Analysis

BNB up 530% in 30 Days: Will the Binance Smart Chain Conquer Ethereum?

As transaction volume on the Binance Smart Chain (BSC) grows, questions arise about the future of Ethereum.

Cryptocurrency markets are recovering after a massive selloff that took place throughout Monday and Tuesday. Bitcoin has rebounded past the $50,000 mark, and the tokens that belong to two competing chains, Ethereum and Binance Smart Chain (BSC), have also improved their price performances.

At press time, data from Messari showed that Ether (ETH) was up by nearly 17 percent over the past 24 hours, with a price of ~$1,690. Binance Coin (BNB), which is associated with the BSC, was up by nearly 30 percent, bringing the price to ~$265. Over the past 30 days, BNB was up by more than 530 percent; ETH was up by 27 percent.

While the price drops that started off the week may have shifted the discussion away from the roles that these two chains play in the cryptocurrency ecosystem, the market rebound has allowed some of the spotlight to shine back onto these two blockchains. The big question is this: which one of them has more long-term viability as the ‘backbone’ of the DeFi ecosystem?

BSC vs. Ethereum: A History in Brief

The BSC initially appeared on the scene in September. A blog post detailing the launch of the chain said at the time that the “Binance Chain will enable the creation of smart contracts and the staking mechanism for BNB.” The post also mentioned that: “Any interested individuals and/or organizations can gather BNB stakes to become a validator of this new blockchain.”

The blog post specifically said that the BSC was launched just “in time DeFi (decentralized finance) revolution, as the public shows increased interest in alternative financial solutions powered by blockchain.”

And indeed, the public was showing massive interest in the ‘DeFi revolution’. The upward price movements of a number of DeFi-associated tokens were so powerful throughout June, July and August that the warmer months of the year came to be known as the ‘DeFi summer’.

Throughout this ‘DeFi summer’, a great deal of the projects that were performing so well price-wise were struggling in another way. As DeFi was growing, the Ethereum network, the network that many of these projects were built on, was beginning to strain under the weight of their success.

At the time, Finance Magnates reported that the Ethereum network was raking in record-high transaction fees as increased network congestion stepped up transaction times and continued to slow down.

“The reason that the network fees went up was because of Ethereum’s popularity: the more users and protocols that the network attracts, the more transactions that are sent through the network,” Finance Magnates reported at the time. “The more traffic there is on the network, the more congested it becomes; as it becomes more congested, fees go up, and transaction times slow down.”

Was “the Demise of the Narrative That ETH 2.0 Is a Viable Future Platform” the “Biggest 2020 Development in DeFi”?

As such, the conversation around the Ethereum network began to shift. The viability of the network, which is known as the original smart contract-enabled blockchain network, became uncertain. A growing number of reports emerged claiming that DeFi developers were looking beyond Ethereum for blockchains that could support higher numbers of transactions without skyrocketing fees or vastly slowed transaction times.

At the time, Stuart Popejoy, Co-founder and President of blockchain infrastructure firm, Kadena told Finance Magnates that: “the demise of the narrative that ETH 2.0 is a viable future platform” was the “biggest 2020 development in DeFi.”

Stuart Popejoy, Co-founder and President of blockchain infrastructure firm, Kadena.

Indeed, while Ethereum’s software upgrade to Eth2.0 is already underway, some members of the community believe that the update will take too long, and that another smart contract-enabled blockchain could become dominant in the meantime.

Competitors to the Ethereum network were already on the market when Ethereum began to struggle under the weight of the DeFi ecosystem: Polkadot, Cardano, Quantum (QTUM) and NEO, to name a few.

However, none of these competing chains seemed to have managed to pick up traction that could make them truly viable competition to good old Ethereum.

BSC Was Originally Billed as a “Support Network” for Ethereum

Enter the Binance Smart Chain.

Right away, Binance Chief Executive, Changpeng Zhao (CZ) began to encourage DeFi projects to leave Ethereum in favor of the BSC. However, CZ has maintained that BSC is a ‘support network’ for the Ethereum ecosystem and is not intended to threaten the Ethereum network.

In a tweet that appears to have been deleted, CZ allegedly wrote in mid-September that: “BSC never aimed to replace ETH, BSC is just ETH-compatible. Smart projects are giving their users more options. Option for cheaper fees.” At the time, CZ allegedly wrote that Binance Smart Chain transaction volume recently reached 10% of Ethereum’s network a few days ago.

Then, in late October, he wrote that: “#BSC is not a #ETH replacement or killer. I believe ETH 2.0 will be awesome, when it comes out… Until then,#BSC is more like a #ETH 1.8. 100% backward compatible, faster and lower fees (97% lower).”

“#BNB Started as a Token on #ETH, but Maybe #ETH Will End up as a Token on #BSC.”

Since then, CZ has stated that BSC and Ethereum can continue to coexist with one another. “For those holding ETH, no need to attack #BSC. We together make the industry bigger. ETH price did not drop. It increases together with #BNB. Have an infinite mindset,” he wrote on Twitter on February 20th.

On February 23rd, CZ wrote that: “to think a new coin takes value away from existing ones shows a finite mindset. It’s like saying whenever a new company is formed, Telsa or Google or Bridgewater loses value. That’s not the case. The world is not finite. Value is can be created by more/new use cases.”

However, CZ’s rhetoric seemed to take a more competitive turn against Ethereum when it was revealed earlier this month that the transaction volume on the BSC surpassed that of the Ethereum network. Indeed, on Wednesday, February 10th, reports emerged that the Binance Smart Chain (BSC) had surpassed the daily transaction volume of Ethereum by 30%. Then, on Thursday, February 18th, further reports emerged that BSC was processing 70 percent more transactions than the Ethereum network. On that day, BSC recorded 2.5 million transactions on its network; Ethereum processed 1.3 million transactions.

“As expected, I get a bit of ‘heat’ from #ETH lovers given the increased adoption of #BSC. I have no issues with ETH. We support it. We trade it. We futures it. We mine it. As a #BNB holder, I will of course continue to relentlessly shill #BSC and #BNB,” he wrote.

Later, he joked that that “#BNB started as a token on #ETH, but maybe #ETH will end up as a token on #BSC.”

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Will Low Fees Be Enough to Carry BSC into the Future?

And, indeed, while the two networks are coexisting for now, Binance seems to be betting on BSC’s low fees for future growth of the network.

On February 20th, a Binance spokesperson explained to Cointelegraph that the higher number of transactions may be due to lower fees on the BSC.

“BSC daily transaction volume is up by 300% from YTD and bolsters an ecosystem of 100+ DeFi projects,” the spokesperson said. “Furthermore, the platform has succeeded in maintaining GAS costs as low as $0.04. Compared to Ethereum’s $5.53, BSC is 135 times less expensive.”

Additionally, CZ retweeted a meme of a person holding an empty wallet next to the Ethereum logo captioned with: “After paying all these gas fees, #Ethereum logo makes sense to me.”

”Real Builders Make the Customers King and Their Needs #1 Welcome to Reality.”

Whether or not CZ was fostering the “BNB vs. ETH” narrative, much of the crypto community seems to have been picking the narrative up on its own. Much debate has ensued over whether BSC or Ethereum will ultimately hold the crown as the premier chain of the DeFi ecosystem.

Ajit Tripathi, Head of Institutional Business at DeFi lending protocol, Aave, wrote on Twitter that: “my final take on #BSC is that consumers get to choose whether they want high throughput and low transaction costs, or security and autonomy. Fellow #Ethereum believers can either build and promote the tech consumers deserve or continue to do what Netscape did (ie assume victory).”

Ray Youssef, Chief Executive of crypto exchange, Paxul, also described the apparent surge of activity on BSC as par for the course: “The Eth bros are now seeing the cost of ignoring the customer,” he said.

“Cryptocrats are kings only in their own minds. Real builders make the customers king and their needs #1 Welcome to reality.”

“We All Know BSC Is Not Going to Threaten Ethereum Long Term.”

However, other members of the crypto community have questioned whether the surge in BSC trading activity is the start of a long-term trend or merely a short-term phenomenon.

“…Tbh, it is still far too early to say #BSC will replace $ETH,” wrote Andy Cheung, Founder & Executive Chairman of ACDX.io. on Twittter on February 19th. “Just a few years ago, a similar discussion was on $BCH & $BTC.”

Larry Cermak, Director of Research at The Block, also tweeted on the 19th that: “we all know BSC is not going to threaten Ethereum long term.”

“[…] It absolutely amuses me when Ethereum people start sounding just like Bitcoiners bitching about Ethereum. Just chill, take a breather and let the incentives play out,” he added.

”Ethereum’s Biggest Moat Is That ETH Has Been Deemed ‘Not a Security’ by the SEC.”

Thibauld Favre, Chief Executive Officer at Fairmint, also pointed out on Twitter that he believes that BSC will not replace Ethereum: “Not for technical or philosophical reasons but for legal reasons: Ethereum’s biggest moat is that ETH has been deemed ‘not a security’ by the SEC,” he said. “That’s a massive competitive advantage.”

However, Favre did point out that Ethereum needs to address its technical shortcomings sooner rather than later. “As much as I love #ethereum, users & developers, unfortunately, don’t care that it *has a soul* when retail is priced out for making transactions and developers are paying large fees every time they touch the blockchain,” he wrote.

“This reminds me of Linux. I remember thinking in the early 2000s that Linux was so vastly superior technically & philosophically to other proprietary competitors that it was bound to ultimately win the desktop. But, it never did… because end users never cared.”

The BSC vs. Ethereum Debate Will Be Settled by Users

And, in the end, the users will be the ones who decide the fate of both BSC and Ethereum.

In fact, they already are, IDEX which is described as ‘the first DApp on Ethereum’, has recently made the decision to expand its platform to BSC. A spokesperson for the exchange told Finance Magnates that the platform plans to expand to Polkadot.

Alex Wearn, CEO of IDEX, explained to Finance Magnates that: “a major component of our decision is the fact the BSC is 100% compatible with Ethereum.”

“This means that we can deploy our application on top of BSC with almost no changes. Additionally, popular software wallets like Metamask also work with the BSC version of our application. This compatibility made it a natural choice for us and other protocols,” he said.

“Settlement on BSC is much cheaper than on alternatives, making it affordable for many more users. Within two weeks of launching we’ve already seen volume on our BSC version pass that of our ETH version, an accomplishment we largely contribute to the low settlement costs. BSC also contains many popular crypto assets such as BTC, LTC, etc., enabling us to offer more trading pairs to users.”

Of course, Ethereum’s community of dApps and developers remains larger than that of BSC’s. But, will it always be that way? Only time will tell.

Alex Wearn, CEO of IDEX.
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