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.
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.
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.
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