Binance Smart Chain vs. Ethereum: Can BSC Dethrone ETH?
Due to Ethereum's scalability issues and high transaction fees, its competitors have been gaining traction lately.
One of them is the Binance Smart Chain (BSC) that has taken away a significant part of Ethereum's market share with a highly scalable blockchain platform and a rapidly growing ecosystem.
But can Binance Smart Chain dethrone Ethereum to become the new king of smart contract blockchains?
Recap: Ethereum and Scalability
In July 2015, Ethereum forever changed the cryptocurrency industry by launching a blockchain platform with smart contract functionality.
As a result, developers could easily create, run, and program their decentralized applications (DApps) via self-executing digital agreements with the ability to launch their own ERC-20 tokens on top of the chain.
For these reasons, Ethereum has been providing tremendous use-cases for crypto users while serving as the main blockchain platform powering the ICO boom in 2017 as well as the thriving DeFi and NFT sectors.
That said, the smart contract platform has been struggling with scalability issues lately, which has led to network congestion as well as a significant increase in transaction fees.
According to Etherscan, the average transaction cost has jumped nearly 16,200% from $0.15 to $24.42 between April 16, 2020 and April 16, 2021.
As a result, it rendered ETH and all ERC-20 tokens unsuitable for small transfers (you would pay an over 50% fee for a $30 transaction).
At the same time, network congestion also made it hard for investors with limited capital to use DeFi solutions as the gas costs for smart contracts are even higher (an average token swap currently comes with $68.11 of gas fees on Uniswap).
Ethereum has long identified this issue, with the project's developers turning much of focus to roll out the ETH 2.0 upgrade, which would allow the network to scale more efficiently.
However, since ETH 2.0 is still at least a year away, projects in the ecosystem have been working on developing layer-two Ethereum scaling solutions like the OMG Network, Matic, as well as Optimistic and ZK-Rollups.
But such solutions take time to get integrated, and it has become clear that the crypto community needs an alternative smart contract blockchain platform with high scalability asap.
What Is Binance Smart Chain (BSC)?
While most of Ethereum's competitors are still under development, Binance Smart Chain is a fully-functional blockchain network.
For that reason and due to its high scalability, low transaction fees, and 3-second block times, BSC has become a leader among Ethereum rivals.
Binance Smart Chain is the second blockchain launched by the cryptocurrency exchange Binance.
The first one, Binance Chain, features high throughput yet lacks a virtual machine and smart contract support. For that reason, it is mainly used for operating the Binance DEX and some other native DApps.
Utilizing the Proof-of-Staked-Authority (PoSA) algorithm to reach consensus, BSC runs in parallel with the Binance Chain, allowing it to feature the same level of scalability and speed.
However, while the Binance Chain lacks most of Ethereum's functionality and flexibility, the Binance Smart Chain is compatible with the Ethereum Virtual Machine (EVM) and supports smart contracts.
As a result, developers can launch their Ethereum DApps on the Binance Smart Chain with minimal configuration, allowing many crypto projects to migrate quickly to the latter chain to avoid ETH's high transaction fees.
That said, it's crucial to talk about the level of centralization in the BSC network.
Unlike Ethereum's energy-intensive Proof-of-Work (PoW) consensus mechanism, Binance Smart Chain's PoSA algorithm is highly efficient as it doesn't require miners to continuously operate physical equipment to solve complex mathematical puzzles.
Instead, BSC only requires 21 validators – that are vetted by Binance, according to critics – to reach consensus by staking the project's native BNB token.
While validating blocks using such a limited number of validators allows the network to feature high scalability with fast throughput, it also means that the blockchain is increasingly centralized.
Furthermore, to transfer assets from Ethereum to the Binance Smart Chain, users have to utilize either the Binance Bridge or the project's exchange platform, which both use a centralized model to operate.
For that reason, in theory, it's possible for Binance to block users' IP addresses in restricted countries, effectively limiting their access and exercising increased control over the BSC ecosystem.
Ethereum vs. Binance Smart Chain: Who Is Leading in the War of Smart Contract Platforms?
Now that you know the basics, let's see how Binance Smart Chain and Ethereum compare in terms of market capitalization, transactions, and network activity (data from 2021 April 17 via Etherscan, BscScan, DappRadar, DefiPulse, and Defistation).
|Ethereum||Binance Smart Chain|
|Market capitalization||$285 billion||$82 billion|
|Token volume (24h)||$34.1 billion||$6.56 billion|
|Average gas price||184 gwei||8.6 gwei|
|Total unique addresses||147.8 million||65 million|
|Daily new addresses||107,124||118,394|
|Daily active addresses||617,881||496,045|
|Daily transactions||1.42 million||4.68 million|
|Number of DApps||2,236||396|
|Total value locked (TVL) in DeFi applications||$58.95 billion||$35.92 billion|
As you can see from the table above, despite BSC's increasing popularity, ETH holds the second position among top cryptocurrencies with over three times the market cap and five times the daily trading volume as Binance's BNB token.
On the other hand, gas prices are over 21 times higher on Ethereum than on BSC.
At the same time, Binance Smart Chain has taken the lead in terms of daily transactions and new addresses, which are great indicators to measure network activity (although, Ethereum still has 24.5% more active addresses a day than its competitor).
That said, Ethereum has 5.6 times more DApps than BSC with a 64% lead in TVL, meaning that Binance hasn't (yet) been able to match ETH's massive DeFi market.
In terms of growth, while ETH surged 235% in 2021, BNB achieved over 1,300% Year-to-Date (YTD) ROI, which could be attributed to Binance Smart Chain's increased adoption within the crypto community.
Based on the above data, it's safe to say that Ethereum managed to maintain a slight lead over the smart contract blockchain sector ahead of BSC.
However, as Ethereum gas fees remain high, Binance Smart Chain is expected to keep taking its competitor's market share among smart contract blockchain platforms.
Can Binance Smart Chain Dethrone Ethereum Among Smart Contract Blockchains?
With a fully functional and highly scalable network as well as a fast-growing ecosystem, Binance Smart Chain has quickly become one of Ethereum's most prominent competitors.
Since gas fees are super low on BSC compared to the ETH blockchain while featuring excellent compatibility with Ethereum, many crypto projects have partly or entirely moved to BSC.
On the other hand, while BSC gained significant market share in recent months, Ethereum still remains the king of smart contract blockchains.
Although, Binance Smart Chain can dethrone Ethereum in the short term it may not be able to do so in the long run.
As soon as Ethereum fixes its transaction fee issue – with layer-two scalability solutions like Optimistic Rollups and the long-awaited ETH 2.0 upgrade –, it will experience a significant spike in activity as many users and developers will start using the platform again.
While BSC proved itself a good project that creates value in the crypto industry, it's hard for many to dismiss the fact that its architecture is increasingly centralized.
On the other hand, similar to Bitcoin, Ethereum has always been a key proponent of decentralization.
That said, even if Ethereum solves its scalability problems, Binance Smart Chain will probably remain a key player in the field of smart contract blockchain platforms.
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