Binance recently published a whitepaper announcing a new smart contract blockchain, Binance Smart Chain. Rather than adding smart contract functionality to the existing Binance Chain, which runs the Binance Decentralised Exchange (Binance DEX), the new Binance Smart Chain (BSC) will run parallel to the existing Binance Chain.
Version 0.1 of the white paper, published on 17 April 2020, states the decision to introduce smart contract functionality was a difficult one. The primary concern was that additional functionality could "slow down the exchange function and add non-deterministic factors to trading". It appears that this was the key motivating factor for introducing a parallel blockchain.
While the two blockchains will be technically independent, they will be connected by a cross-chain bridge enabling Binance Coin (BNB) to be used natively on both chains. The bridge will also support the movement of BEP2 tokens and Oracle communication, shown in the white paper below:
Interestingly, the white paper also provides that the Binance Smart Chain will be built with Ethereum compatibility in mind. In particular, the white paper claims that:
most of the dApps, ecosystem components, and toolings will work with BSC and require zero or minimum changes
Binance has addressed the consensus protocol in an interesting way opting for a mix of "Deputy Proof of Stake" (think EOS, Cosmos) and "Proof of Authority" (xDAI, GoChain) in favour of the tried and tested Proof-of-Work protocol. While the white paper acknowledges that PoW mechanisms are the accepted practical mechanism for decentralised networks, it finds that PoW's costs outweigh the benefits, stating that PoW:
is not friendly to the environment and also requires a large size of participants to maintain the security
BNB will be used to stake on the new Binance Smart Chain as part of the consensus protocol. Since BNB has a fixed supply, no new tokens will be issued as block rewards on the Binance Smart Chain. Instead, validators will only receive transaction gas fees in BNB.