Binance vs Ethereum and More
In mid-October of 2021, Binance Smart Chain created a $1 billion dollar grant to incentivize widespread user and developer participation. This drive to accept billions of dollars has put pressure on competing cryptocurrencies, especially Ethereum, the world's largest and most established blockchain for decentralized finance (DEFI). A battle rages in the world of cryptocurrency, where decentralized blockchain models battle for priority. The metrics that will determine who will succeed in this competition include transactions per second, average fees per transaction (Gas Fees), scaling solutions, developer and user adoption rates. When you add an incentive like millions or billions of dollars for developers to chose your smart contract blockchain network to build dapp upon, you start competing in a bigger way.
Like Ethereum, the BSC can host smart contracts that essentially replace centralized authorities in the nascent world of DeFi. BSC now hosts over 800 decentralized applications, compared with Ethereum’s 2800. This is a direct challenge to Ethereum. Gas fees on Binance are a fraction of those on Ethereum and BSC’s transaction speeds are much faster, having a speed improvement over Ethereum of roughly 4.3 times.
Despite its high gas fees and slow transaction speeds, Ethereum is still an attractive platform for both developers and users. Although BSC is much cheaper and faster than the Ethereum network, it has one significant vulnerability that is causing institutional finance to be wary of approaching it for long-term DeFi investment. The Binance Smart Chain is heavily centralized. It only has 21 validators, or miners, whereas the Ethereum network has over 11,000 validators.
This has led Wilson Withiam of crypto-data firm Messari to tweet that “it is hard not to presume that each Binance Chain validator is in some way connected or tied to Binance”. Apart from this governance issue, BSC is also facing growing competition from a blockchain originating in Singapore that is significantly faster and cheaper. There are now at least 25 major blockchain platforms available in a market that is becoming increasingly competitive (ELROND, SOLANA, CARDANO, AVALANCHE). Blockchains are still not able to handle transactions at scale compared with the centralized financial instruments used by Visa and Mastercard, which can handle thousands of transactions per second.
Until this problem of scalability is solved, there will be a persistent bottleneck inhibiting the adoption and widespread practical application of blockchain technology. The comparison in transactions per second between DeFi and legacy transaction processing systems is stark. Ethereum operates at approximately 30 transactions per second, whereas Paypal can muster around 200, and VISA can validate on average 1,700. The goal to dethrone VISA and MASTERCARD is very clear from competing blockchains and since October of 2021, we have seen many smart contract blockchain ecosystems or even DEFI ecosystems attract new development through grant programs just like Binance started.