INTRODUCTION
To begin this subsection of the Binance Coin Guide it must be emphasized that the Binance Chain and the Binance Smart Chain serve two separate and distinct purposes. Herein, we will examine each separately.
HOW DOES BINANCE CHAIN WORK
With its focus based on altcoin trading, Binance was founded in 2017, and has quickly grown to become one of the most popular cryptocurrency exchanges. Presently, they offer trading in over 500 cryptocurrencies and virtual tokens with clear support given to the most widely traded cryptocurrencies.
Binance is a 'centralized exchange'. It is a neutral third party exchange facilitating the transactions of cryptocurrency between two parties. In other words, Binance is the middle man. It acts to match customers' cryptocurrency needs with institutions offering the product desired. Binance minimizes any system friction by improving liquidity and providing convenience in effecting the trade. The liquidity provided by Binance exchange enables the buying and selling of multiple cryptocurrencies to occur at a stable price.
The Binance Exchange is noted for it's crypto to crypto trading pairs. It does not offer crypto to national fiat pairs. This Exchange gained it's popularity among traders as a result of it's offering of low transaction fees, high liquidity and discount fee offerings if paying by the native coin (BNB).
This Binance Coin (BNB) is the internal token facilitating trading on the Binance Platform. BNB runs on the Ethereum Blockchain using ERC-20 standards. There is a cap on the number of BNB tokens that may be issued and that cap is set at 200 million. At the end of the First Quarter, 2021, the price of one BNB was roughly $650 with a market capitalization of $3.6 Billion. At the time of this writing, however the price has dropped to $270.89 with a corresponding lower maket capitalization.
Binance provides a very informative blog where they claim high security and safety for the ecosystem through multi-tier and multi clustered architectures and the ability to provide high throughput processing 1.4 million transactions per second.
To begin trading on Binance, a trader must first complete KYC (Know Your Customer) requirements. Once the trader has successfully completed creating the trading account, cryptocurrency assets may be added to the traders public wallet provided by Binance and the trader may commence trading. Binance charges no fee for the deposit of cryptocurrencies into the Exchange, but transaction fees apply to withdrawals in varying amounts dependent upon the type and amount of subject cryptocurrency to be withdrawn.
[It should be noted that commencing 2021, Binance allows for US Dollar Deposits by Global customers via the SWIFT network. Deposits of 12 other fiat currencies are now also allowed. A limited and select number of cryptocurrencies have been made available by Binance for purchase via credit/debit card]
Three types of trade orders are supported by Binance for regular cryptocurrency trading:
- Limit Orders - where the order is only executed at the price as set by the trader.
- Stop Limit Orders - where the order becomes valid only when the price reaches a level as set by the trader.
- Market Orders - where the trade executes immediately at the best available price
Binance offers a total of seven types of orders on trading cryptocurrency derivatives (specifically on futures contracts) to wit: limit orders; stop limit orders; market orders; stop market orders; trailing stop orders; post only orders; and, limit TP/SL orders.
Binance also offers additional services, tools and platforms to provide support for its Exchange based activities. These additional services include: Binance Labs (which provides assistance to pre-ICO projects deemed worthy); and, LaunchPad (which hosts emerging new projects and API interfaces.
HOW DOES BINANCE SMART CHAIN WORK
In September, 2020, Binance Smart Chain was launched. BSC runs in parallel to the Binance Chain. In essence the two chains run side-by-side. BSC is not an off-chain scalability solution but is an independent chain that could operate even if the Binance Chain ceased operation. Accordingly, both chains share a strong resemblance in design parameters.
What sets BSC apart from the Binance Chain is it compatibility with the Ethereum Virtual Machine (EVM) and its smart contract capabilities. According to the Binance Academy, the design goal of BSC was to retain the high throughput of the Binance Chain while introducing smart contracts into the ecosystem.
BSC achieves approximate 3 second block times by using the same Proof of Staked Authority as at Binance Chain (limited number of nodes who serve under the direction and control of Binance). Upon the solution of a block and creation of a new one, no new fresh mint BNB coin subsidy is granted as BNB is not an inflationary coin (in fact due to regular team coin burns BNB is deflationary so as to support and enhance its price,
"To allow seamless asset transfer between blockchains, Binance Smart Chain offers cross chain compatibility where users can engage in data transfer between Binance Chain and Binance Smart Chain. For example exchanging tokens between the two using the Binance chain wallet." [Blockchain Simplified. "Binance Smart Chain - the smarter blockchain of smart contracts". https://blockchainsimplified.com/blog/binance-smart-chain-the-smarter-blockchain-of-smart-contracts/. (Accessed June 21, 2021).
To engage in trading on BSC, a trader must deposit crypto assets in a compatible wallet (i.e. Metamask, Trust Wallet, or Binance Chain Wallet). Getting a traders assets to BSC is as simple as connecting a wallet and transferring assets to the chain to complete a transaction. The results of the transaction automatically are reflected in the original sending wallet.
A word of caution is necessary:
Binance Smart Chain supports the BEP-20 token standard, while Binance Chain, the home of Binance DEX, supports the BEP-2 token standard. If you’d like to trade on Binance DEX, you’ll need to use BEP-2 tokens, while if you’d like to use dApps on BSC, you’ll need BEP-20 tokens.
[Binance Academy. "How to Get Started with Binance Smart Chain (BSC)". https://academy.binance.com/en/articles/how-to-get-started-with-binance-smart-chain-bsc. (Accessed June 21,2021). Just always be sure to select Binance Smart Chain (BEP-20) when withdrawing funds to your external wallet.
By allowing DApps to be built on top of the BSC and the wide spread utilization of smart contracts in the system, a wide and ever growing array of new and unique financial products are being developed adding to this Chain's popularity. This is a trend that is unlikely to diminish in the near future.
LIMITATIONS ON ACCESS TO BINANCE AND BSC
If you live within the United States, you are IP Address restricted from using the Binance Chain and are further technically prohibited from using BSC (although BSC is widely used by Americans as there is no IP restriction nor is KYC necessary). The American option for Binance is yet another "separate" entity known as Binance.US. However, a mere fraction of the cryptocurrency offered on Binance/BSC is listed on Binance.US leaving the US version much less desireable. For further information on these restrictions and the reasons for them see The Terrible Tale of BINANCE's Absence from the United States.