This piece is a comprehensive comparison of Ethereum vs Binance Smart Chain (BSC). Both blockchains are trying to be game changers for the crypto world. Towards the end of this article, you will have a better understanding of both platforms.
Despite the popularity of Ethereum vs Binance Smart Chain, there seem to be many questions, especially as to what separates Ethereum from Binance Smart Chain. Although both projects form part of the hottest and most discussed topics in the crypto market this year regarding DeFi.
In contrast, both Ethereum and Binance Smart Chain serve as a solution for developers. It also offers intuitive help for anyone needing a loan or higher yield to avoid applying to banks and other physical financial firms, both of which charge high fees and require identity verification. Also individuals, without requiring third party approval. Or it can leverage Ethereum and Binance Smart Chain to create a unit of account, trading instrument, credit and more without buying it.
Binance Smart Chain is one of the foremost competitors to emerge from the DeFi industry. But what exactly is the Binance Smart Chain (BSC) and how is it different from the Ethereum Blockchain?
There is a similarity between Ethereum and Binance Smart Chain. DApps and tokens running on the Binance Smart Chain are compatible with the Ethereum Virtual Machine (EVM). Not only that, public wallet addresses are the same on both blockchains. At the same time, there are even cross-chain projects running on both networks.
However, there are some notable differences between the two chains. Therefore, if you are wondering which one to use, it is best to know and understand the differences between Ethereum and Binance Smart Chain.
Now that we have an idea of Ethereum and the Binance Smart Chain, let’s quickly dig deep and learn more about Binance.
What is Binance?
Binance is a crypto exchange trading platform founded by Changpeng Zhao. The firm was officially launched in China for the first time. But he moved to the Cayman Islands after increasing Chinese regulation threatened his business.
The exchange has quickly become one of the largest crypto exchanges in the world due to its huge list of trading pairs and relatively low fees compared to its competitors.
Binance Smart Chain
In September 2020, Binance announced the new DeFi platform Binance Smart Chain (BSC), which was later released in April. It also planned to offer an alternative to Ethereum and other DeFi platforms.
Over time, it exceeded what Ethereum support could handle, causing congestion, slow transactions, and such high fees. It was impossible to ship anything under $100 unless perfectly timed.
Likewise, this has led to the rise of other smart contract platforms like BSC, which has grown rapidly due to Ethereum’s inability to provide a viable platform for those who cannot afford the fee.
Today, BSC has a total value of $27.26 billion locked in different applications running on the platform. But what is BSC? How does it compare to others like Ethereum and Binance Smart Chain?
Binance Smart Chain has made great strides in overtaking Ethereum in terms of trading volume. They also have incredibly similar applications built on them, such as decentralized exchanges and lending and borrowing platforms. But they are working on two largely different consensus mechanisms.
Consensus mechanism is a method by which nodes (participants) in a given computer system (blockchain) reach a “consensus” about the correct data set (transactions). This ensures the security of blockchain networks. And it allows participants to verify the authenticity of transactions without trusting each other.
Different blockchains have several ways to build this consensus. For example, Ethereum currently uses the Proof-of-Work (PoW) mechanism, also known as the original consensus mechanism used by Bitcoin. On the other hand, Binance uses a system called Proof of Authority (PoA).
Proof of Authority
In Proof-of-Authority (PoA), the block creators are known as validators. In other words, validators are pre-approved and selected by Binance as stated on their website. To be accepted, they must confirm their true personality and invest money to prove their long-term commitment. It also needs to be fair to all other candidates by making the PoA reputation-based by design.
In this model, Binance has full control over the blockchain. They also decide who will be the validator and also remove the validators at their discretion. Above all, this requires users to trust that Binance will act in their best interests. Likewise, if Binance chooses to change any aspect of the chain or ecosystem, it has the power to do so.
Changpeng Zhao, founder and CEO of Binance, famously stated that BSC is like “CeDeFI” or centralized DeFi. According to CZ, his tweet with these comments has since been deleted. But it is not a decentralized financial app ecosystem.
In the headline starting from Zhao’s tweet, he said that the advantages of this type of centralized control are that Binance itself can inspect projects built on the system. But multiple projects now have investors “pulling the carpet”.
Proof of Work
Currently, Ethereum uses the PoW mechanism similar to Bitcoin. In this system, machines face each other to verify transactions. Devices must solve complex math problems.
After that, the network adds a new block of transactions to the blockchain. These computers are also known as miners and are given to Ethereum to generate a new block of transactions. However, this process is energy-intensive and helps protect the network from bad actors.
This method serves to secure the network. Very few geographically dispersed miners form a decentralized network with no central authority, which is drastically different from BSC.
Ethereum is moving to a new consensus model known as proof-of-stake (PoS) to reduce fees. In this model, consensus uses an algorithm that selects a node to win a block of transactions. Then, when a node is selected, it generates the next block of transactions in the chain.
Additionally, these betting pools are taken based on the “stake” or the number of coins it holds. In other words, the more coins a betting pool holds, the more money can be taken to create a block and get a reward.
So in PoS, miners are followed by people who stake their coins. Just like miners join a mining pool to earn more rewards, anyone can “share” or put their coins into multiple betting pools. However, unlike PoA, share pools and nodes in the PoS model are not authorized or acquired by the government, making it more decentralized.
Blockchain Traffic and DApp ecosystem
At the time of writing, Ethereum hosts over 3000 dApps on the blockchain, from roughly 493 on BSC. This is a vital difference between Ethereum and Binance Smart Chain. However, given the young age of BSC it shows a growing and robust ecosystem.
Active addresses are also an important on-chain metric to consider. For example, despite being a newer blockchain, BSC marked a high of 2,105,367 addresses on June 7, 2021. Notably, BSC surpassed Ethereum’s all-time high of 799,580 on May 9, 2021.
So what’s the work behind BSC’s massive growth? Much is down to faster approval times and lower fees. However, BSC growth could also be related to the growing hype around NFTs and the deal with popular crypto wallets like Trust Wallet and MetaMask.
If we look at day trading, there is an even bigger difference between the two. In BSC, it is faster and more cost-effective to transfer users’ funds and interact with smart contracts. As a result, you can see BSC’s peak below around 12 million daily transactions and its current status above four million.
On the other hand, ETH never exceeded 1.75 million daily transactions. For users who need to move their funds regularly, BSC seems to be the more popular choice. Day-to-day transactions also need to be viewed in the context of existing addresses. Currently, BSC has more users, on average, who make more transactions.
Top DeFi DApps and Binance Smart Chain on Ethereum
When it comes to decentralized finance (DeFi), there is a major dApp transition between BSC and Ethereum. Because of the compatibility of blockchains. Also, developers can easily migrate applications from Ethereum to Binance Smart Chain.
To clarify, new BSC projects often reuse open source code from Ethereum under a different name. Let’s take a look at the top five DApps on Ethereum by users at DAppRadar.
First, you can see a mix of two DeFi Automated Market Makers (Uniswap and SushiSwap). Then, a crypto game (Axie Infinity) is also a peer-to-peer marketplace (OpenSea). If you take a look at the top five of BSC, you will see many similarities.
PancakeSwap is a hard fork of Uniswap. Apeswap is an Automated Market Maker (AMM). CryptoBlades, CryptoBay, and MOBOX are all blockchain games. Yield farms tend to be more practical as transaction fees are cheaper and faster transactions in BSC. All in all, these factors make them a popular choice for BSC users.
Ethereum is the home of the most popular blockchain games when it comes to crypto games. While some BSC projects are quite similar to CryptoKitties and Axie Infinity, they haven’t been able to garner as large audiences as the classic games on Ethereum.
Transfers between networks
If you have made any BEP-20 or ERC-20 investment in your wallet, you may have seen that your ETH and BSC wallet addresses are the same. So if you choose the wrong network when withdrawing your tokens from one exchange, you can definitely recover them from the other blockchain.
If you randomly withdraw ERC-20 tokens to the BSC, you can still find them at a similar BSC address. Likewise, you can go through the same process if you randomly send money from BSC to Ethereum. Either way, your money is safe.
Ethereum vs Binance Smart Chain: Transaction Fees
Ethereum and BSC use a gas model for transaction fees that include the complexity of a transaction. However, BSC users can set a gas price based on grid demand, and miners will prioritize transactions with higher gas prices. At the same time, Ethereum’s London hard fork introduces new changes that will eliminate the need for high fees.
Additionally, the Ethereum update sets a new pricing tool with a base fee per block. In addition, the base fee changes depending on the transaction need, eliminating the demand for users to decide on the gas price themselves.
Historically, Ethereum gas prices have been much more costly than prices in BSC. Also, the highest average notification was $68.72 in May 2021. As a result, this trend has started to change, but Ethereum is still more expensive at the moment.
In particular, if you pay a lower price in ETH, it will take much longer for your transaction to be processed.
On the other hand, here is an example of a BSC transaction that costs only $0.05, equivalent to an ERC-20 transfer on the ETH gas tracker. In addition, BSC calculated this by multiplying the gas used in the process (21,000) by the gas price of 5 Gwei.
Ethereum vs Binance Smart Chain: Transaction Time
Balancing average transaction times on blockchains is not easy. However, a transaction is completed when miners verify the block it is in. Other aspects can change the amount of time you wait:
- Miners may delay your transaction or even not include it in a block if you haven’t set your fee high enough.
- More complex interactions with the blockchain require multiple transactions. For example, they add liquidity to a liquidity pool.
- Most services will only recognize a transaction that is valid after a certain number of confirmed blocks. This extra support reduces the risk of merchants and service providers returning the payment if the network rejects the block.
If we look at the gas statistics for ETH, we can see that the trading time varies between 30 seconds and 16 minutes. Of course, these numbers take into account robust transactions, but not additional support requirements.
For example, if you buy ETH on your Binance account, you will have to wait for 12 network confirmations. As you can see from the diagram below, with blocks being mined almost every 13 seconds, this will add an extra 156 seconds when storing ETH in your spot wallet.
The standard block time in BSC is 3 seconds. So when we pair that with Ethereum’s 13 seconds, we’re looking at a roughly 4.3x speed increase.
Ethereum vs Binance Smart Chain: Consensus Mechanism
Ethereum is a Proof of Work (PoW) consensus mechanism similar to Bitcoin. However, PoW is very different from BSC’s Proof of Proof of Authority (PoSA). However, this difference will not last long. In other words, in Ethereum 2.0, the network will instead use a Proof of Stake (PoS) mechanism.
BSC’s PoSA combines Delegated Proof of Stake (DPoS) and Proof of Authority (PoA). As a result, 21 validators make changes to create blocks and receive a BNB transaction fee as a reward. Specifically, it requires running a node and staking at least 10,000 BNB to become a validator.
Other users, known as Agents, are those who put BNB shares behind an elected candidate. Therefore, the first 21 applicants selected according to the determined value will process the blocks in order. After that, this whole process repeats every 24 hours. In addition, Delegators receive a share of the rewards earned by validators.
Ethereum’s PoW is quite a different system. Instead of society choosing validators, there is a race to solve a puzzle. Anyone can join, but they will need to purchase or rent a specific mining rig. Likewise, the more power-ups you have, the more likely you are to solve the puzzle first and confirm a block. As a result, successful miners receive transaction fees and an ETH reward.
While PoW is a fun way to build consensus and ensure network security, developers have explored other mechanisms. Their aim is to find more effective and environmentally friendly options without ensuring safety.
There are many similarities between Binance Smart Chain and Ethereum. In part, this is what makes it so simple for ETH users to transfer with BSC and start searching. But despite the similarities, BSC has adopted exciting changes to experiment and build on execution and talent.
The Proof of Stake Authority (PoSA) consensus mechanism allowed users to take advantage of even lower and faster blockchain transactions.
In this article, we told you the differences between Ethereum vs Binance Smart Chain. Keep following us for more.