Binance Chain developers have proposed specifications for a new blockchain that would enable complex smart contract functionality within the Binance Coin (BNB) ecosystem. The specifications are available in its white paper, released on April 17.
The new Binance Smart Chain will be independent, but tightly integrated with the original Binance Chain. The team explains that it had to create a new chain in order to maintain the high performance of the original, which hosts the Binance decentralized exchange.
The white paper notes that “the execution of a Smart Contract may slow down the exchange function and add non-deterministic factors to trading.” To prevent this, the team is instead launching an independent Ethereum-compatible smart contract blockchain.
Though separate, they will be connected through a cross-chain bridge for BNB, which will act as the native token in the new smart contract platform.
The Smart Chain will thus allow projects in the Binance ecosystem to build complex DApps based on Ethereum’s Virtual Machine. The team said that this was an often requested feature from projects in its ecosystem.
The consensus algorithm of the new chain is called Proof of Staked Authority. On a practical level though, it is very similar to the Distributed Proof-of-Stake of EOS, as well as many other validator-based systems.
Like on EOS, there will be a set of 21 active validators who take turns in producing blocks. These will be voted by BNB stakeholders who will lock their tokens to express their preference — just like on EOS as well.
The consensus algorithm will also feature stake slashing, a protection mechanism against illicit behavior. Slashing punishes validators for signing multiple proposed versions of a chain, solving the so-called “nothing at stake” problem. The whitepaper notes that the system remains fully secure if less than one-third of validators are malicious, which is a common feature among Byzantine Fault Tolerant algorithms.
It is worth noting that due to the token economics of BNB, 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, meaning that all of the reward will be in the chain’s transaction fees. The validators will be able to claim them, though the team has already indicated its support for rebate schemes, where stakers receive part of the rewards in exchange for pledging their vote to the validator.
One interesting aspect of the proposed scheme is that each validator’s share of the transaction fees does not depend on how much stake is pledged to them. This means users will be penalized for pledging to popular validators, as they will need to share the rewards with more participants.
The team argues that “this will actually 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.”