The BSC network has been taking the DEFI world by storm. Let’s analyse the differences between BSC and Ethereum and where this war is heading to.
In case you have been living under a rock for the past few weeks, or in case you haven’t been following the crypto markets, you might have noticed that a new kid on the block ( called Binance Smart Chain ) is quickly gobbling up Ethereum’s market share. This is simply because BSC is being everything that Ethereum 2.0 promises to be and then some. Off course it’s not all rainbows and butterflies when it comes to the core principles that the early adopters live by, yet it’s very important to know the ins and outs of BSC and Ethereum in order to form an educated and objective opinion. So let’s fire up our Web 3.0 wallet and go crunch some DEFI on both chains.
DEFI on Ethereum and why is it so important
Many new people who jumped on the cryptocurrency train in 2021 don’t remember the crazy period of Crypto Kitties and the hype that Ethereum has unleashed back in 2017. Since then we have recovered from the brutal financial hangover of the bear market and from 2020, DEFI ( or Decentralised Finance ) was on everyone’s lips.
Decentralised Finance simply means having access to pretty much ALL financial services that were previously reserved for accredited investors ( read: wealthy investors who actually know how financial markets work ). Some say the financial regulators exclude regular mom and pop investors from participating in risky ventures for their own safety. Others say that this just keeps the small investors from becoming bigger and wealthier, eventually pushing those accredited investors aside. We are not here to judge, so it’s important to know that DEFI completely levels the playing field for every participant in the game, making sure no regulator ( yet ) can “protect” the smaller investors in order to keep them bubble wrapped and nannied in mediocrity. This is why DEFI is so powerful.
You want to lend out your money and invest in risky ventures? No problem! You want to become a market maker and collect trading fees as passive income? Let’s go! You want to issue digital bonds collateralised by your obscure vinyl record collection from the 1970’s? Why the hell not! DEFI allows literally anyone to participate in financial services that were the domain of the wealthy few just a short while ago. And when it comes down to getting your hands dirty in the tech, there’s no better way to do it than by using Ethereum. Ever Since Ethereum kicked open the door of the possibilities and cleaned off the dust of conservatism back in 2014, people have been flocking to ETH in huge masses.
Developers from all over the world are now playing in the Ethereum’s sandbox, creating amazing technology that the old financial dinosaurs couldn’t even dream of. Just one Finnish programmer sitting in his underwear in a smoke filled room in Kauhava can now literally create the next JP Morgan or Citi Bank. And you know what? They do! We have seen the rise of decentralized exchanges, NFT platforms, Insurance protocols, predictive markets and countless new and amazing innovations spring to life in a very short period of time.
From 2019 DEFI has been picking up speed and has gobbled up huge crypto capital in the process. New, fresh and exciting innovations have stepped into the spotlights, showering the early adopters with huge gains, endless possibilities and even passive income in the process. This insane popularity of Ethereum unfortunately comes at a cost and any type of body or machine working at maximum capacity for a long ass time is bound to have major problems.
Why is Ethereum struggling
It’s pretty much an open secret that the first cracks in Ethereum came with the arrival of the insane face melting bull market of the 2017. Even back then people have created so many epic new DAPPS ( Decentralised Applications running on the Ethereum network ) and even new crypto currency working on the Ethereum, that they managed to clog up the whole damn network in the process. Aside from huge delays in transaction speed, it created one of the biggest ugliest warts of the face of Ethereum that would even make Lemmy from Mötohead cringe; namely the insanely high transaction fees.
When it comes to proof of work networks, there is an incentive structure whereby the person who offers the miners a higher fee actually gets to cut in line with their transaction. Call it what you want, but this process is a blessing AND a curse at the same time. Miners don’t care who’s doing what on the Ethernet network. Miners just mine and collect transaction fees and block rewards! If some guy or gal offers a miner 50 usd to have one transaction executed faster than anyone else, the miner just says “thank you very much!” and processes this transaction first, pretty much making this high transaction a new benchmark for everyone else in the food chain.
This is exactly what’s happening today. But it doesn’t stop there. Simple transactions like zapping Ethereum or ERC20 tokens ( built on the Ethereum network ) from one address to another are considered as “simple calculations” for the Ethereum Virtual Machine ( EVM ). After all, Ethereum is just a huge decentralized world supercomputer, remember?
However if you think those Finnish programmers practicing Kalsarikännit ( literally translated: Staying at home in your underwear and drinking by yourself ) are using the Ethereum network for simple number crunching, you’re greatly mistaken! DEFI applications need tons of computing power from the Ethereum network and those GAS fees are going parabolic as we speak! In short the popularity of DEFI has ensured that these applications are quickly becoming the playing field of wealthy investors who play with 4 to 5 digit amounts that offset these ballooning network fees.
Of course Ethereum is not standing still and the rollout of ETH 2.0 ( working on a more democratically priced proof of stake model ) will be a true revolution in the crypto space. Thinking and hoping that this will happen overnight is just plain naïve. You see if you could compare ETH 2.0 rollout to something tangible, you can imagine a jet engine being fired off into the sky and while the damn thing is flying and burning tons of fuel, the developers are building a plane around it. This is exactly why it will take serious time to see the results of ETH 2.0 in action. For now, yes there are scaling solutions and other technical wizardry that tries to battle the high network fees head on. One of the unexpected newcomers to this space has been the Binance Smart Chain.
DEFI on Binance Smart Chain
Let’s not kid ourselves in thinking that the Binance Smart Chain is something new. It has been around for a while and their native semi-decentralised exchange ( Pancakeswap ) has been sitting quietly in a corner for a few months now. There was some traction and use in 2020, but nothing to write home about. All the action was on Ethereum.
Everything has changed in 2021 when more and more people finally started to discover decentralised finance and dabble in the tech. The ballooning Ethereum network fees have sent hoards of investors and speculators on a quest to find a worthy opponent and for now the Binance Smart Chain is definitely as impressive as it comes.
For starters the BSC is a proof of stake network, meaning there are no miners that would happily gobble up the ever rising transaction fees. The network is run by validators and all transactions are conducted lightning fast with almost no friction. A welcoming side effect from this simplicity, is that the network fees are significantly lower than what Big Daddy Ethereum is now charging.
This democratization of the smart contract network is off course not new. There are many proof of stake networks that can crunch smart contracts and DAPPS in the same manner, however Binance has managed to pull it off using their muscle and influence in the crypto space. Whenever it comes to centralised exchanges, Binance always takes the central stage when it comes to innovation and simply being one step ahead of the competition. Crypto space is hard, brutal and relentless. You adapt or you vanish into obscurity like so many shiny Ethereum killers from the bull market’s past.
Currently we are seeing countless eager developers migrate their DEFI projects to the BSC network in order to profit from those fast and crunchy transaction speeds and those deliciously low network fees. One might say that the BSC network has democratised the DEFI space for the average user and the newcomer alike. Not everyone can cough up a few thousand dollars just to play on Ethereum after all! Besides, having the choice of DEFI’ing on the Binance Chain is a welcome breath of fresh air for many newcomers and crypto veterans alike.
We can’t deny that the rise of BSC will have a huge impact on ALL the DEFI platforms ( not only on Ethereum ). The native BSC exchange Pancakeswap has already overtaken the most famous decentralized exchange Uniswap in trading volume. The BSC network is sucking up liquidity and new users on an hourly basis. That is undeniable. However before you run and configure your Web 3.0 wallet to BSC, there are a few important things that we must know about this network and what risks it may hold.
What’s wrong with Binance Smart Chain
Just like Bitcoin Cash has nothing to do with Bitcoin, the Binance Smart Chain has absolutely nothing to do with Ethereum. The BSC network is not completely decentralized. It’s still under the iron fist of Binance. While the hardcore crypto veterans may disaprove of this centralisation, there are still a few important things we must keep in mind.
Ethereum is a free playground where pretty much anything goes. We have seen the rise and fall of ICO’s ( Initial coin offerings ) during the 2017 mania. Countless scams and many unsavory activities have plagued the Ethereum network for years now. The Binance Smart Chain is relatively new and hasn’t yet experienced all of these childhood illnesses yet. At the moment there are countless new projects being launched on the BSC network and liquidity is being sucked into them by the millions on a daily basis. This will inevitably lead to “rug-pulls” ( scams whereby the project owners rob the investors ) and many other hidden underwater stones. Therefore new investors who are eager to try out the BSC network need to pay extra attention while conducting their due diligence. There are currently hordes of Telegram warriors and “pump and dump groups” promoting BSC projects left, right and center. Unsuspecting investors are doomed to lose millions of dollars. It’s truly ironic that we fail to learn from the past time and time again. Regardless of these dangers it’s pretty much certain that the BSC network will grow and gobble up even more liquidity exponentially, creating even more value for investors ( and also for Binance ) in the process.
Speaking of Binance, let’s not forget that we are still talking about a centralised exchange. The very first mantra of a crypto investor is: “Not your keys, Not your coins”, meaning that whoever controls your private key, effectively has full control and ownership over your cryptocurrency. This being said, it’s also very important to mention that Binance didn’t become one of the largest exchanges by accident. They are doing many things right and will continue to grow.
However we must be vigilant and aware that there are also very dodgy practices that centralised exchanges are famous for ( not only Binance, but many others too ). Oftentimes during the periods of high volatility the centralised exchanges are famous for having “unexpected technical issues” that keep traders from making moves. Also there are what’s called “liquidations of leveraged positions”, a practice whereby a centralised exchange can profit from the knowledge of trading volume in order to trigger automatic sell orders, making huge gains in the process. Just like a pack of smokes carries a clear warning label, the centralised exchanges should also write in bold letters: “Using leverage is harmful to your wallet”. And if you are planning to use a 100x or higher leverage, then suddenly a casino becomes a hell of a lot less riskier place.
Last but not least, it’s very important to mention that while Binance doesn’t position itself as an “Ethereum Killer”, it did halt ( temporarily ) the withdrawal of Ethereum and ERC20 tokens, explaining their actions as “protecting the investors”. To the savvy investor this sounds awfully like the shenanigans of the classic financial regulators mentioned in the first chapter. There is no proof of any malicious intent by Binance, yet the fact remains a fact; their stunt has shown that they are ready and willing to promote their BSC infrastructure at all costs. Needless to say it’s working and many new people are eager to dabble in this new DEFI sandbox. Now that you have all the facts, what network is better?
Which one is better?
Short answer is; Both Ethereum and BSC have their place under the sun. It all depends on the time frame. In crypto time is hyper compressed and events happen with a lightning fast speed. Being just 1 week offline changes everything.
On a short term basis, the BSC will definitely take a huge chunk of Ethereum’s pie and will continue to become more popular and widely used. Money talks, bullshit walks! And the money is flowing to the BSC network hands down. There are countless more DEFI apps being deployed and programmers from all over the world are sweating pure caffeine, coding the next best app of tomorrow. All on the BSC ecosystem off course. Yes it has the speed and low fees. It’s easy to use and it’s shiny and new. Therefore while the possibilities for face melting gains are there, so are the scams and rug pulls. It’s a fascinating journey and we are watching BSC very closely. For the diehard fans of decentralisation, there is of course Ethereum and it’s just a matter of time before it wakes up to smell the coffee that’s brewing in the BSC’s kettle.
In general, Ethereum has been an undisputed world champion for too long. Once lean and mean fighter, he’s currently rocking a hefty double chin and a beer belly. Of course having BSC as competition will rekindle the fiery spirit of the Ethereum developers and will make sure they get cracking on that ETH 2.0 that we are all waiting for.
In the meantime it’s inevitable that other centralised exchanges will stop picking their noses and start implementing current Ethereum scaling solutions in order to tackle the problems of high gas fees head on. Once this happens, the balance of power will shift once more. Projects like xDAI, ZK rollups and optimism already exist and just like so many cool technological developments, they are suffering from lack of marketing and awareness.
One thing is certain. The dust will never settle with Ethereum and BSC. The battle will rage on throughout the whole damn bull market. In case of doubt, it’s actually very useful for a prudent investor to play around with both networks and have exposure to both chains. After all the more exposure one might have to a certain investment, the more fascinating and thrilling this investment becomes. BSC and Ethereum are here to stay and every investor should definitely learn to use both networks in order to maximize their odds of this bull market to their fullest potential.