It is impossible to be in the crypto and NFT space at times like these and have not heard of the Binance Smart Chain, the home of BNB currency. So here’s a deeper dive into it.
The initial birthing ideology of the Binance Chain was to replace Ethereum Virtual Machine (EVM) or to enhance it. Thus, it is a sidechain for the original Binance Chain while being a much-upgraded version of it.
Binance Smart Chain (BSC) is a smart contract-enabled sidechain for Binance Chain, allowing the ecosystem to use the EVM-compatible functionality on Binance Smart Chain. All the while making fast asset trades on Binance Chain, which is not slowed down by the need for its smart contract capabilities. The company claims that it is a high-performance blockchain moving towards solving scalability problems facing the blockchain community.
BSC is an alternative to Ethereum and other leading DeFi platforms. It gained popularity when Ethereum failed to be an efficient option for those who couldn’t afford the fees.
The parent company, Binance, a leading cryptocurrency exchange, announced BSC in September 2020. BSC is similar to Ethereum in some ways but far different in some more.
Ethereum uses proof-of-work consensus, while BSC uses delegated proof-of-stake, enabling it to process more transactions per second and at a lower cost.
BSC allows users to build dapps (decentralized apps) and stake on the chain while making fast asset trades on Binance Chain; it remains fast because it does not need its smart-contract functionality.
How does Binance Smart Chain work?
The Fundamental
Binance Smart Chain achieves ~3 second block times with a Proof-of-Stake consensus algorithm. Specifically, it uses Proof of Staked Authority (or PoSA), where participants stake BNB to become validators. If they propose a valid block, they’ll receive transaction fees from the transactions included in it.
Cross-chain
Remember that the new Binance Smart Chain does not replace the existing Binance Chain but instead enhances it. It is claimed to be an independent but complementary system to the existing chain. Here, Dual Chain architecture is used to allow users to swiftly transfer assets from one blockchain to another. This enables users to enjoy rapid trading on the chain. All are happening while powerful decentralized apps are being built on the BSC.
BEP-2 and BEP-8 tokens from Binance Chain can be swapped for BEP-20 tokens, the new benchmark introduced for Binance Smart Chain. Nowadays, to move tokens from one chain to another, the simplest method is probably to use the Binance Smart Chain.
Validators on the Chain
Binance Smart Chain’s active set includes the top 21 validators by total value staked (self‐bonded and delegated). Blocks are produced in a round‐robin format, and validators take turns attesting each other’s blocks, referred to as ‘sealing’ blocks.
Anyone can become a validator on Binance Smart Chain by submitting a 10 BNB transaction to create a validator and self‐bonding 10,000 BNB to their validator node. However, as of August 2021, the minimum stake in the active set is approximately 519,000 BNB.
- Validator nodes are responsible for performing consensus, including producing blocks and verifying blocks produced by other validators.
- Archival nodes store the same information as full nodes, plus the historical state of every account at every block height.
- Sentry nodes stand between validator nodes and the public network to ensure privacy along with protection from DDoS attacks.
The RISKS
The Binance Smart Chain has regulations like Slashing and jailing. Where Slashing is a mechanism where a predefined percentage of a validator’s tokens are lost when validator misbehaviour is spotted. Double Signing penalties are much larger. And Jailing would set a time that a validator cannot participate in consensus and earn rewards.
The behaviour which one should avoid on the BSC is:
- Self-bond below minimum : Validators are jailed for one day if their self-bond falls below 10,000 BNB.
- Double Signing : A validator that proposes two different blocks at the same block height will be slashed 10,000 BNB. With jailtime for an effectively permanent period of time.
- Downtime : A validator that misses over 150 blocks that it had the turn to propose in the consensus will be slashed 50 BNB and jailed for two days.
Binance Smart Chain greatly extends the functionality of the original Binance Chain and is designed to bridge the gap between various blockchains. Though still in its infancy, the promise of BNB staking alongside EVM compatibility makes the platform an ideal engine for developers building powerful decentralized applications.