Ethereum vs Binance Smart Chain – What’s the Difference?

Introduction

This piece is a comprehensive comparison of Ethereum vs Binance Smart Chain (BSC). Both blockchains are striving to be a game-changer for the crypto world. Towards the end of this article, you will have a better understanding of both platforms.

Despite the popularity of Ethereum and Binance Smart Chain, there seems to be a lot of questions particularly about what makes Ethereum differ from Binance Smart Chain. Although, both projects form part of the hottest and most-discussed topics in the crypto market this year as far as DeFi is concerned.

In turn, both Ethereum and Binance Smart Chain serve as a solution for developers. Also, both offer intuitive help for anyone in need of a loan or higher returns to avoid attending to banks and other physical financial firms that charge high fees and require identity confirmation. Also, individuals can take advantage of Ethereum and Binance Smart Chain to establish a unit of account, a means of trade, loans, and more without requiring or obtaining third-party consent.

Binance Smart Chain is one of the most prominent rivals to emerge from the DeFi industry. But what is the Binance Smart Chain (BSC) exactly, and how does it vary from Ethereum Blockchain?

There is a similarity in Ethereum vs Binance Smart Chain. DApps and tokens that work on Binance Smart Chain fit with the Ethereum Virtual Machine (EVM). Not only that, but public wallet addresses are the same on both blockchains. At the same time, there are even cross-chain projects that run on both networks.

Nevertheless, there are some notable variations between the two chains. So, if you’re wondering which one to use, it’s best to know and understand the differences between Ethereum vs. Binance Smart Chain.

Now that we have an idea about Ethereum and Binance Smart Chain, let’s quickly dive deep and know more about Binance.

What Is Binance?

Binance is a crypto exchange trading platform founded by Changpeng Zhao. The firm was formally first launched in China. But, it moved to the Cayman Islands after the increased Chinese regulation threatened its business.

The exchange quickly became one of the biggest crypto exchanges in the world due to its massive list of trading pairs and relatively low fees compared to competitors.

Binance Smart Chain

In September 2020, Binance announced its new DeFi platform Binance Smart Chain (BSC), later launched in April. Besides, it planned to offer an alternative to Ethereum and other DeFi platforms.

Over time Ethereum grew past what its support could handle, causing congestion, slow transactions, and fees so high that sending anything under $100 was borderline impossible unless timed perfectly.

Likewise, this led to the rise of other smart contract platforms like BSC, which rapidly grew as Ethereum couldn’t provide a viable platform for those that couldn’t afford the fee.

Today, BSC has $27.26 billion in total value locked in the different apps that run on the platform. But what is BSC? How does it compare to others like Ethereum vs. Binance Smart Chain?

Consensus Mechanism

Binance Smart Chain has created huge strides in taking on Ethereum in terms of the trading volume. Also, they have incredibly similar applications built on them, like decentralized exchanges and lending and borrowing platforms. But they work on two largely different consensus mechanisms.

A consensus mechanism is a method that lets nodes (participants) in a given computer system (blockchain) reach a “consensus” about the correct set of data (transactions). This provides blockchain networks their security and allows the participants to verify the authenticity of transactions without trusting each other.

Different blockchains have various ways of forming this consensus. For example, Ethereum currently uses 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, the validators are pre-approved and selected by Binance, as told on their website. To be accepted, they must verify their real personalities and invest money to prove long-term commitment. Also, it needs to be fair to all other candidates, making PoA reputation-based by design.

In this model, Binance has full control over the blockchain. Besides, they decide who becomes a validator, and they also remove validators at their discretion. Above all, this requires the users to trust that Binance will behave in their best interest. Likewise, should Binance choose to alter any features of the chain or ecosystem, it has the power to do so.

Changpeng Zhao, the founder, and CEO of Binance, famously stated that BSC is like “CeDeFI,” or centralized DeFi. According to CZ, the tweet he made with these comments has since been deleted. But it is not a decentralized financial application ecosystem.

In the thread that started from Zhao’s tweet, he said that the advantages of such centralized control are that Binance itself can vet projects built on the system. But more than one project has now “rug pulled” investors.

Proof of Work

Currently, Ethereum utilizes the PoW mechanism similar to Bitcoin. In this system, machines face one another to validate transactions. The devices must solve complex mathematical problems.

After this, the network adds a new block of transactions to the blockchain. These computers are also known as miners, and they are given Ethereum for creating a new block of transactions. But, this process is energy-intensive and helps to secure the network from bad actors.

This method serves to secure the network. Few geographically-spread miners make for a decentralized network without a central authority, drastically different from the BSC.

Ethereum is moving over to a new consensus model known as proof-of-stake (PoS) to reduce fees. In this model, a consensus uses an algorithm that chooses a node to win a block of transactions. Then, it produces the next block of transactions in the chain when a node is selected.

In addition, these stake pools are taken based on the “stake,” or the number of coins it holds. In other words, the more coins a stake pool holds, the more possible it is to be taken to create a block and get rewards.

So, in PoS, miners are followed by people who stake their coins. Everyone can “stake” or put their coins with multiple stake pools, just like miners joining a mining pool to earn more rewards. But, unlike PoA, stake pools and nodes in the PoS model are not authorized or taken by the government, making it more decentralized.

Blockchain Traffic and DApp ecosystem

At the time of writing, Ethereum hosts more than 3000+ dApps on the blockchain than roughly 493 on BSC. It’s a vital difference between Ethereum vs. Binance Smart Chain. But, it shows a growing and robust ecosystem considering BSC’s young age.

Active addresses are also an essential 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 addresses on May 9, 2021.

So what’s the study behind BSC’s sudden massive growth? A lot of it comes down to faster approval times and low fees. However, the BSC growth might also be related to the increasing hype around NFTs and the agreement with popular crypto wallets, such as Trust Wallet and MetaMask.

If we look at everyday transactions, there’s an even larger difference between the two. On BSC, it’s quicker and more cost-efficient to transfer users’ funds and interact with smart contracts. As a result, you can see the BSC’s peak below of around 12 million daily transactions and its current status at over four million.

On the other hand, ETH never surpassed 1.75 million daily transactions. For users who need to move their funds regularly, BSC looks to be the more popular choice. Daily transactions need to be seen in the context of existing addresses too. Currently, BSC has a higher number of users who also transact more on average.

Most Used DeFi DApps on Ethereum vs Binance Smart Chain

When it comes to decentralized finance (DeFi), there’s a large dApp cross-over between BSC and Ethereum. Due to the blockchains’ compatibility. Moreover, developers can easily port applications from Ethereum vs. 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 on DAppRadar.

Firstly, you can see a mix-up of two DeFi Automated Market Makers (Uniswap and SushiSwap). Then, a crypto game (Axie Infinity) also the peer-to-peer marketplace (OpenSea). If you take a look at BSC’s top five, you’ll see a lot of similarities.

PancakeSwap is a hard fork of Uniswap. Apeswap is an Automated Market Maker (AMM). CryptoBlades, CryptoBay, and MOBOX are all blockchain games. As transaction fees are cheap on BSC and quicker transactions, yield farms tend to be more practical. As a result, these factors make them a popular choice for BSC users.

Ethereum is the home of the most popular blockchain games out there when it comes to crypto games. Although some BSC projects are pretty similar to CryptoKitties and Axie Infinity, they failed to get as big audiences as the classic games on Ethereum.

Transfers between networks

If you’ve made any BEP-20 or ERC-20 deposits into your wallet, you might have seen your ETH and BSC wallet addresses are identical. So, if you choose the wrong network when withdrawing your tokens from an exchange, you can surely recover them from the other blockchain.

If you randomly withdraw ERC-20 tokens to BSC, you can still find them in a similar BSC address. Likewise, you can also go through the same process if you randomly send coins from BSC to Ethereum. In both these cases, your funds are safe.

Ethereum vs Binance Smart Chain: Transaction Fees

Ethereum vs. BSC both use a gas model for transaction fees that include the complexity of a transaction. However, BSC users can set a gas price according to network demand, and miners will prioritize transactions with higher gas prices. At the same time, Ethereum’s London hard fork brings new changes that will likely remove the need for high fees.

In addition, the Ethereum update sets a new pricing tool with a base fee per block. Moreover, the base fee changes depending on the need for transactions, removing the demand for users to decide on the gas price themselves.

Historically, Ethereum gas prices have been much costlier than ones on BSC. Besides, the highest average notice was in May 2021 at $68.72. As a result, this trend has begun to change, but Ethereum is still currently more expensive.

Notably, on ETH, if you pay the lower price, your transaction will take much longer to go through.

On the other hand, here is an example of a BSC transaction with a fee of just $0.05 equivalent to the ERC-20 transfer in the ETH gas tracker. Besides, BSC calculated this by multiplying the gas used by the transaction (21,000) with the gas price of 5 Gwei.

Ethereum vs Binance Smart Chain: Transaction Time

It isn’t easy to balance the average transaction times on blockchains. But, a transaction is complete once miners validate the block it is in. While other aspects can change the time you wait:

• The miners might delay your transaction or even not include it in a block at all if you haven’t set your fee high enough.
• More complex interplays with the blockchain need multiple transactions. For example, they are adding liquidity to a liquidity pool.
• Most services will only recognize a transaction valid after a specific number of approved blocks. This extra support reduces the risk of merchants and service providers returning the payment if the network rejects the block.

If we look over the gas statistics for ETH, we can see that the transaction time varies from 30 seconds to 16 minutes. Of course, these numbers take into account solid transactions but not the added support requirements.

For example, if you buy ETH into your Binance account, you will need to wait for 12 network confirmations. With a block mined almost every 13 seconds, as you can see from the diagram below, this would add an extra 156 seconds when storing ETH into your spot wallet.

On BSC, the standard block time is 3 seconds. So when we match this to Ethereum’s 13 seconds, we’re looking at a speed growth of roughly 4.3 times.

Ethereum vs Binance Smart Chain: Consensus Mechanism

Ethereum is a Proof of Work (PoW) consensus mechanism that is similar to Bitcoin’s. However, PoW is extremely different from BSC’s Proof of Staked Authority (PoSA). But, this difference won’t last for long. In other words, in Ethereum 2.0, the network will use a Proof of Stake (PoS) mechanism instead.

BSC’s PoSA combines Delegated Proof of Stake (DPoS) and Proof of Authority (PoA). As a result, 21 validators take changes to create blocks and, in return, get BNB transaction fees as a reward. Notably, to become a validator requires running a node and staking at least 10,000 BNB.

Other users, known as delegators, are those who stake BNB behind an elected candidate. Therefore, the top 21 selected applicants by the value staked will then take it in turns to process blocks. After that, this whole process repeats every 24 hours. Also, Delegators get a share of the rewards that validators earn.

Ethereum’s PoW is a highly different system. Instead of society choosing validators, there is a race to solve a puzzle. Anyone can take part, but they will need to buy or rent a specific mining rig. Likewise, the more power you have, the more likely you will solve the puzzle first and confirm a block. As a result, successful miners receive transaction fees and an ETH reward.

While PoW is a playful way of building consensus and securing network safety, developers have explored other mechanisms. Their goal is to find more effective and environment-friendly choices without settling security.

Conclusion

There are many similarities between Binance Smart Chain and Ethereum. In part, this is what has made it so simple for ETH users to transfer and start searching with BSC. But despite the similarities, BSC adopted exciting changes to try and improve on execution and ability.

The Proof of Staked Authority (PoSA) consensus mechanism authorized users to enjoy even lower and faster blockchain transactions.