Binance has long been among the most well-known cryptocurrency exchanges on the market. Moreover, the largest exchange by trading volume has continued growing its DeFi offerings. Specifically, through the BNB Smart Chain, but what is it?
The name Binance has continued to be as important as ever in the industry. Now, what was previously the Binance Smart Chain has become another facet of the growing ecosystem within the digital asset industry.
In 2019, Binance Chain was officially launched as a platform developed to expand the ecosystem and embrace decentralization. Moreover, it supports a native token, the Binance Coin (BNB), which was converted from Ethereum.
In order to understand what the BNB Chain is, it helps to understand how it started. Additionally, understanding its place in the vast Binance ecosystem can give a good look into its vast functionalities.
What is BNB Smart Chain?
The BNB Smart Chain first arrived in 2020 as a brand-new blockchain service. Specifically, the offering allowed developers to build their own decentralized applications, or dApps, using smart contracts. Binance CEO Changpeng Zhao first announced BNB as an abbreviation for “Build N’ Build,” referring to his desire for the community.
Conversely, the original Binance Chain differed in its functional offerings, while being upgraded by the newly developed BNB Chain. Moreover, the current iteration notes fast transaction speeds with an increase in available features.
Additionally, the BNB Chain has compatibility with the Ethereum Virtual Machine (EVM). That is the Ethereum computation engine that ensures smart contract functionality. Subsequently, the offering maintains the capability to run dApps that are ported over from Ethereum.
Interestingly, the BNB Chain is not really qualified to stand as a redesign of the Binance Chain. However, it also isn’t a layer 2 protocol to expand on the Binance Chain. Conversely, the BNB chain is separate and can continue in the event the Binance chain falters. However, the two are designed to work together with builders.
Alternatively, it is important to mention that Binance does not own or control the BNB chain. Specifically, the exchange stated that “BNB Chain was originally initiated by Binance but has since grown to become a community-driven, permissionless, and decentralized blockchain ecosystem.”
How the BNB Chain Works
Now that we’ve discussed what it is, let’s delve into some facets of how the BNB chain actually works. Firstly, starting with the consensus mechanism used, a proof-of-staked authority algorithm (PoSA). This is different from the widely publicized proof-of-work (PoW) or proof-of-stake (PoS) system.
The PoSA model is a combination of two different ones. Specifically, the PoS model and the Proof-of-Authority (PoA) model used by platforms like VeChain. Moreover, this model has validators on the network that have staked BNB. Subsequently, they received transaction fees after validating approved blocks that were on the network.
Binance Chain and BNB were developed to work together, which is aided by Binance’s cross-chain compatibility functions. Moreover, assets are able to transfer across the blockchains. Meaning users can utilize the fast trading capabilities of the Binance Chain, with the smart contract function of the BNB Chain.
Additionally, its EVM-compatible capabilities ensure that users can port dApps across the blockchain easily. This development could interest developers due to the growing relevance of Ethereum in the industry. Specifically, as scaling concerns continue to be addressed, they continue to grow in prominence. Allowing the BNB chain to grow alongside it.
What Makes BNB Chain Unique
Alongside its capabilities, there are also qualities that make the BNB chain a unique asset. Specifically, the Biniace and BNB Chain connections present a different tool for developers. There is the potential for them to utilize the strengths of both blockchains while maximizing the output of their specific applications. Ultimately, increasing the quality of the projects.
Alongside that cross-compatible quality is compatibility with EVM. This is an incredibly positive feature as it allows projects to be transferred from Ethereum, and elaborated on with the BNB Smart Chain.
The popularity of Ethereum is undeniable, and it will only continue to grow. Since the merger that culminated in the Shanghai upgrade, the network has only grown in relevance and prevalence. Additionally, the Ethereum network is constantly growing, which is both good and bad for the BNB chain.
Various blockchains are coming through the Ethereum network, but BNB has the Binance name behind it. Subsequently, the funding and recognition of the Binance brand, and the largest exchange by transaction volume, will only help to grow the BNB Chain alongside other Ethereum network programs. Conversely, liquidity and funding are benefits to anything in the exchange’s vast ecosystem.
Who Is It For?
Ultimately, the BNB Chain was created as a tool for developers. Moreover, it was invented to aid in the creation and expansion of decentralized applications that will only increase the growing industry. Additionally, it is all about the creation of new projects, or the development of existing ones.
Binance founder, Changpeng Zhao discussed the project with Decrypt in 2020. There, he discussed the company’s perception of the BNB Chain, and how they hope it will continue to develop. Specifically, Zhao notes that the blockchain is meant to act as a bridge between the decentralized finance world and the centralized one.
Additionally, it was reported that Binance established a $100 million fund to support its growing decentralized finance world. Importantly, that begins with their work on the BNB chain.
It has only been two years since the arrival of the BNB Chain, and things already look optimistic. Subsequently, Binance’s continued investment in the platform and projects like it could benefit both the blockchain and the Binance ecosystem.
Although Binance has long been the face of centralized exchanges, it has undoubtedly sought to attract DeFi developers under the Binance umbrella. Interestingly, the development of DeFi platforms is intended to do away with centralized finance.
This creates a rather interesting dichotomy in the core Binacen business model. Yet, it appears as though Binance has seen the necessity of continuing to water this ever-growing sector.
The BNB Token
Additionally, it is necessary to discuss the native token of the BNB Smart Chain, the BNB Token. Ultimately, the cryptocurrency is what files the blockchain, and is native to both the BNB Chain and the Beacon Chain.
The blockchain governance token, BNB, fuels transactions that take place on the BNB chain, similar to gas used on the Ethereum network. Subsequently, you’re required to own BNB in order to utilize the chain due to the decentralized nature of the platform.
BNB functions like any other cryptocurrency, allowing trading and different utilizations. Not only can you use BNB on the Binance exchange, but you can pay for certain goods and services with your Binance card, or through Binance Pay. Additionally, you can donate to charity, take part in BInance Launchpad’s token sales, or provide liquidity to Binaice Liquid Swap.
Ultimately, the widespread use cases of BNB are available due to the massive ecosystem that Binance provides. Yet another reason why the BNB Chain is so unique among DeFi blockchains.