Binance Chain is launching a second, smart contract-enabled chain that will utilize Ethereum’s Virtual Machine to let its developers build decentralized apps. Binance Chain developers have recommended specifications for a new blockchain that would allow complicated smart contract functionality within the Binance Coin (BNB) ecosystem. The specifications are accessible in its white paper, released on April 17.

The new Binance Smart Chain will be autonomous but tightly combined with the original Binance Chain. The team demonstrates that it had to build a new chain to sustain the high performance of the original, which treats the Binance decentralized exchange. 

The white paper records that “the execution of a Smart Contract may slow down the exchange function and add non-deterministic factors to trading.” To counter this, the team is instead starting an independent Ethereum-compatible smart contract blockchain. 

Though separate, they will be joined by a cross-chain bridge for BNB, which will serve as the native token in the new smart contract platform. The Smart Chain will thus provide projects in the Binance ecosystem to create complex DApps based on Ethereum’s Virtual Machine. The team stated that this was an often demanded feature from projects in its ecosystem.

Proof-of-stake-like consensus

The consensus algorithm of the new chain is named Proof of Staked Authority. It is comparable to the Distributed Proof-of-Stake of EOS, as well as many other validator-based systems.

Like on EOS, there will be a collection of 21 active validators who take shifts in producing blocks. These will be determined by BNB stakeholders who will secure their tokens to reveal their preference — just like on EOS as well.

The consensus algorithm will also highlight stake slashing, a protection mechanism against illicit behavior. Slashing punishes validators for engaging multiple proposed versions of a chain, answering the so-called “nothing at stake” problem. The whitepaper records that the system persists fully safe if less than one-third of validators are spiteful, which is a common characteristic among Byzantine Fault Tolerant algorithms.

It is worth remarking that due to the token economics of BNB, which is utilized for payment of Binance’s fees, the exchange is likely always to have a predominant stake in the network.

Staking rewards

The Smart Chain will not assign new tokens as block rewards, suggesting that all of the awards will be in the chain’s transaction fees. The validators will be capable of claiming them. However, the team has already designated its support for rebate schemes, where stakes win part of the rewards in return for pledging their vote to the validator.

One exciting viewpoint of the suggested scheme is that every validator’s share of the transaction fees does not rely on how much stake is pledged to them. This means users will be punished for pledging to popular validators, as they will need to distribute the rewards with more participants. 

The team claims that “this will prevent the stake concentration and ‘winner wins forever’ problem seen on some other networks.”

This may be a preemptive solution to a common criticism of Proof-of-Stake, which is seen as a system where “the rich get richer.”