Data Science of Binance Smart Chain (BSC) vs Ethereum (ETH)

Data Science of Binance Smart Chain (BSC) vs Ethereum (ETH)

By quantdoge | Data Science of Crypto | 27 Feb 2021


Blockchain Architectures of BSC and ETH

Ethereum is currently having the second-largest market capitalization after Bitcoin (BTC). As opposed to Bitcoin blockchain which serves solely as a store of value and peer-to-peer decentralized payment system, Ethereum blockchain also empowers the development of smart contracts on top of its decentralized peer-to-peer payment network. Ethereum's smart contract capability has then enabled the rapid development of various decentralized applications (dapps) as we are seeing nowadays.

Ethereum 1.0 is running the same consensus protocol as the bitcoin blockchain, namely the proof-of-work (PoW) consensus algorithm. In PoW consensus mechanism, participating nodes (miners) compete with one another to solve mathematical puzzles, and whoever managed to solve it first would get the rights to create the next new block on the blockchain. In Ethereum blockchain, each block has its header, nonce and difficulty. The header is fixed while nonce is a variable that changes dynamically. For one node to win, it would need to produce a hash of header and nonce that is less than the difficulty function of the block.

Ethereum PoW Consensus 

As there are many possibilities on the 64-bit nonce, nodes that are running with higher computational power supported by a greater amount of electricity would always tend to win. As an incentive for miners to contribute computational resources and electrical power for the entire PoW ecosystem to work, the winning node would be awarded a new ETH coin. As the difficulty increases, a greater hash rate (i.e total combined computational power) is needed for a block to be mined, making the blockchain more secure but at the same time consuming more electricity.

Binance was originally started as a decentralized exchanges (DEX) project on the Ethereum blockchain but has just moved its token, Binance coin (BNB) out of Ethereum in 2019. Binance blockchain is running on a dual-chain system where its Binance Smart Chain (BSC) is running in parallel with its Binance Chain. Binance Smart Chain was launched after Binance Chain in 2020 to enable the development of smart contracts and it is Ethereum Virtual Machine compatible, thus allowing Ethereum developers to easily port their projects over without needing them to relearn another programming framework. This mechanism is very powerful as dapps developers are mostly familiar with Ethereum blockchain more than any other blockchains out there. BSC is running on a proof-of-staked-authority (PoSA) consensus mechanism, where participants could join as validating nodes by staking (i.e. locking) their BNB coins, and at each validation, 21 nodes would be selected as validators based on the staking module built on Binance Chain for Binance Smart Chain. Different from ETH 1.0, no BNB coin would be issued to the successful validator, but validators would earn rewards from the transaction fees and commission fees. Nodes that stake a larger amount of coins would have a greater chance of getting selected as validators. Binance also imposes penalties and jail time for validators that commit double-signing offense or being offline and misses 50 blocks every 24 hours. (More details at https://docs.binance.org/smart-chain/validator/guideline.html )

Performance Data Between BSC and ETH

PoSA consensus has an advantage over PoW consensus in terms of electricity saving and speed. On average, BSC block time takes only 3 seconds while ETH block time takes around 13 seconds on similar block size.


Due to BSC lightning fast confirmation time, the average transaction cost for dapps that run on BSC is very much lower than those which run on Ethereum.

 

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Recognizing this scalability issue, Ethereum community is now working towards Ethereum 2.0 which would aim to reduce its current network congestion issue and conduct up to 10,000 transactions per second via the switch from proof-of-work (PoW) to proof-of-stake (PoS) consensus algorithm and Sharding.

In order to ensure a successful switch from PoW to PoS without a hard fork, Ethereum has imposed a difficulty bomb where the difficulty to mine new blocks would get harder as time passes, hence, reducing the incentives for Ethereum miners to continue running the current PoW consensus algorithm.  

According to Etherscan, this difficulty bomb has been imposed which causes the difficulty to increase exponentially in 2021. 

 

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This difficulty bomb which intended to encourage the switch from PoS to PoW has ended in a disaster due to the delay in its ETH 2.0 implementation, which sees its network being greatly congested which results in an exorbitant amount of transaction cost. 

 

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As a result, it is no surprise that cryptocurrency newbies who have just started their crypto journeys have opted to join dapps that run on BSC as opposed to ETH. 

 

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It is interesting to see that the active DeFi dapps which are hosted on BSC during the last 30 days are slowly catching up with those which were hosted in Ethereum blockchain despite BSC being a new blockchain system that just launched last year. Active dapps here are defined as dapps that see at least $1 of inflow in the last 30 days.

 

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Looking at the DeFi 30-day popularity chart on DappRadar, it is no surprise that 3 out of the 5 popular dapps are hosted on Binance Smart Chain and
none of them is hosted on Ethereum blockchain. The main reason for that is being the high transaction costs (deposit and withdrawal) which diminish
the user's return of investment instead of optimizing it as what DeFi was supposed to be.

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Ethereum 2.0 success now lies in its ability to accelerate its development and launching of Beacon chain and PoS algorithm in a scalable manner, which hopefully would bring the overall transaction costs down drastically, or else, it risks being displaced by Binance Smart Chain, especially on the DeFi space.

Looking at the above data, this tweet kind of makes sense now.

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Reference:

All data presented above was powered by:

1. https://etherscan.io/
2. https://bscscan.com/
3. https://dappradar.com/

 


quantdoge
quantdoge

Data scientist in crypto and blockchain space.


Data Science of Crypto
Data Science of Crypto

As a trained data scientist and a newbie cryptocurrency investors, I created this blog as a means to approach DeFi and cryptocurrencies on the data science and technology perspective. This blog was created to present readers with interesting statistics and data analytics on the crypto space.

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