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

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

This is a detailed guide to Binance Smart Chain (BSC), the parallel blockchain to Binance Chain (BC) with smart contract capability and Ethereum Virtual Machine (EVM) compatibility. It explains what BSC is, how it differs from BC and Ethereum, its technology, some of its uses, and its advantages and drawbacks.

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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.

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What is Binance Smart Chain (BSC)?

Binance Smart Chain (BSC) launched in September 2020, about a year and a half after the launch of its older sibling BC. It is a smart contract platform mimicking the functionality of Ethereum and other dApp platforms such as Tron and EOS.

It’s interesting to note that Binance opted to launch a second blockchain after Binance Chain instead of upgrading it, given that it was possible. According to the exchange, introducing the smart functionality to the BC blockchain would have bogged down the network speed making it less efficient.

Smart contracts have a history of bogging down their host networks, as witnessed in the December 2017 CryptoKitties crisis on Ethereum and recently, the Solana network.

The best option for Binance was to launch a parallel blockchain to host smart contracts with added compatibility with Ethereum, the leading dApp network. Building a brand new blockchain from the ground up was seemingly not a good option for Binance, which was racing against time to take advantage of the decentralized finance (Defi) and the non-fungible token (NFT) craze.

Ethereum is the de facto ‘King of dApps,’ and the availability of its code in the open-source space may have made it easy for Binance to fork it.

Binance forked the Go Ethereum (Geth) client to create Binance Smart Chain but made a few adjustments to differentiate it from Ethereum. For one thing, they opted for a Proof of Staked Authority (PoSA) consensus mechanism as opposed to Ethereum’s current Proof of Work (PoW). PoSA allows for short block times and lower transaction costs.

Binance Chain vs. Binance Smart Chain

From the above descriptions, it is easy to pick up some differences and similarities between the two Binance blockchains; here’s how they fare against one another for a quick comparison.


  • They were both launched and are maintained by Binance exchange. The company has less control over BSC than it does with BC but it is still significant enough to be a concern.
  • They support fast block times. In the case of BC, it’s less than a second per block, while blocks on BSC are created every three seconds.
  • Both blockchains charge significantly lower fees to process transactions compared to the industry giants such as Bitcoin and Ethereum.


  • BC is limited in functionality, currently serving only one purpose – hosting the Binance DEX. On the other hand, the BSC is a programmable platform on which any dApp can be hosted. Even those running on Ethereum can be easily ported over to BSC.
  • BC uses the Tendermint BFT consensus mechanism, while BSC uses delegated Proof of Staked Authority (PoSA). The former allows Binance exchange to control the BC blockchain 100% without involving the community. The latter opens up the network to allow other validators to participate in governance and block validation. However, Binance still controls the BSC blockchain through its role of vetting block validators.
  • BC network tokens are minted under the BEP-2 issuance standard, while those issued on BSC must comply with BEP-20 standards. BEP stands for Binance Evolution Proposal. The BSC network has the capability of rolling out more token issuance standards if the need arises. For instance, the BEP-721 standard for issuing NFTs and other unique digital collectibles is similar to Ethereum’s ERC-721.

Binance Smart Chain Basics

To understand BSC better, we need to analyze its properties further to find out what makes it unique or special compared to every other blockchain in the market. This section looks at its constituent parts, including its founding principles, the consensus mechanism, and the ecosystem.

After a year in existence, the blockchain has seen tremendous growth. It may be worthwhile to look back and see how far it has progressed, as well as to determine if it has undergone any significant changes.

Design principles

When designing BSC, Binance had four key principles that they based the blockchain on that guided its architecture and development. These are:

  • Standalone blockchain – Binance required the BSC to stand alone from the Binance Chain. Decoupling the two blockchains ensured no service interruptions if one of them failed. Separating the two networks also enabled Binance to incorporate new technologies that were either not utilized before or were used but had undesirable side effects.
  • Staking – BSC uses a staking model to ensure participation in governance and block creation from the BSC community. However, the biggest reason that Binance adopted staking instead of mining was that they prioritized network speed at the expense of decentralization and security. Furthermore, staking models are more environmentally friendly and support faster block generation.
  • Ethereum compatibility – Ethereum, the most popular smart contract platform, did the heavy work for Binance. It had a large user base, miners, and development community. The network has beaten the competition despite problems including high gas prices and security vulnerabilities. Binance decided not to reinvent the wheel and instead used what worked for Ethereum with a few modifications, notably the consensus mechanism. Copying Ethereum’s source code makes cross-chain interoperability simpler, enabling native Ethereum dApps to be easily transferred to BSC.
  • Native Cross-Chain Communication – even though Binance opted to create BSC as a parallel chain to BC, it made sure to design native cross-chain compatibility between the two blockchains. Tokens on the BSC network can now be easily swapped to other tokens by using the relatively ultra-fast Binance DEX on the Binance Chain.

Proof of Staked Authority (PoSA) Consensus mechanism

BSC uses the PoSA mechanism to achieve consensus within the network. PoSA, as applied by the network, is a combination of Delegated Proof of stake (DPoS) and Proof of Authority (PoA). The former has been previously implemented successfully in blockchains such as EOS.

The DPoS is a form of staking model whereby validators put up a stake of the network’s native tokens to get a chance to validate transactions and create blocks. Technically, anyone with a minimum stake of the required tokens can become a validator, but the network would become sluggish if this were allowed. DPoS networks allow token holders to vote in a specified number of delegates to become validators. In the case of BSC and EOS, that number is 21 validators.

PoA, as it applies to Binance Smart Chain, represents a model in which validators are chosen or picked by a central party, in this case, Binance. The exchange vets all validators before they can be voted on by the delegators (token holders.) Think of it like a validator KYC where Binance approves who gets to participate in block creation.

Even though merging the PoA with the DPoS consensus models increases network centralization, it would seem that Binance was willing to make the trade-off to attain high network throughput. BSC can achieve a block generation time of 3 seconds compared to 13 for Ethereum and 10 minutes for Bitcoin.

Binance Smart Chain Ecosystem

The BSC ecosystem is an ever-growing space with new applications and innovations adopted from the Ethereum community every day. We will focus on four of the most important parts of the ecosystem in this section, but we encourage you to research the ecosystem to a greater breadth to discover everything BSC has to offer.

Native token (Binance Coin – BNB)

Binance Coin (BNB) was created back in July 2017 as a utility token on the Binance exchange. It was used initially as an incentive to the crypto community to participate in the Binance ICO. The exchange promised discounts on trades if holders used the coin as a payment method.

Two hundred million tokens of BNB were created at the launch date, half of which were sold to the public during the crowdfunding. The other half was shared between the founding team and the angel investors. Binance raised about $15 million from the ICO, money it used to build the exchange platform.

At its launch, BNB was an Ethereum token minted using the popular ERC-20 issuance standard. However, when Binance launched the BC blockchain in April 2019, it migrated all BNB tokens to the new BEP-2 standard. BNB became the native token of the Binance DEX on the BC network serving yet still as a utility token to pay for transaction fees.

In 2020, with the launch of the BSC, BNB was once again adapted to serve as the native token BSC issued under the BEP-20 standard. Since there are two Binance blockchains, there are also two versions of BNB as the exchange did not opt to eliminate the prior BEP-2 tokens. Instead, they created the native cross-chain compatibility between BC and BSC, allowing easy BNB token conversion.

On the BSC, BNB now serves three purposes:

  1. To pay gas fees to deploy smart contracts on BSC.
  2. To stake on selected BSC validators and get corresponding rewards.
  3. To perform cross-chain operations, such as transfer token assets across BC and BSC.

Binance Smart Chain (BSC) wallets

Blockchain wallets enable users to store their assets safely away from exchange platforms. But most importantly, in the case of smart contract networks such as BSC and Ethereum, wallets allow users to interact with native dApps. Despite its relatively young age, BSC already has a vibrant selection of decentralized apps, and to use them, here are three excellent wallets the network supports:

Binance Chain Wallet

The Binance Chain wallet is a browser extension that is created and maintained by Binance exchange. It is the official Binance wallet for accessing BSC and Binance Chain available on both Firefox and Chromium browsers, such as the Brave Browser. The wallet’s functionality may be limited, but it gets the most important job done, and Binance is constantly improving it.

Trust Wallet

The Trust Wallet is a standalone mobile wallet for iOS and Android owned and maintained by Binance. It supports several features related to the BSC, including interacting with BSC dApps, swapping BEP-2 with BEP-20 tokens, buying and selling thousands of digital assets, and staking tokens for rewards.

Trust Wallet was the first wallet to support BSC. It also supports several other network protocols, including Ethereum, Tron, EOS, and Solana. Additionally, it easily integrates with hardware wallets such as Coolwallet, increasing the safety of assets.


Metamask is a popular crypto wallet developed and maintained by Ethereum development studio Consensys and is available as a web browser extension as well as a mobile app on both iOS and Android platforms. Supported browsers are Google Chrome, Brave, Firefox, and Microsoft’s Edge.

Metamask enables its users to explore blockchain applications on both Ethereum and Binance Smart Chain as well as buying, selling, sending, and swapping tokens. For added safety and security of assets, Metamask supports hardware wallet integrations with companies such as Trezor and Ledger, among others.

Binance Bridge

The Binance Bridge is a project run by Binance that serves as an interoperability tool amongst BC, BSC, and other blockchains serving as a way to bring tokens minted and issued on other non-compatible blockchains to the Binance DEX and Smart Chain ecosystems.

Using the Binance Bridge, anyone can create a new token pegged to the value of the original token on the third-party network. For instance, think of Eth coins on Ethereum. They are native to Ethereum, but they do not comply with ERC-20 standards on the Ethereum network. To use Eth on the BSC network, you have to convert them to BEP-20 compliant tokens using the Bridge. The result is a wrapped token that is pegged to the value of Eth.

The above process is natively referred to as pegging in, and the reverse of it, where you convert your BEP-20 wrapped tokens back to their native versions, is called pegging out. Therefore, it is correct to refer to these BEP-20 minted tokens as either ‘wrapped’ or ‘pegged.’

Binance does not charge any fees to convert tokens. However, anyone using the service will have to pay network fees of the destination or origin blockchain. If, for example, you transfer ETH coins to the Bridge, you get to pay Ethereum transaction fees to the Ethereum miners.

There are some benefits to wrapping tokens. They include:

  • Cross-chain compatibility – wrapping non-native tokens gives them value in new blockchains, and this increases their utility.
  • Increased liquidity – wrapped tokens are more flexible and easier to trade. They can be transferred to platforms with more liquidity allowing traders and investors to get into and out of positions more easily.
  • Expansion of blockchain availability – it is easier to take advantage of various blockchain features by wrapping and unwrapping tokens. For instance, BSC is faster than Ethereum and Bitcoin, but the latter two are more secure. If you need a fast network, you have the option to wrap your ETH or BTC coins and use them on BSC, but when you require a more secure network, you can choose Bitcoin or Ether.

Pros and Cons of Binance Smart Chain

BSC, just like any other blockchain network, has its advantages and drawbacks. It makes sacrifices in some areas that make it a better option to host blockchain applications, but these choices may not endear it to other crypto users. So, what makes it a more or less attractive smart contract platform compared to other players in the market? Here are some of the reasons.

BSC Advantages

  • Transaction speed – BSC is currently one of the fastest smart contract platforms, contributing to its fast growth. Blocks are generated every three seconds compared to Ethereum’s 13 seconds, making it at least four times faster.
  • Low gas fees – it currently costs an average of 5 Gwei to process a transaction on BSC, which is far cheaper than the 40 Gwei charged on Ethereum. That is an 8x cheaper price tag to run a dApp on BSC than running the same app on Ethereum.
  • Cross-chain compatibility – not only is BSC compatible with Ethereum virtual machine (EVM), it also supports pegged coins from several other blockchains allowing users to create several tokens to use on the network. Cross-chain compatibility increases token liquidity, utility, and value.
  • EVM-compatibility – choosing to fork the Geth Ethereum client makes BSC more familiar to Solidity developers, which gives the Binance network easy access to an already vibrant community of developers and users. Additionally, since it’s cheaper to run dApps on BSC, it makes it easy to port applications over from Ethereum, which is faster and cheaper to execute.
  • Credible platform – Binance is one of the most popular exchanges, and its credibility is shared across all its platforms, including the BSC. The exchange also plays an important role in the PoSA consensus by vetting all validators on the network, ensuring that the blockchain is secure and reliable.

BSC Drawbacks

  • Centralization – the biggest criticism towards BSC is its level of centralization. Thanks to the Proof of Staked Authority (PoSA) consensus mechanism, the Binance exchange is overly involved in the smooth running and maintenance of the blockchain, causing a huge central point of failure. BSC and BC are both overly reliant on the Binance exchange.
  • Overdependence on Ethereum – Binance went to great lengths to copy the Ethereum network, making it effortless to transfer Ethereum-based dApps to BSC. As a result, BSC has seen little innovation outside what’s already available on Ethereum. Until Binance invests in local innovation on the BSC network, it will always exist under the shadow of Ethereum.
  • Deflationary tokens – BNB tokens are regularly undergoing a coin burn leading to fewer outstanding balances. It may seem like a positive thing to reduce the supply, which often leads to a growing token price, but some negative scenarios may arise. For instance, a growing demand with a shrinking supply could lead to a supply squeeze, leading to runaway prices, consequently leading to higher transaction costs.

These are just some of the bigger concerns facing BSC. However, they do not seem to deter its growth which could only be interpreted as a good thing.

Closing thoughts

BSC is a solid blockchain network even though it, arguably, brings less in the way of innovation compared to Ethereum. In less than a year, the blockchain went from processing about ten thousand transactions in a day (in Sep 2020) to more than thirteen million per day at its peak (in May 2021). This is an amazing feat given that Ethereum processed about 1.7 million transactions a day at its peak in the same month of May.

However, it is worth noting that Ethereum is already implementing a chain upgrade that will see it migrate from a PoW consensus mechanism to PoS, which should increase its speed. The change may not be enough to beat BSC in terms of scalability, but it could be just enough to keep the dApp developers satisfied and innovating on its platform.

There is much more to the Binance Smart Chain than we have discussed, including Defi and NFT launches. It is an exciting time for the blockchain and the cryptocurrency space in general, and we highly encourage you to dig in and research further.

Frequently Asked Questions on Binance Smart Chain

What is the Binance smart chain network?

BSC is a new smart contract platform launched by Binance based on the Go Ethereum (Geth) client, making it compatible with blockchain apps developed for the Ethereum network. It is, however, much cheaper and faster to run the same apps on BSC than on Ethereum.

What’s the difference between Binance Chain (BC) and Binance Smart Chain (BSC)?

There are several differences between BC and BSC. The first and most important is that BSC supports smart contracts while BC does not. Due to the difference in functionality, they both support different token issuance standards, with BC using BEP-2 and BSC using BEP-20. Additionally, they utilize different consensus mechanisms whereby BC uses Tendermint BFT and BSC uses Proof of Staked Authority (PoSA).

How is Binance Smart Chain different from Ethereum?

Despite Binance forking the Geth client to create BSC, it made major changes to improve it and offered something different from what was already available. One of the differences involves using the PoSA consensus mechanism instead of Proof of Work (PoW) which contributes to the faster network speed and cheaper transaction costs. BSC is also more centralized than Ethereum, thanks to its PoSA consensus model. Finally, BSC uses BNB as a native token while Ethereum uses ETH.

Which wallets support Binance Smart Chain?

To interact with the dApps on BSC, you need a crypto wallet that supports the network. The more common wallets that can do this include:

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