Among the largest coins by capitalization, Binance Coin became one of the most profitable investments in the first quarter of 2021.
Much of this success has been facilitated by the rapid development of the Binance Smart Chain, where BNB is the base coin for interacting with the network – following the example of ETH in Ethereum. However, now the BSC is beginning to raise suspicions about excessive centralization. At least, this is the opinion of Ryan Watkins, analyst of Messari platform.
First, an explanation. Binance Smart Chain is a chain that supports smart contracts, that is, it allows you to create and launch applications like decentralized exchanges and other similar services. It runs in parallel to Binance Chain, which was launched by the Binance platform in April 2019 and is designed for fast decentralized trading. The most popular application on Binance Chain is the Binance DEX trading platform.
Clear boundaries between blockchain functionality help offload them. In this case, one chain is occupied by smart contracts, while the other is focused on trading.
As a result, Binance Smart Chain enables users to conduct cheap swaps – 30-40 cents each – and transfers. For comparison, similar operations on Ethereum-based Uniswap are about a hundred times more expensive.
This difference is actively promoted by Binance founder Changpeng Zhao, who openly opposes BSC to Ethereum. Of course, lower commissions are more attractive to end users. However, for such results, the chain had to sacrifice decentralization.
What’s wrong with the Binance Smart Chain?
Here is a quote from Watkins on this issue, in which he voiced an existing problem. The replica is given by Cointelegraph.
In every cryptocurrency growth cycle, people are misled by the latest centralized solution to all blockchain problems. Influencers actively promote them during each bull run in order to sell everything at an inflated price at the end of the bullish trend to naive novice investors.
That is, here the analyst assumes that such a decision cannot hold out for a very long time. At least after a trend change in the market, the cryptocurrency will also sink. However, according to Ari Paul, CIO of BlockTower Capital, it could take place in the worst case at the end of this year.
BSC uses the Proof-of-Stake consensus mechanism. Every day, 21 active validators are selected in the system by the Binance Chain, which is managed by a total of 11 validators. BSC validators use the native Binance Coin token for staking. According to Messari analyst Wilson Vityam, validators are somehow directly related to the Binance exchange itself. Here is a quote from him.
It’s hard not to assume that every Binance Chain validator is somehow tied to Binance. Each of them in turn creates blocks in a seemingly predetermined order. There doesn’t seem to be any sort of weighting mechanism on the importance of staking to determine which one creates the next block.
As a result, the analyst assumes that although the network is a platform for smart contracts, among which there are projects from the niche of decentralized finance, in fact, the representatives of the exchange control what is happening in it. This means comparing BSC with the same Ethereum, where blocks and transactions are now confirmed by each individual node, which anyone can run, is at least unfair.
Watkins, in turn, is confident that the advantages of Binance Chain in terms of transaction processing speed compared to Ethereum are the product of “centralization magic”, and not the result of “technological innovation”. He continues.
BSC is a fork of Ethereum with a centralized set of validators. That’s all, nothing else. If you really think that BSC has achieved the supremacy of smart contracts and become the world’s computer, you are wrong.
However, Twitter user Earoshthime has tried to refute the claim by Watkins and others that BSC is nothing special.
When it comes to invention and innovation, copying is a new opportunity, not theft. Copying is a sign that something in the original thing needs to be improved, but it only takes one difference in a small detail to get better.
User Maurice Taylo also defended BSC, mentioning Ethereum’s high commission issues. According to him, in this situation, cryptocurrency lovers are somehow forced to look for alternatives, and so far Binance Smart Chain is the best of them. However, this does not negate the fact that BSC remains a centralized system and is unlikely to be able to compete with the same Ethereum when its developers finally solve all the scalability problems with the release of Ethereum 2.0.
We believe that analysts’ assumptions may indeed be valid, and BSC may be related to the Binance exchange in one way or another. However, this does not change the essence. So far, novice traders and investors cannot afford to trade on decentralized exchanges based on Ethereum, since it is too expensive. Therefore, they choose cheaper alternatives and are not particularly worried about insufficient decentralization.
At the same time, the problem of high commissions in Ethereum can be solved as early as July. This network will be helped by the EIP-1559 update included in the update called London.