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BNB Smart Chain (BSC): A Beginner’s Guide

10 mins
Updated by May Woods
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Binance has become the world’s largest cryptocurrency exchange, recording over 230 million active users in 2024. One of the key products of the exchange is the BNB Smart Chain (BSC) (previously called the Binance Smart Chain), an open-source smart contract platform allowing people to partake in DeFi. This guide will show you what the BNB Smart Chain is all about and how to take advantage of all of its features.

KEY TAKEAWAYS
► BNB Smart Chain (BSC) is a blockchain that offers a smart contract platform with low transaction fees and compatibility with Ethereum’s EVM.
► BSC utilizes a Proof-of-Staked-Authority (PoSA) consensus mechanism for energy efficiency and network security, combining elements of Proof-of-Stake and Proof-of-Authority.
► BSC supports popular decentralized applications (DApps) like PancakeSwap and Venus, which provide users access to yield farming, stablecoin lending, and borrowing.
► BNB Smart Chain’s future relies heavily on Binance’s regulatory standing, but remains popular for its speed and cost-efficiency.

Binance Smart Chain explained

Binance Smart Chain (BSC) represents the second generation of blockchain technology. While Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE), and others are the first generation of blockchains with the sole purpose of producing one product — digital money.

In contrast, Binance Smart Chain is a generalizable blockchain platform for deploying smart contracts and decentralized applications. These automated pieces of code can codify most conceivable logic, including traditional banking services — exchanges, borrowing, and lending.

On a technical level, BSC’s smart contract development is possible thanks to the EVM — Ethereum Virtual Machine. Just like there are engines in the video gaming industry that power games, such as Unreal Engine or Source, so there are blockchain engines.

Because of the decentralized nature, an EVM must function as a decentralized computer, executing smart contracts dispersed across thousands of computers — network nodes.

Binance Smart Chain
Ethereum virtual machine: Illustrated by Takenobu T.

Because of this shared EVM legacy, BSC can easily support smart contracts written on other EVM-compatible blockchains. Once again, this is analogous to the porting of a PC game to PlayStation or Xbox and vice-versa.

Binance Chain vs. Binance Smart Chain

Binance deployed Binance Chain (eventually called the BNB chain) in April 2019 in order to facilitate near-instantaneous trading.

The trade-off for this ultra transaction speed was the lack of smart contract programmability. Because smart contracts require a much greater degree of computational power, Binance made a decision to launch a specialized fast-trading blockchain network first.

If you recall, Ethereum faced many such congestions, particularly when NFTs entered the spotlight. For instance, when people rushed to collect and trade CryptoKitties (cartoon cats as NFTs), the entire Ethereum network halted to a standstill in December 2017. With such congestion issues being inevitable, Binance deployed the Binance Smart Chain in September 2020 as a BC sidechain.

Assisting Binance Chain with smart contracts, BSC is fully compatible, allowing the migration of crypto assets from one chain to another. While Binance Smart Chain supports the BEP-20 token standard, Binance Chain supports the BEP-2 token standard. Just as is the case with Ethereum’s ERC-20 token standard, BEP-20 focuses on the easy deployment of tokens.

Binance Smart Chain
BSC vs. BC: Binance

It is important to point out that the Binance Chain (BNB Chain) is a hard fork of Ethereum, while the BSC chain was built using the Cosmos SDK. In 2022, the BNB Chain merged with the BSC to form the BNB Smart Chain (BSC). This merge is similar to the one that Ethereum underwent.

Binance Smart Chain
BSC Chain: Binance whitepaper

As a result, the BNB Chain became the beacon chain, and BSC became the execution layer for smart contracts. However, in 2024 the BNB Chain was deprecated altogether.

How does BSC work?

As a second-generation blockchain, BSC uses the proof-of-staked-authority (PoSA) algorithm. This means that it combines delegated proof-of-stake (PoS) with proof-of-authority (PoA). This makes BSC much more energy-efficient than first-generation blockchains relying on proof-of-work (PoW), such as Bitcoin.

PoS removes such energy baggage by using economic staking — validators — instead of computational power — miners — to confirm transactions and add new data blocks.

Delegated proof-of-stake

A delegated PoS is a further step up by introducing voting and delegation mechanisms so that those with the most staking power don’t dominate the entire network.

Almost all newer smart contract blockchains use some PoS derivation — Cardano, Algorand, Solana, Avalanche, Cosmos, etc. PoS has become popular not only because it removes miners but also because it relies on an incentive structure to secure the network.

Proof-of-authority

Those with the most stake (tokens locked in) receive greater rewards to preserve the network. However, because it may happen that stakes of equal size have different values, developers made use of Proof-of-Authority for additional security. PoA simply replaces the monetary value with the validator’s identity.

Lastly, when BSC needs an upgrade or a patch, it enters an epoch period consisting of 240 blocks (about 20 minutes). As another PoS property to curtail malicious behavior — e.g., double signing and node downtime — BSC also employs a “slashing” governance mechanism, which removes a significant portion of a validator’s stake.

BSC gas fees compared to Ethereum

Because blockchains are decentralized networks without centralized oversight, that doesn’t mean they are free to use. Anytime a validator processes a transaction, their reward comes from transaction or gas fees, denominated in gwei as a one-billionth denomination of ETH (1 gwei = 0.000000001 ETH). If we compare BSC with Ethereum, the former is far more affordable.

bsc gas price
Binance Smart Chain average gas fee: bscscan.com

As you can see in the chart above, gas fees on BSC are typically below 3 gwei, as opposed to Ethereum, which can be as high as 20 gwei, more or less. Additionally, these are just the base fees — those that don’t include more complex transactions involved with DeFi protocols.

BSC tokenomics

What ETH is to Ethereum, Binance Coin (BNB) is to Binance Smart Chain. Holders can use the asset to pay transaction and trading fees on the Binance exchange itself, including the Binance decentralized exchange (DEX).

The native BSC cryptocurrency launched during the ICO conducted in July 2017 as an ERC-20 token, less than two weeks before Binance launched. Initially, one could get 2,700 BNB for a single ETH or 20,000 BNB for a single BTC.

BNB has a maximum token supply of 200 million BNB coins. Out of that supply, about 145 million are in circulation. When it comes to Binance Coin inflation, the supply undergoes quarterly (every three months) burning — removing tokens from circulation — with the aim to eventually halve the total supply to 100 million BNB.

Therefore, BNB mirrors Bitcoin’s deflationary nature, with the exception that a highly centralized for-profit company manages it. Binance controls or owns at least 50% of BNB supply.

The founding members received around 80 million BNB (40%), with angel investors receiving another 10%. Correspondingly, the fate of Binance will closely determine the fate of the BNB cryptocurrency.

This is not a comforting thought considering that Binance is often a target of regulatory agencies across the world, in addition to accusations of engaging in insider trading.

Before Binance launched Binance Chain, BNB started as an ERC-20 token on its competitor chain in 2017 — Ethereum.

BSC staking rewards

If you have read the part about BSC’s Proof-of-Stake consensus, then you must know that staking is the key to achieving a passive income on the BSC blockchain. If you choose to, you can become a BSC validator to make that happen. Unfortunately, the requirements are rather high:

  • Minimum stake of 10,000 BNB.
  • A 64-bit Virtual Private Server (VPS) with a minimum configuration of 16 GB RAM, 500 GB storage space, and 1Gbps fiber internet connection for running a full node (entire copy of BSC blockchain).

In return for securing the network and handling transactions, you will receive a BSC APY (annual percentage yield) of around 13%. Needless to say, not many can afford the privilege of securing BSC.

bsc block rewards
Binance Smart Chain block count and rewards chart: bscscan.com

Lastly, due to the aforementioned slashing mechanism, the validator could be sent to “jail” if the stake in the form of a self-bond falls under 10,000 BNB. Meaning, the validator’s ability to process transactions and receive rewards will be suspended for one day.

Likewise, downtime and double-signing can earn slashing as well. Downtime happens when a validator misses at least 50 blocks or around 52 minutes. As for double-signing, if a validator attempts to verify two blocks of the same height, they will lose 10,000 BNB and be permanently jailed.

DeFi on Binance Smart Chain

Smart contracts are the foundation for decentralized finance (DeFi). In turn, the front web face to access smart contracts on blockchains is a decentralized application.

Furthermore, like tokens power smart contracts running on the blockchain, blockchain governance and incentive structures run on native tokens, too. As we noted previously, the native token for Binance Smart Chain is Binance Coin (BNB) using the BEP-2 template. On the other hand, all the DApps use the BEP-20 standard.

As far as the most popular DApps on BSC, a very useful tool to use is DappRadar to get the full list across different categories. Here are some of the most popular.

PancakeSwap

As a decentralized exchange (DEX), PancakeSwap successfully replicated Ethereum’s Uniswap. It uses an automated market maker (AMM) to facilitate token swapping without centralized oversight.

After it launched in September 2020, its governance token CAKE skyrocketed in value. This was a predictable outcome of traders opting to use Binance Smart Chain instead of Ethereum due to high gas fees.

Be sure to check this guide on how to stake CAKE tokens to earn passive-yield farming income.

BakerySwap

For some reason, BSC DApp developers do love to use baking monikers! BakerySwap is also an AMM, just like Uniswap and PancakeSwap, but with a unique twist. Alongside yield farming for your service as a liquidity provider, BakerySwap adds NFTs on top.

When you earn BAKE tokens, you can put them to good use as a randomly generated combo meal in the form of an NFT. Then, this unique NFT collectible can be further staked to earn more BAKE tokens.

Venus

You may have noticed that decentralized finance depends on stablecoins. Because we don’t live in a world where most people use cryptocurrencies for daily expenses, stablecoins are the bridge between DeFi and traditional finance.

The problem is, it is often the case that a single company runs a stablecoin — including the most popular ones like USDT, BUSD, and USDC. This doesn’t quite contribute to DeFi being decentralized.

Venus protocol steps in with the cutting-edge algorithmic stablecoin, VAI, collateralized by a basket of stablecoins and other crypto assets. Furthermore, Venus allows you to tokenize assets and create a money market for lending and borrowing.

Effectively, this makes Venus a unique combo of Compound or Aave with MakerDAO, but exclusive to Binance Smart Chain.

Best crypto wallets for Binance Smart Chain (BSC)

binance smart chain

Here are some of the most convenient ways to access the rich BSC DApp ecosystem, which has been popular due to negligible gas fees.

  • MetaMask — The top-rated noncustodial wallet that integrates into your web browser and then connects to any DApp. Follow this complete guide to using MetaMask. Focusing on its wide adoption rate, MetaMask also offers support for integrating the most popular Trezor and Ledger hardware wallets.
  • Trust Wallet — Bought by Binance, Trust Wallet introduced staking all the way back in 2019. As an integrated DApp browser, it is available for both iOS and Android.
  • SafePal — For extra security, it is not only a mobile wallet but comes in the form of a hardware wallet, called SafePal S1. At a price tag of around $50, this is a great way to use cold storage to make your crypto funds hacker-proof. SafePal supports multiple blockchains and more than 10,000 tokens.
  • Math Wallet — Like MetaMask, Math Wallet is an extension for the most popular browsers — Chrome, Brave, Edge, etc. However, Math Wallet was developed with a mission to serve as a universal blockchain wallet, allowing for multichain dApps. If you have heard of a public blockchain, Math Wallet supports it. In addition to this impressive feature, it has a staking aggregator in the form of MathVault and MathChain as a layer 2 scalability solution based on Substrate.
WalletTypePlatformBrowsers
MetaMaskHotMobile and browser extensionOpera, Firefox, Edge, and Chromium browsers
Trust WalletHotMobile and browser extensionChrome, Brave, Opera, Edge
SafePalHot and coldMobile and hardwareChrome, Edge, and Firefox
Math WalletHotMobile, browser extension, and cloudChrome, Brave, Edge

Is Binance Smart Chain worth investing in?

Among public blockchains, the Binance Smart Chain ranks among the most popular. However, its longevity depends much on how regulators treat Binance and how the company itself conducts its business affairs. On the other hand, BSC is a very attractive smart contract platform thanks to its lightning speed and low transaction fees.

Based on those two driving forces alone, Binance could make a potentially good investment. However, this all depends on your personal finance goals. Therefore, only invest what you can afford to lose.

Frequently asked questions

What tokens are on Binance Smart Chain?

What wallets support Binance Smart Chain?

How do I get a Binance Smart Chain wallet address?

Is MetaMask a Binance Smart Chain wallet?

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Rahul Nambiampurath
Rahul Nambiampurath's cryptocurrency journey first began in 2014 when he stumbled upon Satoshi's Bitcoin whitepaper. With a bachelor's degree in Commerce and an MBA in Finance from Sikkim Manipal University, he was among the few that first recognized the sheer untapped potential of decentralized technologies. Since then, he has helped DeFi platforms like Balancer and Sidus Heroes — a web3 metaverse — as well as CEXs like Bitso (Mexico's biggest) and Overbit to reach new heights with his...
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