[Please note this article is a refocus of a prior article submitted for inclusion in the Crypto Coin Guide]
INTRODUCTION
To begin this subsection of the Binance Coin Guide it must be emphasized that the Binance Chain and the Binance Smart Chain serve two separate and distinct purposes. Herein, we will examine each separately.
HOW DOES THE BINANCE CHAIN WORK?
With its focus based on altcoin trading, the Binance Blockchain was founded in 2017, and has quickly grown to become the home of one of the most popular cryptocurrency exchanges. The Binance Blockchain's Exchange offers trading in over 500 cryptocurrencies and virtual tokens with clear support given to the most widely traded cryptocurrencies.
The Binance Coin (BNB) is the internal token facilitating trading and all other operations on the Binance Blockchain. BNB runs on the Ethereum Blockchain using ERC-20 standards. There is a cap on the number of BNB tokens that may be issued and that cap is set at 200 million. At the end of the First Quarter, 2021, the price of one BNB was roughly $650 with a market capitalization of $3.6 Billion. At the time of this writing, however the price has dropped to $270.89 with a corresponding lower maket capitalization.
Binance provides a very informative blog where they claim high security and safety for the ecosystem through multi-tier and multi clustered architectures and the ability to provide high throughput processing 1.4 million transactions per second.
In essence the Binance Blockchain is a 'centralized' Chain. A typical centralized blockchain system is a private blockchain, where it is governed and/or managed by a single group or organization and all facets of the Blockchains operation is under the control of this single entity. Within the Binance Blockchain only 21 validators (node operators) are utilized to verify transactions and mint new Chain blocks. These validators were chosen by Binance, operate under the direct control of Binance, and serve at the pleasure of Binance. Given this high degree of control over chain operations renders Binance a highly 'centralized' Blockchain.
In addition to the Exchange trading offered by Binance, it provides services, tools and platforms to provide support for its Exchange based activities. These additional services include: Binance Labs (which provides assistance to pre-ICO projects deemed worthy); and, LaunchPad (which hosts emerging new projects and API interfaces.
The major difference between the Binance Blockchain and the Binance Smart Chain Blockchain surrounds the area of concentration of offerings on the respective Exchanges. The Binance Blockchain Exchange is noted for it's crypto to crypto trading pairs. It does not offer crypto to national fiat pairs. This Exchange gained it's popularity among traders as a result of it's offering of low transaction fees, high liquidity and discount fee offerings if paying by the native coin (BNB).
For anyone interested in using the Binance Blockchain take note. To begin using the Binance Blockchain a user must first complete KYC (Know Your Customer) and AML (Anti Money Laundering) requirements.
HOW DOES THE BINANCE SMART CHAIN WORK?
In September, 2020, Binance Smart Chain was launched. The BSC Blockchain runs parallel to the Binance Chain. In essence the two chains run side-by-side. BSC is not an off-chain scalability solution to the Binance Chain but is an independent chain that could operate even if the Binance Chain ceased operation. Accordingly, both chains share a strong resemblance in design parameters.
What sets the BSC Blockchain apart from the Binance Chain is it compatibility with the Ethereum Virtual Machine (EVM) and its smart contract capabilities. According to the Binance Academy, the design goal of BSC was to retain the high throughput of the Binance Chain while introducing smart contracts into the ecosystem.
A word of caution is necessary:
Binance Smart Chain supports the BEP-20 token standard, while Binance Chain, the home of Binance DEX, supports the BEP-2 token standard. If you’d like to trade on Binance DEX, you’ll need to use BEP-2 tokens, while if you’d like to use dApps on BSC, you’ll need BEP-20 tokens.
[Binance Academy. "How to Get Started with Binance Smart Chain (BSC)". https://academy.binance.com/en/articles/how-to-get-started-with-binance-smart-chain-bsc. (Accessed June 21,2021). Just always be sure to select Binance Smart Chain (BEP-20) when withdrawing funds to your external wallet.
BSC achieves approximate 3 second block times by using the same Proof of Staked Authority as in the Binance Chain (limited number of nodes which serve under the direction, control, and at the pleasure of Binance). Upon the solution of a block and creation of a new one, no new freshly minted BNB coin subsidy is granted as BNB is not an inflationary coin (in fact due to regular team coin burns BNB is deflationary so as to support and enhance its price). Thus the governance present in the Binance Smart Chain Blockchain is identical to that of the Binance Blockchain.
So, why did Binance create a separate Smart Chain? The simple answer is: Decentralized Finance. By allowing DApps to be built on top of the BSC and the wide spread utilization of smart contracts in the BSC Blockchain, a wide and ever growing array of new and unique financial products are being developed adding to this Chain's popularity. This is a trend that is unlikely to diminish in the near future.
LIMITATIONS ON ACCESS TO BINANCE AND BSC
If you live within the United States, you are IP Address restricted from using the Binance Chain and are further technically prohibited from using BSC (although BSC is widely used by Americans as there is no IP restriction nor is KYC necessary). The American option for Binance is yet another "separate" entity known as Binance.US. However, a mere fraction of the cryptocurrency offered on Binance/BSC is listed on Binance.US leaving the US version much less desireable. For further information on these restrictions and the reasons for them see The Terrible Tale of BINANCE's Absence from the United States.
CONCLUSION
As demonstrated herein, both the Binance Blockchain and the Binance Smart Chain are nearly identical in structure and governance. The divergence of the two chains appears in their respective usages (Binance for peer to peer trading/BSC for DeFi App construction and trading).