What is BNB Chain (Binance Smart Chain)? A deep dive
Binance’s blockchain has seen rapid uptake since 2020, but the press hasn’t all been positive
- BNB Chain: Key statistics
- Taking the good with the bad
- The question of liability
- Binance’s response
- The main dApps
- CZ versus the regulators
- What recourse does Binance make available?
- Where is BSC going next?
Since launching in the latter stages of 2020 as a major upgrade to Binance Chain, BNB Chain (formerly Binance Smart Chain) has quickly grown into one of the most widely used smart contract platforms, most notably in the decentralised finance (DeFi) marketplace.
Touting significantly lower transaction costs – approximately 1/7th those of Ethereum – and three-second block times against Ethereum’s 15 seconds, as well as BNB Chain’s seamless compatibility with the Ethereum Virtual Machine (EVM), the blockchain has seen a large migration of users over the past year.
In the following article, we look under the hood of BNB Chain. Have you been asking yourself, what is BNB Chain used for and what its strengths and possible weaknesses are? Then be sure to read on.
BNB Chain: Key statistics
Using charts from Binance’s official explorer BscScan, we can see that daily transactions on BNB Chain reached their peak during December 2021, having reduced considerably since then. On 14 June 2022, 4.5 million transactions were logged. While down from 2021 highs, this figure is slightly higher year-on-year, BNB Chain having logged 4.38 million transaction on 14 June 2021.
Unique chain addresses have risen steadily since March 2021, and currently number more than 134 million.
Average gas prices have consistently remained below seven Gwei (seven billionths of 1 ETH) since August 2021, a value that is a fraction of a cent in fiat terms.
Average block times have also remained at a consistent three seconds, apart from a brief spike in May 2021, likely due to the strong crypto bull run.
Taking the good with the bad
With this increase in popularity came some bad press in 2021, as the blockchain played host to several high-profile hacks and scams, including Uranium Finance, Meerkat Finance and the headline-making Squid Games Token debacle.
A report by news desk Crypto Briefing contended: “Since the launch of BNB Chain in September 2020, the chain has become infamous for the amount of hacks, exploits and rug pulls that have taken place on it.”
But is BNB Chain really a haven for scammers – more than, say, Ethereum? And is BNB Chain built in a way that attracts certain malicious activity?
Not necessarily, according to Ross Thompson, finance lecturer and blockchain expert at Arden University. “It’s simply because BNB Chain is the new kid on the block,” he told Currency.com.
“We have seen this with crypto before,” he added. “A new, exciting platform seems to be targeted by fraudsters initially. It may be that all the hype attracts more naive and gullible investors who suffer from fear of missing out, which may lead them to suspend their judgement.”
Binance’s low-cost approach to contract deployment could be a double-edged sword. While developers may save a ton in gas fees, Ronghui Gu, co-founder of trusted smart contract auditor CertiK, told Currency.com: “It also attracts newcomers to the crypto space… These newcomers are the perfect targets for unscrupulous scammers. They are eager to get involved, and perhaps do not perform as much due diligence as they soon learn is necessary.”
The question of liability
Regardless of whether BNB Chain attracts more malicious crypto players than the competition, the open-source nature of blockchain technology makes for a difficult conversation around accountability, both from a technical and philosophical standpoint.
Deliberating on whether BNB Chain could act more like the App Store, with oversight on prospective protocol listings, Gu said: “I think this idea sounds better in theory than it would work in practice, and the ideology underlying it runs counter to the ethos of crypto and decentralised finance… let’s not forget that many people are attracted to DeFi because of its peer-to-peer nature, where there’s no centralised middleman taking an extortionate cut of all transactions.”
But Binance is not exactly a stranger to centralisation. As a trade-off for enhanced throughput and usability, Binance maintains comparatively strict oversight of its network of 21 proof-of-stake validator nodes, of which CertiK acts as one.
In a series of tweets in April 2021, Ryan Watkins, senior research analyst at Messari, did not mince his words when he stated that, “The reason why BNB Chain is faster and more scalable is not because of some magical technological innovation. No, it’s the magic of centralisation. BNB Chain is an Ethereum fork with a centralised validator set. That’s it. Nothing more”.
Regardless, Gu believes that raising the standards of security and transparency across DeFi is the job of auditors like CertiK, “While it’s Binance’s job to provide the infrastructure that functions as a breeding ground for innovation and talent”.
“It’s unfortunate that there is a prevalence of scams in the crypto space, but they should not distract from the genuinely revolutionary work that is being done,” he said.
So what is BNB Chain’s stance on accountability? Chris Caruana, vice-president of AML [anti-money laundering] solutions at risk-management firm Feedzai, told Currency.com: “Changpeng Zhao, Binance’s CEO, has already made public his position – Binance does not have control or influence over projects built on BNB Chain, and scam victims are on their own.”
Binance’s official stance correlates somewhat with this observation. Responding to the Squid Games scam in an official blog post, Zhao, who commonly goes by the moniker CZ, said: “Some may ask, why can’t Binance do something about DeFi projects like SQUID? I think it’s important here to explain that blockchains like BNB Chain and Ethereum are open-source. We don’t have any control or influence over projects that are built on the network.
“Because BNB Chain is entirely community-driven, governance-related decisions would need to be coordinated by the community. The same is true for any other open-source blockchain, like Ethereum for example.”
Caruana did, however, acknowledge that Binance actively works with investigators to attempt to recover stolen funds from compromised projects. Furthermore, the risks have not seemed to deter investors.
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“Personal responsibility should not be overlooked in these situations,” Caruana stated. “If we start holding blockchain providers accountable, we may find a tremendous spike in first-party fraud. It is a tale as old as time: caveat emptor.”
Currency.com has extended an offer to Binance to contribute to this article.
The main dApps
Making good on Binance’s intention to create a strong platform for DeFi, BNB Chain is home to some of the largest projects in that sector, most notably PancakeSwap, which has over $3bn in total value locked (TVL).
According to the market tracker DeFi Llama, the TVL of all DeFi dApps across BNB Chain currently stands at $6.26bn. In addition to PancakeSwap, major players include Venus with $644.03m in TVL; Tranchess with $152.42m in TVL; Alpaca Finance with $437.6m in TVL; and Ellipsis Finance with $104.25m in TVL.
In February 2022, the Terra blockchain overtook BNB Chain (per its $14.6bn in TVL) before its collapse a few months later. BNB Chain’s figure is only 6.1% of market-leader Ethereum’s $49.05bn TVL, which is buoyed by big hitters such as MakerDAO, Curve, Convex Finance, Wrapped Bitcoin, Aave, Compound and Uniswap.
One of many notable exploits of 2021, Meerkat Finance was an exemplar of a common hack seen in the decentralised finance (DeFi) space lately, whereby “yield farms” have their liquidity drained by malicious actors. In Meerkat’s case, $31m was swiped in an apparent test of the contract’s robustness.
Yield farms operate though staking a user’s tokens and earning interest accordingly. “Yield farming is rife with risk,” according to Business Insider, which cited volatility, fraud, rug pulls, impermanent loss and regulatory risk as major concerns.
Meerkat Finance’s origins show that it was originally forked from Ethereum and subsequently deployed on BNB Chain. As reported by CoinTelegraph, forking is common in Ethereum DeFi circles, but “BNB Chain has elevated it to an art. Many of the staple Ethereum dApps and even art projects have an exact Binance replica, meaning that previous attack vectors that plagued the DeFi summer may now have been reopened on the increasingly popular chain”.
Binance has directly responded to these issues. In a recent Unchained podcast, Samy Karim, ecosystem coordinator at BNB Chain, said: “Definitely there have been lots of exploits, but it’s not unique to BNB Chain.
“I think it became a very attractive target for the black hats and the malicious actors in this space due to the large number of new users there [and a] large TVL in a lot of the DeFi protocols. But there isn’t really any way to kind of prevent that. It’s really about user education.”
CZ versus the regulators
As far back as October 2020, Forbes reported on Binance’s apparent attempt to avoid anti-money laundering regulation through an elaborate corporate structure. In the report, Forbes mentioned a lawsuit filed against Binance accusing it of being the go-to location for “the laundering of cryptocurrency”. How does BNB Chain work around certain regulations?
The contents of that lawsuit, Fisco Cryptocurrency Exchange v Binance Holdings, alleged: “Binance, or those acting upon the instructions of Binance or its owner, CZ, created BAM Trading Services, d/b/a Binance.US. Binance.US was specifically formed to enable Binance to retain its US user base while simultaneously trying to minimise the risk of exposing Binance Holdings to regulation by US authorities.”
Furthermore, “Binance’s practice enabled, and still enables, skilful cryptocurrency hackers and thieves to steal cryptocurrency, and launder it by breaking the cryptocurrency into amounts of two bitcoins or less, depositing it, converting the illegal loot and withdrawing it, all without providing identification”.
The question is, what is BNB Chain (Binance Smart Chain) and the Binance exchange’s policy today? Has it sought to respond to these controversies?
No, according to a recent investigation by Reuters, which stated that “Binance kept weak money-laundering checks even as it promised tougher compliance.” Reuters added that “Binance has operated outside rules that govern traditional financial firms and many crypto rivals. An opaque corporate structure has enabled Binance to offer products that many national regulators don’t allow locally registered firms to sell.”
CZ was dismissive of the report, labelling it “FUD” – an abbreviation of ‘fear, uncertainty and doubt’ that is often used as a pejorative term for crypto sceptics.
Adding to the debate, a representative of the scalable blockchain platform IoTeX told Currency.com: “I do not know if they have a process in place to improve their AML but what I do know as a user of Binance is that they have increased their levels of verification and are even rewarding those that complete new enhanced verifications”.
What recourse does Binance make available?
Meanwhile, Fisco’s complaint ended when it filed a voluntary dismissal after Binance “neither served an answer nor filed a motion for summary judgement in this action”.
Where is BSC going next?
“Cross-shard and cross-chain/multi-chain interoperability will be the key topic of 2022,” according to BNB Chain’s recently published 2022 vision.
Specific targets include sidechain protocols for gaming, social and metaverse applications, enhanced scalability for DeFi projects, more efficient blockchain processes, enhanced decentralisation at the validation level, and a greater focus on research and development in the BNB Chain development community.
BNB Chain (Binance Smart Chain) is Binance’s 2020 upgrade of Binance Chain, offering greater flexibility for dApp developers and users. Going by the moniker ‘CZ’, Changpeng Zhao is the founder and chief executive officer of Binance.
While BNB Chain has been home to numerous rug pulls and other scams, the same can be said for most or all smart contract platforms. Investors must always exercise caution when dealing with any DeFi project. Make sure to conduct extensive due diligence beforehand.
BNB Chain boasts faster transaction times and cheaper gas fees than Ethereum. As a compromise, its validation network suffers from greater centralisation.