Decentralized finance (DeFi) has been on such a tear within the Ethereum network over the last year, that Ethereum's fees have skyrocked. DeFi applications like Compound and MakerDao have become too expensive for most investors. However, Binance's new parallel chain, Binance Smart Chain, provides a powerful ecosystem for decentralized finance at far better rates and speed. With many users switching from Ethereum's DeFi apps to Binance's DeFi apps, the Binance blockchain has seen enormous growth.
What is Decentralized Finance (DeFi)?
Decentralized finance is the next “big thing” in global finance. The DeFi market is an internet-based, programmable financial ecosystem that offers many of the same products and services that already exist in traditional finance. These products include instant loans and savings accounts with sky high yields (over 10%-30%). In order to be decentralized, these applications are all built on blockchains, usually the Ethereum's blockchain. To learn more about defi, read our post about it here.
Developers of these applications are always seeking blockchain platforms that enable cheap and fast transactions. While Ethereum has been very reliable over the years, its popularity has created constant congestion resulting in slow transaction speeds and lofty fees. However, with its launch in September 2020, the Binance Smart Chain (BSC) hopes to replace Ethereum as the top blockchain for decentralized finace. In less than six months, it already has shown itself to be perhaps the best platform for defi app development.
What is Binance Smart Chain?
Binance Smart Chain (BSC) is a blockchain protocol built by the largest centralized exchange in the world- Binance. The BSC runs in parallel with Binance's main blockchain, which is used for the exchange as well as many other services. However, unlike the Binance blockchain, BSC has smart contract functionality and is compatible with Ethereum Virtual Machine (EVM), allowing for most of Ethereum’s dApps and ecosystem components to be simply transferred to BSC with minimum effort. In addition, the BSC enables much faster transaction speeds with the lowest fees in the space. This makes it very attractive to developers and investors alike.
At the time of this writing, BSC currently has over $13 billion in total value locked across all its DeFi apps, with over 50 million distinct addresses interacting with the network and over 3 million daily blockchain transactions. With this enormous growth, the price of Binance's native cryptocurrency, the BNB token has skyrocketed by about 300% over the last few months.
The main reason the Binance Smart Chain is so much faster than Ethereum's blockchain is the fact that BSC uses a consensus algorithm known as Proof of Staked Authority to secure the network. On the other hand, Ethereum is still using the Proof of Work, which requires mining to secure the network-- a much more costly process. To better understand staking and mining, visit our posts about them here.
At the time of this writing, there are already over 70 dapps operating on the Binance Smart Chain, with most of them focused on decentralized finance solutions. However, with BSC being controlled by Binance, it's actually quite centralized. In fact, BSC has only 21 validating nodes in its staking network, while Ethereum, has about 10,000 mining nodes- making Ethereum far more decentralized!
The good news is that Binace is quite transparent about its centralized network. In addition, without this cefi/defi protocol, the network would likely not be so fast, scalalable, cheaper and easy to use.
The Benefits of Binance Smart Chain
Let's get a little deeper into the beneficial features of BSC.
When users make a transaction on a blockchain, they have to pay a fee. These blockchain fees are then paid to validators (or miners in the case of Ethereum). This fee is the main incentive for miners and validators to validate the ecosystem, ensuring all transactions are secure and correct.
NFT and DeFi apps involve many transactions that involve many fees. This point alone is what makes Ethereum so expensive. It's not unheard of for users to pay over $100 in transaction fees just to mint an NFT on Ethereum. However, on the Binance Smart Chain, you'll likely pay no more than 5 cents!
At the time of this writing, Ethereum is also sorely lacking in interoperability. Meanwhile, BSC is configured to seamlessly allow users to transfer digital assets from one blockchain to another. In the future, interoperability will be essential since the internet of the future will be an ecosystem built on connected blockchains. Users will need interoperability to fully use all of its resources. In this regard, Binance is a leader in the industry.
Transaction Speed and Scalability
Lastly, as we mentioned earlier, the Binance Smart Chain is vastly faster than Ethereum. Let's explain why. First of all, all transactions need a certain number of confirmations on the blockchain before it can be completely processed. It's these confirmations that ensure each transaction is valid. However, if the network is busy, confirmations can take a long time, which in turn delays the transaction from being completed.
In other words, the busier Ethereum gets = the more congested its blockchain gets = which slows down the confirmation times= resulting in slower transaction speeds.
Transaction speed is especially important in decentralized finance (defi), where yields can fluctuate in the span of seconds. This is yet another reason why developers have been flocking over to the Binance Smart Chain. BSC was specifically designed to improve scalability in blockchains. It enables easy implementation of smart contracts to build scalable decentralized applications.
How to Use the Binance Smart Chain
To get started, you have to go to Binance.us (Binance.com if you are overseas), set up a wallet and buy BNB tokens. Afterwards, you can interact with many of the DeFi applications on the Binance Smart Chain-- and even apps ported from Ethereum's blockchain. There are many websites to explore these applications, but you'll definitely want to start off with these two: bscscan.com, defistation.io, mathdapp.store
Bscscan.com - Binance Smart Chain explorer
BscScan is the primary block explorer, allowing users to explore and search the Binance blockchain for transactions, addresses, tokens, prices and other activities taking place on Binance (BNB).
Defistation.io - Defi Leaderboard
Operated by defi App Cosmostation, Defistation is another analytics website, that also lists the top decentralized finance projects operating on the Binance Smart Chain. As it says on the website, "Discover and track the total value locked into DeFi projects on Binance Smart Chain in real-time. The metrics and charts displayed on Defistation allows you to gain insight into the growing trends and movements in decentralized finance."
Scroll down the first page of defistation and you'll find a list of the hottest defi apps, including Autofarm, Pancakeswap and Venus. Click on the links to see their official websites and github pages.
PancakeSwap is the leading decentralized exchange. It's even bigger than Ethereum's Uniswap and SushiSwap. PancakeSwap is actually quite similar to these apps, except considerably less expensive due to BSC's scalability. AutoFarm is a yield farming aggregator, much like Ethereum's yEarn, except its considerably cheaper. Just like yEarn, AutoFarm’s vaults auto-compound yields across platforms in the BSC landscape.
Similar to defistation, you can explore the entire BSC ecosystem with mathdapp. This includes NFT apps, DeFi apps and much more.
If DeFi is the talk of crypto nowadays, the Binance Smart Chain is the talk of DeFi. However, before jumping onboard, make sure you do your due diligence. Despite all of its benefits over Ethereum, it is still quite centralized. In fact, recently it was disclosed that the CFTC opened an Inquiry into Binance over US trading derivatives. You can read more about it here.
In any case, BSC still provides much faster and cheaper transactions than Ethereum and any other serious competitor in the space. In addition, its interoperability and its ability to let developers port projects from Ethereum to Binance Smart Chain are quite exciting. Lastly, Binance is constantly helping new projects be developed on BSC through a $100 million developer fund. So until Ethereum can fix these scalability issues with Ethereum 2.0, expect a lot more exciting BSC projects that will revolutionize finance.