Battle of the Blockchains: Binance Smart Chain versus Ethereum

August 17, 2022

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In mid-October, Binance Smart Chain (BSC) received a $1 billion (£725.5 million) cash injection to encourage widespread user and developer engagement. This multi-billion dollar adoption campaign has put pressure on competing crypto networks, in particular ethereum, the world’s largest and most established blockchain for decentralized finance (defi).

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A battle is raging within the cryptosphere where decentralized blockchain models are fighting for primacy. The metrics that will decide who is successful in this conflict include transactions per second, the average fee per transaction (gas rates), scaling solutions, and the rate of adoption by developers and users.

Reading: Crypto ethereum binance smart

Like ethereum, the bsc can host smart contracts that essentially replace centralized authorities in the nascent world of defi. BSC is just over a year old and launched in September 2020. According to Binance CEO CZ Zhao, the rapid rise of blockchain has been a result of its “low fees attracting more users and projects.”

Throughout 2021, the number of applications on bsc has been steadily increasing. blockchain now hosts over 800 decentralized applications, compared to 2,800 for ethereum.

The total value of decentralized finance applications locked in the bsc has increased throughout 2021, from $34.7 billion in April to $36 billion today. however, ethereum is still far ahead in market share, hosting 69% of defi applications and having a total locked value of $135.05 billion.

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however, with binance’s recent $1 billion investment, they plan to make bsc “the most inclusive and widely used blockchain infrastructure in the world”.

this is a direct challenge to ethereum. However, Race Captial’s Chris McCann explained that encouraging developers to use BSC will require more than just substantial financial injections. She told yahoo finance that “ease of development, developer tools, and developer communities are a much more important factor for success than funding a large ecosystem.”

In light of the news that an ethereum user recently paid $430,000 in transaction fees for a failed payment, how can the network maintain its leadership position in this competitive environment? gas fees on binance are a fraction of those on ethereum and bsc’s transaction speeds are much faster, with a speed improvement over ethereum of about 4.3x.

mccann said: “high gas fees are making room for competitors like solana, who are seeing similar levels of growth in defi apps in their ecosystem with much lower transaction cost and much higher transaction speed” .

Despite its high gas fees and slow transaction speeds, ethereum remains an attractive platform for developers and users alike. this could be because it has a first-mover advantage that allowed it to capture an early monopoly on defi space.

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Although bsc is much cheaper and faster than the ethereum network, it has a major vulnerability that makes institutional finance wary of approaching it for long-term defi investments. the binance smart chain is heavily centralized. It only has 21 validators or miners, while the ethereum network has more than 11,000 validators. bsc is considered less robust and vulnerable to manipulation.

bsc’s centralized feature has allowed it to operate at high speed and low cost, but has raised trust concerns. this has prompted wilson withiam of crypto-data firm messari to tweet that “it’s hard not to assume that every binance chain validator is somehow connected or linked to binance.”

In addition to this governance issue, BSC is also facing increasing competition from a Singapore-based blockchain that is significantly faster and cheaper. Kucoin Community Chain (KCC) is a real contender in the space and gas fees are a fraction of the already minuscule fees on BSC. but both kcc and bsc have in common that they are both clones of the main ethereum network.

There are now at least 25 major blockchain platforms available in a market that is becoming increasingly competitive. Blockchains cannot yet handle large-scale transactions compared to the centralized financial instruments used by Visa (V) and MasterCard (MA), which can handle thousands of transactions per second.

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Until this scalability issue is resolved, there will be a persistent bottleneck that will inhibit the adoption and widespread practical application of blockchain technology. the comparison in transactions per second between defi and legacy transaction processing systems is stark. ethereum operates at about 30 transactions per second, while paypal (pypl) can collect around 200 and visa can validate an average of 1700.