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Binance Smart Chain (BSC) beginner’s guide
How to get started on Binance's DeFi-focused blockchain.
Binance Smart Chain (BSC) is a blockchain focused on decentralised finance (DeFi) applications and activities such as yield farming. It is based on Ethereum and primarily operated by Binance, the world's largest cryptocurrency exchange. It is popular due to its low fees and high liquidity, making it a great alternative to Ethereum for certain applications.
In this guide we will run you through everything you need to know to get started with BSC, including how to connect a wallet, migrate assets from Ethereum with Binance Bridge, as well as use DeFi platforms like Pancakeswap and 1inch. Plus we run through some of the things you can do with BSC as well as the risks involved.
What is Binance Smart Chain?
Binance Smart Chain is a blockchain run by the cryptocurrency exchange Binance. It is based on Ethereum, and shares most of the blockchain's features, such as smart contracts and support for a range of DeFi protocols. Binance Smart Chain was released in 2020 to complement Binance Chain which runs the Binance Decentralised Exchange (DEX).
Binance runs two different blockchains, with a somewhat confusing naming system.
- Binance Chain. Created in 2019 to support the Binance Decentralised Exchange (DEX). This chain supports the BEP-2 token standard. It does not support smart contracts, and is therefore quite limited and no longer used very much.
- Binance Smart Chain. Created in 2020 to support smart contracts and a rich DeFi ecosystem. Supports the BEP-20 token standard.
You can use the Binance Bridge to transfer assets between the two chains.
Binance Smart Chain runs in parallel to the Binance Chain. The otherwise centralised exchange, Binance, began its foray into decentralised finance with the launch of the Binance Chain in April 2019. Binance Chain was designed to host the Binance DEX with high speed transactions. Unfortunately it was built without smart contract capabilities and so a new blockchain was needed to support DeFi applications.
To support a low-cost, high speed DeFi ecosystem, Binance launched the Binance Smart Chain (BSC) in September 2020.
BSC essentially merges the high throughput of the Binance Chain with smart contracts, allowing users to manage their digital assets cross-chain, including support for Ethereum. It provides an environment for creating dApps and other DeFi products. It features a three-second block time, cross-chain asset transfers, Ethereum Virtual Machine (EVM) compatibility and a Proof-of-Stake consensus protocol.
The implementation of EVM allows it to run Ethereum-based applications like MetaMask. It is worth noting that BSC does not operate as a layer-2 protocol for Binance Chain and is an independent blockchain that could run even if Binance Chain went offline. Essentially, BSC is like a modified Ethereum fork.
Since it runs in parallel to Binance Chain (BC), it incentivises a dual-chain architecture, whereby users can transfer their digital assets from one chain to the other without any hassle by using Binance Bridge.
BSC uses a version of the PoS consensus algorithm called Proof-of-Staked-Authority (PoSA) that uses 21 validators to secure the network, which have to stake 10,000 Binance Coin (BNB) in order to act as a validator. Individual users can also stake a minimum of 1 BNB by acting as a delegator, where their tokens are used by validators in return for a portion of the staking rewards.
The metrics for the network can be tracked on BscScan.com, which is similar to EtherScan.io.
How to use Binance Smart Chain
Binance lets you manage your BSC assets with the help of Trust Wallet.
In addition to Trust Wallet, you can also use MetaMask, Binance Chain Wallet, Math Wallet, Ledger, TokenPocket, Bitkeep, ONTO, Safepal, and Arkane to interact with BSC.
To set up Trust Wallet for Binance Smart Chain, you can follow the below steps:
- Download the Trust Wallet app here or from the Google Play Store or Apple store. You will be prompted to enter your mobile number to receive an OTP.
- You will be required to then "Create a New Wallet" or "Import" an existing one. Continue to create a new wallet if you do not have an existing wallet, and be mindful to "Save your Recovery Phrase". This is essential as the recovery phrases are the keys to your cryptocurrency wallet.
- After successfully creating your New Wallet, go to your Smart Chain wallet and press "Receive" to find your address.
- Deposit BEP20 tokens to your wallet. You can transfer your BEP20 assets via Binance by choosing an asset that supports BEP20 withdrawals and withdraw it to your Trustwallet BSC address. It is worth noting that you must hold BNB to translate on BSC.
- You're all set to use the Trust Wallet on BSC to send and receive funds.
Whichever wallet you prefer to use, keep in mind to have enough BNB to cover gas fees to make transactions on BSC.Read more: How to buy Binance Coin (BNB)
Binance Bridge, as the name suggests, bridges the gap between different blockchains, whereby users can convert their cryptocurrency assets into and back from Binance Chain and BSC wrapped tokens. It essentially is a cross-chain service aimed to increase interoperability between blockchains. You can convert selected tokens you hold into wrapped coins or pegged tokens to be used on Binance Chain and BSC.
Currently, it also supports ERC-20 (Ethereum) and TRC-20 (Tron) cross-chain transfers.
Conversion takes only a few minutes, and Binance Bridge charges zero conversion fees. You only need to pay the network transaction fees on the blockchain that you are converting from. It is open to any address, and you don't not need to have a Binance account to use the Binance Bridge.
What can you do on Binance Smart Chain?
You can use Binance Smart Chain for a range of uses, just like any smart contract platform. Although currently, it is most popular for DeFi and yield farming.
Once you have some BNB tokens in your wallet, you can use the several DeFi protocols which are built on the BSC or migrated from the Ethereum blockchain.
Using the "Peg-in" function of the blockchain allows you to transfer tokens of other blockchains to those compatible with the BC or BSC networks. The "Peg-out" function allows the vice versa.
Essentially you are swapping a token for the version that is compatible with your blockchain of choice (for example, BSC or Ethereum).
In the exchange, the Binance Bridge sends you an equivalent value of wrapped to your BC or BSC wallet address which can then be used within the platform or on dApps. The most used pegged tokens are BUSD, WBNB, BUSDT, ETH and BTCB.
Platforms like Autofarm, ACryptoS and PancakeSwap enable yield farming on the BSC. You can deposit LP tokens or your fund into these platforms as pools that allow you to earn even more LP tokens or the protocol's native token. Autofarm and ACryptoS pools incentivise liquidity to work with automated yield optimization strategies for best returns.
After the mainstream attention of adoption of NFTs, many of the dApps that migrated from Ethereum to BSC are NFT marketplaces. The most popular amongst these NFT platforms are the collectible platforms on PancakeSwap, BakerySwap and Battle Swaps.
There are hundreds of dApps available on the BSC. Some of the most popular are listed below:
- Pancake Bunny
PancakeSwap is the most prominent automated market maker (AMM) and yield farming platform on the BSC. As with UniSwap and SushiSwap for the Ethereum blockchain and ERC-20 tokens, you can use PancakeSwap to swap BEP-20 tokens. It is a decentralised exchange (DEX) built on BSC.
The AMM model allows you to trade your tokens on the exchange without the need for an order book by using liquidity pools instead. This protocol can be used for various different functions like adding liquidity, farming, staking, win lotteries, NFTs, and conducting initial farm offerings (IFO).
AMMs facilitate the use of liquidity pools, which have funds of users pooled together. In return, you earn liquidity provider (LP) tokens for staking your funds in a pool. The LP token is called FLIP. You can in turn pool these tokens to earn CAKE as a reward. CAKE is the native and governance token for this protocol. Holders of this token can also participate in lotteries conducted by the platform.
The platform also enables Initial Farm Offerings (IFOs) that give user access to newly launched tokens through yield farming. You can commit LP tokens to a pool to be able to access the sale.
How does BNB work on BSC?
BNB is the native token of the BSC and BC. It is used to pay for gas fees and other services. There are two forms of BNB:
- BNB BEP-20 on the BSC.
- BNB BEP-2 on the BC.
BNB has risen to become one of the top 10 cryptocurrencies by market cap in a very short time, currently it is used for the following on both the BC and the BSC:
- Trading on cryptocurrency exchanges for other cryptocurrencies.
- Paying transaction fees.
- Paying trading fees.
- Participate in the token sales held on the Binance Launchpad.
- For Binance Earn on the standard Binance exchange, where you use it for separate products like Staking, Launchpool, BNB vault and Liquid Swap.
- As a utility token with the BSC network on games and other dApps.
- Using Binance Pay and Binance card to make purchases.
- As collateral for Binance cryptocurrency loans backed by BNB.
- Donating to Binance's own charity.
Pros and cons of Binance Smart Chain
As BSC gains prominence in the DeFi markets with increasing adoption and migration amongst DeFi protocols, you need to understand all the pros and cons of using the Binance Smart Chain before diving into Binance's bespoke Ethereum clone.
- Gas Fees. When compared to Ethereum's high gas fees that have been a persisting issue for the blockchain, the gas fees in BSC are extremely low. It has an average gas fee of less than 10 gwei, where each gwei equals 0.0000000001 BNB. So sending transactions worth thousands of dollars doesn't even cost a dollar. Since the network is nowhere near its congestion capacity, the fees are bound to remain in this range.
- Higher Transaction Speeds. The BSC has a block time of 3 seconds. This, combined with the usage of the PoSA consensus model, enables the network to transact at extremely high speeds in comparison to transactions on the Ethereum network.
- Established user base. Binance is one of the largest and most widely used cryptocurrency exchanges across the world. Thus it has access to an established user base who are already on the platform and can be pushed towards using the exchange's innovations like BSC by subtle marketing tactics.
- Multi-linguistic. The BSC website is available in various languages. This enables adoptions amongst users that are not native English speakers.
- Interoperability and compatibility. BSC is fully compatible with the Ethereum Virtual Machine (EVM), which makes the transition of projects and applications from Ethereum to BSC. It also has interoperability with the Binance Chain allowing you to work between both these separate blockchains seamlessly.
- Ease of token migration. Due to the existence of the Binance bridge, token migration to the network is a convenient and user-friendly process.
- Centralised. This network dilutes one of the most important unique selling points (USPs) of blockchain, being decentralised. BSC is a highly centralised network, and there is only a maximum of 21 validators active on the network. As per the Blockchain Trilemma – a measure of how a blockchain balances scalability, security and being decentralised – the BSC compromises being decentralised for scalability and security.
- Inflationary tokens. Inherently, BNB is an inflationary token. The total supply is maxed at 200 million tokens. While 100 million tokens were offered during the launch, there were several periodic burn events where the exchange burned the tokens in its treasury. Due to this nature, it also offers higher yields as compared to other deflationary tokens like Bitcoin.
- Small governance community. BSC has an extremely small governing community that could potentially act maliciously against other participants in the network due to the concentration of power.
- Prone to attacks. Centralised ecosystems are more vulnerable to attacks and hacks due to lower points of failure. It is also prone to attacks similar to 51% attacks due to the small size of the governing community.
- Validator approval. Validators of the network need to be approved by Binance. There is a minimum stake of 10,000 BNB tokens required to operate a node. Normally, on a public blockchain, anyone that meets the minimum staking requirements can be a validator without the need for approval from a central authority.
- Dependence on Ethereum. The developers of BSC are mostly Solidity smart contract developers. Most of them already play a critical role in the developer community of Ethereum. This means they prioritize the Ethereum network over BSC, which leads to any new developments first featuring on Ethereum before being deployed on BSC. This would mean that it would always be lagging behind the Ethereum blockchain.
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