Sat. Nov 27th, 2021
    Binance, Binance Chain, Binance Smart Chain

    Take all the best that already exists in the crypto industry, make it faster, cheaper, and avoid control. Let’s find out how the Binance cryptocurrency exchange has become a leader and got its native money laundering.

    There are two of them. When one blockchain turned out to be not agile enough for the needs of the platform, what did the founders do? They decided it was easier to create the second one than to fix the first one. It’s a bit confusing for users, but there’s a cheeky elegance to this ease of decision-making which can be well considered a stylistic feature of the project. While other crypto exchanges are worried about sanctions from market regulators and introduce complex user identification systems, Binance, on the contrary, simplifies the procedure and reduces the entry threshold. Financial management is becoming as easy as sending an email. This makes the exchange the market leader in terms of sales.

    The name Binance is a combination of the words bitcoin and finance.

    Binance: The Exchange-traveler

    It all started in July 2017, when a thirty-nine-year-old Canadian of Chinese descent Changpeng Zhao, who had previously worked on the stock market and in cryptocurrency projects for a long time, founded the cryptocurrency exchange Binance. This happened in Hong Kong, but very soon, when electronic currencies were banned in China, Changpeng Zhao’s project moved to Japan and from there to Malta. Currently, the company’s legal address is in the Cayman Islands.

    Binance
    Changpeng Zhao

    The advantages of Binance are the lowest fee among competitors, a wide range of traded currencies, high speed of transactions, and extreme simplicity in the registration procedure. The latter prevents market regulators from tracking money laundering, so the news about the platform is often a list of countries that have fully or partially banned the platform. However, the advantages of the exchange make it possible to treat such restrictions as unfortunate misunderstandings.

    Fee Tending To Zero And Binance Decentralization

    Even before the launch, Binance announced the release of its native BNB currency — a hundred million Ethereum ERC-20 tokens. 200 million coins were planned to be issued. The initial coin offering attracted a substantial amount of 15 million dollars to the platform at the time.

    The BNB currency purchased by investors could be used as a currency and to pay a fee for the exchange of various cryptocurrency pairs on the Binance exchange. Using BNB significantly reduced the size of the fee, making the currency more attractive. In particular, using BNB reduces the amount of fee by 25%, and inviting friends to the exchange by another 25%. As a result, the amount of fee from a record low of 0.1% may fall to 0.05%.

    In just six months, the Binance crypto exchange has become the largest in terms of the trading volume. This did not go unnoticed: Binance was attacked by hackers, during one of which 7,000 bitcoins were stolen. By the way, the exchange took upon itself the compensation for the losses.

    The founders of the project (Changpeng Zhao was joined by his long-time colleague Yi He) decided to transfer the crypto exchange to a decentralized network to ensure security while getting rid of the vulnerabilities of DEX contemporaries:

    • small volumes of trade,
    • numerous lags,
    • low speed.

    The Ethereum blockchain was ignored because it could not support the needed thousands of transactions per second. So the exchange got its blockchain — Binance Chain.

    The name Binance Chain is a combination of the words Binance and blockchain.

    Binance Chain And Its Advantages, Which Cover The Disadvantages

    A fast and easily scalable blockchain with high capacity, peer-to-peer Binance Chain using the BFT PoS consensus algorithm was launched in April 2019. Binance Coin cryptocurrency was completely transferred to it — there was an exchange (1:1) of all ERC-20 BNB tokens for new BNB on BEP-2 protocol. The Binance DEX decentralized exchange was also based on the Binance Chain blockchain.

    Besides security, a decentralized exchange has other advantages. It has no borders and no central governing apparatus, does not obey any regulations, and is not obliged to be regulated in the jurisdiction in which it was created. Restrictions in the work can only be associated with a ban on cryptocurrencies, which is in force in several countries.

    Let’s go back to the history of the project. The news of the launch of a decentralized exchange and the withdrawal of tokens to their blockchain encouraged users, and the BNB rate skyrocketed. Instead of uncertainty, the community is filled with hope that the team that almost instantly created the best crypto exchange will also elegantly bring the decentralized one to the leaders.

    Binance Chain was primarily designed to issue BEP-2 BNB tokens and exchange digital assets within a decentralized network. Blockchain has also included many applications, among which Binance DEX holds the main place.

    Through rose-colored glasses, users also saw the disadvantages of blockchain — the lack of flexibility and scalability. It also does not support smart contracts and cannot run decentralized applications.

    In justifying themselves, the developers explained that blockchain meets the original goals of high speed, decentralization, and security. However, the concept of “decentralization” with Binance should be perceived somewhat conventionally. The founders themselves ironically call their network a “centralized decentralized network” because the levers of control remain with the development team, and decentralization is not used to democratize the project, but for the sake of security and independence.

    The time for new solutions was rapidly approaching. At the beginning of 2020, the crypto market began to grow significantly, and decentralized finance, which requires a different technological platform, became its innovation. But changing the first blockchain could reduce its main advantages, and first of all, speed.

    Binance Smart Chain: Duplicative, But Quite Independent

    Binance Smart Chain was launched in September 2020 as a parallel network to Binance Chain. Their cross-chain interoperability allows users to use the best qualities of each product: Binance Chain provides core functionality, while Smart Chain provides advanced protocols for system interoperability and a platform for third-party developers.

    The new blockchain contains a full-fledged environment for developing complex decentralized applications, supports smart contracts, and is compatible with EVM — the Ethereum virtual machine. This approach allowed developers to easily transfer projects originally launched on Ethereum to the new system.

    The blockchain dualization turned out to be quite a successful solution — as a result, Binance Smart Chain plays the role of a side chain, a second-level add-on platform. At the same time, it can work autonomously: if something happens to the basic Binance Chain, it will not affect the work of the smart twin.

    Both blockchains use the same BNB token (with identical functions and address format), only in the case of Binance Smart Chain it is based on the BEP-20 protocol, which works similarly to ERC-20. Binance Smart Chain’s dual-chain architecture allows for seamless transfer of tokens between blockchains. The BEP-20 token standard allows any user to issue interchangeable digital currencies or tokens in the Binance Smart Chain.

    Moreover, leading digital assets on other networks can be transferred to Binance Smart Chain as BEP-20 pegged tokens. For example, it is possible to use one of the Binance ecosystem tools — Binance Bridge to exchange bitcoins for BEP-20 tokens. These tokens (they will be called BTCB) then can be used in DeFi protocols to generate income from bitcoins. The same applies to Ether and many other cryptocurrencies.

    Another distinguishing feature of the Binance Smart Chain from the first blockchain is the use of staking. It uses a hybrid PoSA consensus algorithm that combines Proof-of-Stake and Proof-of-Authority. The validator working in the system guarantees the quality of his work not only by the funds locked in the stake but also by his reputation. Thanks to process automation, the work of the validator does not require constant monitoring of their computers but requires their flawless state at every moment. By providing the latter, the validator earns a certain reputation and trust from the community, which is transformed into his right to take part in elections.

    A total of 21 active validators are involved in the work of the Binance Smart Chain network. For each validation cycle, they are supposed to be selected by Binance Chain validators (there are eleven of them) based on direct competition. The impact that these eleven validators have on the state of the smart network is criticized — Binance’s speed advantage is not the result of the platform’s technological advantages, but disguised centralization.

    Binance Smart Chain is a fork of Ethereum with a centralized set of validators. That’s it. Nothing more. Messari researcher Ryan Watkins.

    The Main Competitor Of Ethereum

    Anyway, the high speed (the PoSA consensus algorithm allows the block to generate a new block every three seconds) and low fees made Binance Smart Chain a direct competitor to Ether, and the bridges provided in advance made it easier for many developers to switch to the Binance platform. Smart Chain already has a wide range of its native DApps and DeFi apps.

    Most of the activity on the Binance Smart Chain comes from DeFi protocols such as PancakeSwap, Venus, and Autofarm. But this does not mean that Smart Chain is only for decentralized finance. Gaming and gambling DApps have also found their place in the Binance Smart Chain, and in early 2021 the first NFTs also appeared here.

    As a result, Binance has developed a unique ecosystem with a variety of use cases, it has become an extensive and variable platform, which at the moment is right behind the market leaders, occupying third place in terms of total capitalization.

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