Binance Smart Chain (BSC) Explained | A Beginner’s Guide

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15 Jan 2024

Smart contracts are pieces of code that execute automatically once a preset condition is met. The crypto community refers to them as decentralized applications (dApps), and they are most popular on the Ethereum blockchain.
An important question to ask at this point is that if Binance, the leading cryptocurrency exchange in the world, already had a blockchain, why did it create another one? Why a parallel chain instead of collapsing both into a single blockchain? And most importantly, how does BSC compare against Ethereum, currently the leading smart contract platform?
Let’s find out.

What is Binance Chain (BC)?

Binance launched the Binance Chain blockchain in April 2019 to support its vision for decentralized trading. It jointly launched the Binance Decentralized Exchange (DEX) with the blockchain, designed for high transaction throughput.
Most other DEX’es in the market are laden with poor user experiences and clanky interfaces, something Binance aimed to change with its new offering. It intended to introduce the popular Binance Exchange’s winning formula of an intuitive UI and optimized UX onto the DEX. It also targeted a sub-one-second transaction confirmation time for trades on the platform.
As a blockchain, BC is structurally limited, only allowing for decentralized trading. According to Binance, the BC blockchain serves the following functions:

Sending and receiving digital assets, including Binance native currency BNB.
Controlling token issuance and supply through minting, burning, locking/unlocking, or freezing/unfreezing.
Issuance of new tokens based on the BEP-2 standard. An example is BNB which exists as a BEP-2 token on the BC blockchain.

Binance Chain uses the Tendermint Byzantine fault tolerance (BFT) consensus mechanism, more popularly used on the Cosmos blockchain. Given that BC and Cosmos blockchains share a consensus mechanism, it also means that they share the Proof of Stake (PoS) model of governance and transaction validation used on Cosmos. We will discuss in more detail the PoS system in the next section about BSC.