Binance Chain developers released a white paper on 17th April proposing specifications for a new blockchain that would enable complex smart contract functionality within the Binance Coin ecosystem. The new Binance Smart Chain will be independent but integrated with the original Binance Chain. The team noted that it had to create a new chain to maintain the high performance of the original, which hosts the Binance decentralized exchange.
The white paper explains that the execution of a Smart Contract might slow down the exchange function and combine non-deterministic factors to trading. To prevent this, the team is instead launching an independent Ethereum-compatible smart contract blockchain.
Smart Chain enables the Binance ecosystem to build complex DApps based on Ethereum’s virtual machine.
According to the White Paper, the Smart Chain will allow projects in the Binance ecosystem to build complex decentralized apps based on Ethereum’s Virtual Machine. This was an often requested feature from projects in its ecosystem, the team revealed. The consensus algorithm of the new chain is called Proof of Staked Authority, which is very similar to the Distributed Proof-of-Stake of EOS, as well as many other validator-based systems.
Smart Chain will not issue new tokens as block rewards.
Due to how the token economics of BNB works, which is used for payment of Binance’s fees, the exchange is likely to always have a predominant stake in the network. The Smart Chain will not issue new tokens as block rewards, which means that all of the rewards will be in the chain’s transaction fees. The team has shown its support for rebate schemes, where stakers receive part of the rewards in exchange for pledging their vote to the validator. However, the validators will be able to claim them too.
One aspect of the proposed scheme is that each validator’s part of the transaction fees does not depend on how much stake is pledged to them. Users will be penalized for pledging to popular validators, as they will need to share the rewards with more participants.