Mark Cuban has been talking about Bitcoin (CRYPTO:BTC) and crypto a lot lately. While the billionaire investor and entrepreneur was originally dismissive of bitcoin as a useful digital currency, claiming he would rather own bananas than bitcoin in 2019, he has also been consistent with his comparison of the crypto asset to gold, but that comparison has not always been positive.
Recently, Cuban has praised crypto as a technology rather than Bitcoin itself. He’s interested in Ethereum (CRYPTO:ETH) and various applications in the decentralized finance (DeFi) space, claiming the general development happening with Ethereum dwarfs Bitcoin when it comes to utilization.
However, the case Cuban has made for Ethereum, and more specifically the ETH cryptocurrency, doesn’t hold up.
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What does Mark Cuban like about Ethereum?
Cuban is clearly excited about the sorts of decentralized applications that can be built on top of the Ethereum network. For example, he has sold and traded a large number of non-fungible tokens (NFTs) that were issued on Ethereum and even founded an NFT gallery platform called Lazy. He sees Ethereum smart contracts as a way to improve the economy around digital goods and he also believes it makes ETH a viable currency. He’s also espoused the benefits of DeFi platforms built on Ethereum over the traditional banking system.
But NFTs do not get their value from the Ethereum blockchain. The value of an NFT is derived from the NFT’s creator. The value is not intrinsic to the token on the blockchain itself. Concepts similar to NFTs have existed in more centralized forms for many years, and there isn’t much to gain from issuing them on a public blockchain, as the ownership of an NFT is up to the creator, not a decentralized ledger.
Additionally, there is no reason to assume that ETH should be the currency of NFTs. Even in situations where NFTs are issued on Ethereum, stablecoins are increasingly becoming the currency of choice on that network due to their short-term price stability. Many notable NFT platforms, such as NBA Top Shot, aren’t built on Ethereum. In fact, NBA Top Shot recommends buying new packs with a credit card instead of ETH or any other cryptocurrency because, again, strong decentralization isn’t needed here.
The need for decentralization
While Cuban still sees bitcoin as an improvement over gold, he’s said that ETH has advantages over bitcoin as a store of value. But the use case as relatively limited.
It’s clear that Cuban is more excited about things like NFTs and DeFi than bitcoin’s utility as a store of value. But Bitcoin is building out these use cases as well. Bitcoin was designed specifically to operate as digital cash because it uses a public blockchain that does not involve third parties. When reintroducing counterparty risk in more complex use cases, the need to use a completely decentralized, costly blockchain is less clear.
This is the key point that Cuban misses and highlights why these use cases are found on upper-layer networks in the Bitcoin ecosystem. It’s true that there are trade-offs made with these secondary network layers, but they’re more than worth it when the efficiency gains are considered for these kinds of use cases that do not require a high degree of decentralization.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.