Get Educated On Binance Smart Chain: Decentralized Or Centralized?

Here at Bicoinist, we’re covering the Binance Smart Chain’s growth as it happens. They might be the world’s biggest cryptocurrency exchange, but we’re still in awe of what Binance built seemingly overnight. And about the contributions they’ve made to the DeFi space in such a short period of time.

But, can the Binance Smart Chain technically be considered part of the DeFi space?

What Does The Exchange Say About Binance Smart Chain?

According to Messari researchers Wilson Withiam and Ryan Watkins, the BSC is a centralized affair. And that’s precisely the reason for the high-speed transactions, for the low fees, for its success.

Their case makes sense, but that’s not even the weird part. The most surprising thing about this whole situation is that everyone in the crypto space seems to know about this. 

Let’s start from the beginning. As far as we can tell, the company doesn’t claim that the BSC is a decentralized platform. They do say:

Binance Smart Chain is (…) a new blockchain with a full-fledged environment for developing high-performance decentralized applications. It was built for cross-chain compatibility with Binance Chain to ensure that users get the best of both worlds.

Can the applications be considered decentralized even if the environment is not? Probably so. Especially those that are cross-chain.

BNB market cap (Calculated by TradingView) | Source: TradingView.com

The CeDeFi concept, as in Centralized Decentralized Finance, seems like an oxymoron. Nevertheless, it made sense in the context of two sister chains, one centralized and one decentralized. Wasn’t the Binance Smart Chain a decentralized version of the Binance Chain? Apparently not.

Related Reading | Binance Burns Record $600 Million BNB In Its 15th Quarter

About the validation process the newer chain uses, the exchange says:

Binance Smart Chain uses a consensus model called Proof of Staked Authority (PoSA). (…) This consensus model can support a short block time and low fees, and it only requires 21 validators to run.

Validators take turns to produce blocks. They essentially power the BSC network by processing transactions and signing blocks. In return for their service, they earn a reward in BNB tokens. Meanwhile, they also require daily re-election by staking governance to be able to continue to be part of the validator set.

And about that validator set, they say:

Elected validators are the top 21 validator candidates with the highest amount of voting power. They change every 24 hours through an ongoing election process.

In that “ongoing election process” seems to be the key.

What Do Withiam And Watkins Say About Binance Smart Chain?

According to Wilson Withiam, each day the Binance Chain determines the validator set in question. And just 11 validators control the Binance Chain. All of them directly connected to the exchange.

It's hard not to presume that each Binance Chain validator is in some way connected or tied to Binance.

They each take turns producing blocks in a seemingly predefined order. There doesn't appear to be any stake-weighted mechanism to determine which one produces the next block.

— Wilson Withiam (@WilsonWithiam) April 12, 2021

His colleague Ryan Watkins takes it one step further by claiming, “BSC is an Ethereum fork with a centralized validator set.” He gives Binance credit for bringing people into the DeFi space, and for mercilessly executing their plans. Nevertheless, shuts down the idea of Binance Smart Chain overtaking Ethereum and becoming “the world’s settlement layer.”

Every cycle people get hoodwinked by the latest centralized solution to all blockchains problems.

Every cycle influencers pump these narratives so they can dump on naïve retail traders when it’s over.

— Ryan Watkins (@RyanWatkins_) April 12, 2021

Related Reading | By The Numbers: The Binance Smart Chain Is Growing Exponentially

In the days after those denounces, Watkins goes from actually considering that the Binance Smart Chain might become #1, to making fun of it and comparing it to a bubble about to burst. In the end, he ends up as confused as us:

I’m conflicted. I’m not sure if BSC is setting this industry back a few steps with the low brow casino it’s created, or if it’s moving this industry a step forward by accelerating retail adoption.

— Ryan Watkins (@RyanWatkins_) April 21, 2021

ETH market cap (Calculated by TradingView) | Source: TradingView.com

Ultimately, the market will decide. The low fees are winning the race so far. People seem to be willing to forgive and forget a little centralization for them. Are they aware that the Binance Smart Chain is this centralized, though? Do they not care or do they don’t know? Were you aware of this? Do you care?

Isn’t Binance powerful enough as it is?

There are several other decentralized solutions available.

Isn’t decentralization pretty much the main characteristic of the whole crypto ecosystem?

Featured image by Akinori UEMURA on Unsplash - Charts by TradingView