Why Billionaire Mark Cuban Loves Ethereum
Ethereum’s capabilities could eventually overshadow Bitcoin.
Two words sum up Mark Cuban’s love for Ethereum: Smart contracts.
Smart contracts, also known as self-executing contracts, are behind two of the biggest investment trends that have taken off this year:
Non-fungible tokens (NFTs)
Decentralized finance (DeFi) applications
And Cuban thinks they are only the start. Thanks to smart contracts, Cuban believes Ethereum, the world’s second-biggest cryptocurrency, can overshadow Bitcoin. That’s because Ethereum offers a lot more functionality than industry giant Bitcoin.
Keep reading to learn more about smart contracts and how they run on the Ethereum blockchain.
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What is Ethereum?
Today, Ethereum is the second biggest crypto by market cap. Some call it the silver to Bitcoin’s gold. It uses the same blockchain technology as Bitcoin, but it is faster and can do more.
As Cuban recently told Unchained podcast, Ethereum can unlock a host of potential business applications that just wouldn’t be possible with Bitcoin.
Where Bitcoin is a store of value – something like gold that you can buy, and it will hold its value or appreciate over time – Ethereum is an engine that can power all kinds of disruptive applications.
He said Ethereum has a lot more built-in utility. “Just the ability to use smart contracts organically and natively is a significant difference right now.”
That brings us to the question of what exactly a smart contract is. These digital contracts are small pieces of code recorded in the Ethereum blockchain ledger. That way, no party can retroactively alter the agreement. Smart contracts can cut out the middleman in all kinds of transactions.
For example, one insurance company is experimenting with a self-executing policy that automatically pays farmers in the event of certain weather conditions that damage their crops. This has the potential to:
Increase transparency
Make claims processing faster
Decrease insurance premiums
Non-fungible tokens and DeFi use smart contracts
Cuban is a big fan of NFTs. These digital collectibles use smart contracts to verify authenticity and ownership. There are all kinds of NFTs, from music and art to sports trading and in-game items.
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When an artist creates an NFT from their work, they embed certain information in it – it’s like a digital signature. Not only does it make the work unique and therefore collectible, but the smart contract can also include royalties. That way, an artist can get paid every time the work is sold.
DeFi lending is also taking off. Decentralized lenders are using smart contracts to allow crypto investors to lend out their assets, without needing a traditional financial institution to monitor the loan.
Those are just a few of the applications Cuban sees for smart contracts. The potential to disrupt traditional business models is why he’s such a fan of Ethereum. And it’s because of the functionality of smart contracts that Cuban thinks Ethereum can edge out Bitcoin. “I think the applications leveraging smart contracts and extensions on Ethereum will dwarf Bitcoin,” he said.
Ethereum is evolving: Eth 2
It doesn’t stop there. Ethereum wants to remain decentralized but also reduce network congestion and move to a more energy-efficient mining system. That’s why it’s in the process of a long-awaited series of upgrades that fall under the umbrella of “Eth 2.”
The Eth 2 upgrades will support its ever-growing number of users by making the system faster and more environmentally friendly. Users can expect these improvements to be rolled out in the coming months and years.
Should you invest in Ethereum?
Mark Cuban is a great source of crypto inspiration, but don’t buy Ethereum just because he is a fan. Do your own research. Go to the Ethereum website and learn about what the company does and how it plans to grow.
Most importantly, make sure it fits with your investment strategy and risk tolerance. Cryptocurrencies hold a lot of opportunities, but they can be risky, too. As such, it’s not a great idea to invest money you need in the short term. If the price dips next week, you’ll need to be able to hold on until it picks up again.
If you do decide to invest, check out our list of top cryptocurrency exchanges. If you’re unsure which to choose, start with one that’s secure, easy to use, and has low trading fees.
Cryptocurrency ethereum is flourishing but risks linger
NEW YORK: Ethereum has outperformed major digital currency rivals this year, bolstered by the surge in decentralized finance (DeFi) and the anticipation of a technical adjustment this summer, but it faces hurdles that could stall its rise.With a jump of more than 350 per cent in its price this year, ethereum has the second-largest market capitalization after bitcoin , but not as much cache and perhaps more operational challenges that could prevent it from eclipsing its major rival.In the crypto world, the terms “ethereum” and “ether” have become synonymous. Technically, ethereum is the blockchain network in which decentralized applications are embedded, while ether is the token or currency that enables or drives the use of these applications.Ethereum’s market cap on Friday was $410 billion, second to bitcoin’s at more than $1 trillion, according to data tracker CoinGecko.com. It hit a record high of $3,610.04 on Thursday and was last up 1 per cent at $3,524.Bitcoin, meanwhile, has risen a more modest 97 per cent this year. Since hitting an all-time high of just under $65,000 in mid-April, bitcoin has actually fallen roughly 18 per cent.A rise in institutional interest has increased ethereum demand, but supply has been limited. The token’s supply in exchanges in April hit its lowest in nearly 2-1/2 years, according to Kraken Intelligence, a research blog from cryptocurrency exchange Kraken.“It’s more than just a coin. It’s a whole ecosystem that allows other applications to be built,” said Bradley Kam, chief executive officer of blockchain domain provider, Unstoppable Domains.At the heart of ethereum’s ascendancy is DeFi, which refers to peer-to-peer cryptocurrency platforms that facilitate lending outside traditional banking institutions. Many sites run on the ethereum network, using an open-source code with algorithms that set rates in real time based on supply and demand. The value locked - the total number of loans on DeFi platforms - was $79 billion as of Friday, DeFi Pulse data showed, up nearly 600 per cent from $11 billion in October.DeFi, however, has its problems. Dune Analytics research showed 2 per cent-5 per cent of transactions on ethereum-based decentralized exchanges failed due to complications such as slippage or insufficient “gas” prices, which are the fees required to successfully conduct a transaction on the ethereum blockchain.Between April 15 and April 21, for instance, roughly 1.1 million transactions were made on Uniswap, a DeFi protocol used for exchanging cryptocurrencies. Of those, 241,262 failed, representing the largest number of transaction failures across the entire ethereum network, data from analytics platform Etherscan and Dune Analytics showed.“DeFi is destined for meteoric growth, but that growth inherently comes with risk,” said Alex Wearn, chief executive officer at crypto exchange IDEX.“Issues such as failed transactions and front-running are not subtle, costing users millions of dollars every day,” he said, referring to the practice of getting a transaction first in line in the execution queue right before a known future contract. “These major … problems limit the appeal of these products for a wider audience and ultimately hinder the ecosystem’s growth.“Wearn estimates that more than $285 million were lost in DeFi hacks so far this year.Proponents say DeFi sites represent the future of financial services, providing a cheaper, more efficient and accessible way for people and companies to access and offer credit.Ethereum has also been plagued by the network’s inability to scale to meet demand without incurring high transaction fees as well as slow execution of transactions, market participants said.The first phase of an upgrade called Ethereum 2.0 launched last year is aimed at addressing the network’s tech issues on speed, efficiency, and scalability.However, John Wu, president of AVA Labs, an open-source platform for financial applications, pointed out that the planned migration to Ethereum 2.0 has been in the works for years.“The timelines have consistently been delayed, so it’s hard to feel comfortable with that unknown,” he said.Ethereum also faces stiff competition from networks such as AVA Labs' Avalanche and Binance Smart Chain, which are also compatible with ethereum’s assets and applications.Data from AVA Labs showed users have transferred more than $170 million to Avalanche from ethereum since February.Still, hopes of a technical adjustment called EIP (ethereum improvement proposal) 1559, which is expected to go live in July and is seen reducing the supply of ethereum, has provided a lift for the digital currency.EIP-1559 aims to reduce the volatility of ethereum’s fees by introducing a mechanism to burn some of those transaction fees, which should slow the token’s issuance, analysts said.The impact on ethereum’s price could be similar to a bitcoin halving event, in which an adjustment cut bitcoin’s supply and propelled its price to record highs, analysts said.“There’s a lot of numbers going around the market about the potential impact that has like a halving-type magnitude with bitcoin,” said Richard Galvin, co-founder and chief executive officer of crypto fund Digital Asset Capital Management.“They’re all pretty positive drivers that have, I guess, seen a pretty strong revaluing.”
Major upgrades to the Ethereum network could help the cryptocurrency soar even higher. Here’s a roadmap to the changes.
Major changes are coming to the Ethereum network. Alessandro Bianchi/Reuters
Ether has soared to record highs, in part because of growing interest in the Ethereum network.
But major changes are coming to the blockchain, which some investors say could send ether higher.
Developers are overhauling how fees work and plan to make it much more environmentally friendly.
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Ether - the world’s second-biggest cryptocurrency - soared to record highs above $3,600 in the week to Friday and had outstripped bitcoin with year-to-date returns of around 370%.
Analysts said a key catalyst has been growing interest from big players such as the European Investment Bank in the Ethereum blockchain network, on which ether runs.
Investors have been drawn in by the possibility of building decentralized financial contracts on the system and other applications such as non-fungible tokens, or NFTs.
But upcoming changes to Ethereum that aim to make the network bigger and more sustainable are also exciting investors, as they could send the ether price soaring even further.
Insider spoke to Ben Edgington, who is working on the upgrades for development company ConsenSys. He laid out the roadmap for the changes.
The ‘London’ upgrade will start to destroy ether coins
After tweaking how transaction payments work in April, Ethereum developers are preparing for a major overhaul to the fees system. The changes are due in mid-July, according to Edgington.
Under the current system, users send what’s known as a gas fee to miners as payment for transactions to be verified, in a kind of auction. Miners complete transactions, and create cryptocurrencies, by using computing power to solve puzzles on the network.
But when the network is busy - as it increasingly is - the auction system means users have to bid larger amounts and estimate the appropriate fee, leading to volatility and sharp price rises.
To address the problem, Ethereum’s developers have agreed to a major change, known as EIP-1559 in crypto jargon and set to take place during an event called the “London hard fork.”
Under the new system, gas fees will be replaced by a mandatory and automatically determined base fee, which would fluctuate according to network congestion. Users will be given the option of paying miners tips if they need transactions completing quickly.
Read more: Fundstrat’s head of digital assets research walks us through his $100,000 and $10,500 year-end price targets for bitcoin and ether - and shares the 8 tokens he’s bullish on
But the most exciting part for many investors is that the network will start to destroy or “burn” some of the gas fee.
Edgington says: “Potentially, more ether will be burned that will be generated for miners.” He added that this could make the supply of ether decline over time, “which actually trumps bitcoin monetary policy, which is fixed.”
One analyst said earlier this year the burning of fees might lay the groundwork for “explosive growth” in the ether price.
Ethereum 2.0 aims to boost the network’s size and sustainability
Developers are most excited about the momentous changes collectively known as Ethereum 2.0, which aim to make the network bigger and more sustainable.
First up on the road to Ethereum 2.0 is what developers are calling The Merge: a complete change in the underlying mechanics of the network, which Edgington says will hopefully be completed by the end of 2021, or in early 2022.
Currently, computers compete against each other to solve complex puzzles to verify the network and mine ether in what’s called a “proof of work” system.
This makes the network secure, because it would take huge and costly amounts of computing power and energy to hack into - but is very bad for the environment.
Ethereum will instead be moving to a “proof of stake” system. This means people can validate transactions and mine according to the number of coins they hold and are willing to offer as a sort of down payment, Edgington said.
Each user that wants to verify transactions - and thereby earn themselves rewards - has to put up a sizable stake, for example 32 ether worth over $120,000.
The idea is that anyone wanting to attack the network would have to earn enough ether to pay more than the collective value of all the stakes to start altering the blockchain in a damaging way.
Edgington says there is already around $10 billion staked the proof-of-stake network, known as the beacon chain, which developers launched in December.
Ethereum developers are working hard to shift across the network onto the new system - The Merge - but it’s not without risks.
One developer has described the process as “replacing the engine of an airplane while it is still flying.” But they added: “The code in use will have been exhaustively checked, battle-tested, and checked again.”
‘Sharding’ aims to expand the network
Yet Edgington stresses that “moving to proof of stake is not a scalability solution.”
To try to expand Ethereum so that more applications such as NFTs, or decentralized finance contracts, can be built on it, developers will create new networks in a process known as sharding.
“This is like running 64 blockchains in parallel with the beacon chain to increase the capacity,” Edgington says.
Simply put, creating more blockchain systems and tying them together by linking them to the main beacon chain should expand the overall network and make it more efficient, as opposed to the current system where everything is done on one big network.
“I expect within a year of delivering the proof of stake we’ll have delivered the sharding solution,” Edgington says. “But nobody’s making a strict project plan, or deadline about this. It’s ready when it’s ready.”
Read more: Ex-Ark analyst James Wang breaks down his bull case for Ethereum as its token breaches an all-time high of $3,300 - and explains why it could eventually reach $40,000