In this model, Binance has absolute control over the blockchain. They decide who becomes a validator and they remove validators at their discretion. This requires the users must trust that Binance will behave in their best interest. Should Binance decide to alter any aspects of the chain or ecosystem, it has the power to do so.
The founder and CEO of Binance, Changpeng Zhao, famously said that BSC is like “CeDeFI,” or centralized DeFi. The
tweet where he made these comments has since been deleted, but according to BSC’s founder, it is not a decentralized financial application ecosystem.
In the thread that stemmed from Zhao’s tweet, he said that the benefits from such centralized control are that Binance itself can vet projects built on the system, but more than one
project has already “rug pulled” investors. Ethereum
Currently, Ethereum uses the same PoW mechanism that Bitcoin does. In this system, computers compete with one another to validate transactions. To win, the computer must solve complex mathematical puzzles.
Once they’ve won, the computer adds a new block of transactions to the blockchain. These computers are also known as miners and they are given Ethereum for completing a new block of transactions. This process is energy-intensive and helps to secure the network from bad actors.
This process is very energy-intensive and helps to secure the network. Enough miners geographically distributed makes for a decentralized network without a central authority, which is drastically different than how the BSC operates.
Ethereum is in the process of moving over to a new consensus model known as proof-of-stake (PoS) in an effort to reduce fees. In this model, consensus is reached by using an algorithm that chooses a node to win a block of transactions. When a node is chosen, it produces the next block of transactions in the chain. These nodes are generally referred to as stake pools.
These stake pools are chosen based on the “stake,” or the number of coins it holds. In other words, the more coins a stake pool holds, the more likely it is to be chosen to produce a block and get rewards. To ensure that the wealthiest pools do not always win a degree of randomization and other criteria, like the amount of time coins have been staked, can factor into the selection process.
So, in PoS, miners are replaced with people who stake their coins. Individuals can “stake” or place their coins with various stake pools, just like miners joining a mining pool to earn more rewards. Unlike PoA, stake pools and nodes in the PoS model are not approved or chosen by any central authority, making it far more decentralized.
So, Is Binance Coin a Good Investment?
Evaulating crypto-assets for their quality as an investment opportunity can be a tough exercise. With something like Bitcoin or even Ethereum, it is easier to place value when analyzing their decentralization.
Bitcoin, for example, has a high quantity of geographically distributed nodes and miners and has survived over 11 years of ups and downs. With Bitcoin, you can know with a high degree of certainty that no sole company, government or individual has control. Instead, the collective of its users determines its future, meaning that a free and open market only determines its price.
While Ethereum has half as many nodes as Bitcoin does, it is still orders of magnitude more distributed than Binance Coin. This is due to its PoA model that gives the Binance exchange full control.
But why does this matter? Binance has lower fees than Ethereum and it’s faster, right? Who cares if it is centralized?
Every individual’s answer to this question depends on their reason for investing in the first place. Do you wish to speculate on a cryptocurrency? Or are you interested in a decentralized ecosystem that solves real-world problems?
The problems that cryptocurrency, specifically Bitcoin, aims to solve are related to control and freedom, not just making money on speculation.
Who should control money and its supply? Should one company or government make the rules for the rest of us? Who decides who is allowed to get access to the financial system?
These are all serious questions that humanity has faced for nearly its whole existence. So far, the result of giving one single entity control over money has proven to be less than ideal. It causes currency debasement and inflation, disenfranchisement of certain communities who don’t meet the made-up prerequisites and far more.
If you are interested in speculation and trying to make money, then perhaps Binance Coin could be an opportunity as more and more leave Ethereum in search of cheaper transactions. If you are interested in building systems without central control, then an investment in Binance Coin would be ironic to that cause.
To be fair, there is nothing wrong with making speculative investments. Cryptocurrency itself is widely considered speculative in general due to its reformative nature. That’s why it can help to understand why cryptocurrency exists in the first place — to give economic empowerment and self-sovereignty to individuals and to remove the control from the hands of the few and give it back to the people, and Binance Coin is the direct opposite.