings through yield farming.
Venus - A money market protocol for earning yield by supplying and borrowing assets.
AutoFarm - Automated yield farming services to earn the highest yields on BSC.
PancakeBunny - Yield aggregator for maximizing earnings from other DeFi protocols.
Tranchess - Tokenized ETFs on crypto assets with yield farming rewards.
Juggernaut - Trading terminal focused on leveraged trading and derivatives.
Augury Finance - Decentralized hedge fund for managing crypto investments.
Alpha Homora - Leveraged yield farming protocol to amplify yield farm returns.
1inch - A leading DEX aggregator that routes orders across multiple DEXs like PancakeSwap.
Alpaca Finance - Lending protocol that allows leveraged yield farming.

These are just a sample of the innovative applications being built on BSC. As the platform matures, there will likely be many more interesting dApps leveraging BSC for its performance, low fees, and ample user base.

The Binance Smart Chain Community

BSC has garnered a significant community driven by a range of actors like builders, holders, traders, and validators:

Application Developers: The developer community is essential to building dApps that provide utility and attract users. There are already over 300 projects across DEXs, yield farming, NFTs, and more built on BSC. Many Ethereum projects like 1inch have added support for BSC too.

Validator Nodes: There are 21 active validator nodes on BSC operated by leading stakes like Binance, Certik, Bitcoin Suisse, and Staked. To become a validator nodes must stake a minimum of 10,000 BNB.

Stakers: BNB holders that delegate tokens to validators to earn staking rewards support the security of the network. There is over 6 million BNB currently staked on BSC validators.

Traders: The low fees and fast transactions lead to strong trading activity on BSC-powered DEXs like PancakeSwap. This brings liquidity and fragmentation.

Influencers: Crypto influencers on YouTube, Twitter, and more that promote BSC dApps and educate their audiences on how to use the chain.

This diverse community of contributors makes BSC a lively ecosystem home to some of the most innovative dApps in DeFi.

The BNB Token Economy

The BNB token plays a central role in the BSC ecosystem and has compelling utility and economics:

BNB is used to pay for transaction fees on BSC and Binance Chain. On BSC, it costs around $0.10 per transaction.
Holders can stake BNB to validators to earn a portion of transaction fees and block rewards. Currently over 6 million BNB are staked on BSC.
Validators must stake a minimum of 10,000 BNB to participate in block production and governance.
BNB functions as a governance token allowing stakers to vote on protocol upgrades proposed by validators.
Merchants and services in the Binance ecosystem accept BNB as a payment currency because of its popularity.
BNB is used by arbitrage traders to quickly move funds between BSC and Binance Chain via the dual chain architecture.
Trading activity and liquidity mining on BSC-based DEXs like PancakeSwap drives significant utility for BNB.

This range of use cases make BNB an integral component of the Binance Smart Chain ecosystem. As more applications build on BSC, demand for BNB will likely continue increasing.

Bridging Assets from Other Chains.

A bridge allows moving assets between two distinct blockchains. BSC has become a popular hub for bridging assets from other chains like Ethereum and Tron due to its low fees, high speed, and EVM compatibility.

Here are some examples of bridges being used to transfer value between other chains and BSC:

Binance Bridge: Native bridge that enables transferring tokens between Binance Chain and BSC. This includes assets like BNB and BUSD.
Anyswap: Multichain bridge protocol that supports assets like ETH, USDT, SUSHI, UNI moving to/from BSC.
Multichain: Router for moving assets between 12 chains including Ethereum, BSC, and Avalanche.
xDai Bridge: Enables transferring xDai stablecoins and other ERC20s between xDai and BSC.
Polygon Bridge: Allows assets to be ported between Polygon and BSC using Plasma peg technology.
renBTC: Decentralized bridge for wrapping BTC to be used on BSC via renBTC tokens.

Bridges provide a smooth on-ramp for users looking to tap into BSC with their existing crypto funds. Expect more bridges to emerge supporting asset transfers with major chains.

Oracles

Oracles are a key component of any smart contract blockchain like BSC that needs external data to trigger execution. They essentially provide the external data from outside sources that smart contracts can use.

BSC has integrated Band Protocol as the default oracle provider. The Band Protocol brings real-world data like price feeds, sports/weather data, and more onto BSC for smart contracts to tap into.

For each data request, Band Protocol aggregates data from multiple high quality data sources to prevent any one point of failure. Data is delivered on-chain via oracle scripts that get executed by delegated oracle nodes on the Band network.

This seamless data delivery unlocks many Web 3.0 use cases that rely on external data. Features like price feeds, betting, insurance, and more can be built on BSC using Band Protocol oracles.

Scalability

While BSC already achieves very high throughput relative to other chains, continued scalability will be important to support mass adoption going forward.

There are a few solutions in the roadmap that can enhance scalability:

Sharding: Sharding involves splitting the blockchain network into multiple partitions called shards that can process transactions in parallel. This multiplies the throughput as more shards are added.
State Channels: State channels allow parties to transact off-chain while enforcing contract rules, avoiding the need to broadcast all transactions on-chain. Channels are periodically settled on-chain.
Sidechains: Sidechains are separate companion chains that process transactions and interact with the main BSC chain. They offer more capacity while remaining interoperable with BSC.
Layer 2 Scaling: Layer 2 solutions like Plasma can enable faster and cheaper transactions while relying on the underlying BSC chain for security.
Compression: Pruning old data and using compression techniques can reduce the storage/size requirements for nodes, allowing more transactions per block.

These solutions combined can enable BSC to scale to thousands of transactions per second to meet higher demand. The development team is actively researching these techniques.

Upcoming Developments

BSC is still a young blockchain, so there are many exciting features and improvements slated for development:

EVM Upgrades: Staying up to date with Ethereum's EVM to support emerging features like EIP-1559 fee changes.
Cross-Chain Interoperability: Native support for assets moving across chains via Cosmos' Inter-Blockchain Communication protocol.
Zero-Knowledge Proofs: Allowing transactions to be proven valid without revealing details using zk-SNARKs to enhance privacy.
Decentralized Storage: Integrating decentralized storage through IPFS and Arweave to store dApp data in a distributed manner.
Virtual Machine: Introducing a lightweight virtual machine optimized for BSC to run alongside the EVM for certain transactions.
SGX Trusted Execution: Leveraging SGX trusted execution environments to enable privacy-preserving applications.
Evolutionary Governance: Developing on-chain governance mechanisms for protocol changes to be initiated and voted on.

By incorporating cutting-edge features like these, BSC can stay ahead of the competition and meet the needs of the rapidly evolving Web 3.0 economy.

Conclusion

Binance Smart Chain has rapidly grown to establish itself as a top destination for decentralized finance applications thanks to its ability to combine the speed and affordability of the Binance Chain with smart contract functionality.

Its EVM compatibility, high throughput, low fees, and integrations make it appealing to developers looking for a high-performance yet cost-effective platform. The BNB token economy and staking model also incentivize robust participation from the community.

While still early in its maturation, BSC has laid a solid technical and community foundation that can support an expansive ecosystem of dApps leveraging its strengths. Its ongoing innovation and alignment with Binance, the top crypto exchange, give BSC favorable prospects to see increasing adoption going forward. With more tooling, applications, and protocol advances on the horizon, BSC has the potential to shape the future landscape of DeFi.