Mark Cuban: What I look at when comparing blockchains like bitcoin and ethereum
When comparing different blockchains, billionaire Mark Cuban looks at a few specific characteristics before investing.
“Most people look at speed and cost compared to BTC [bitcoin] or ETH [ethereum],” Cuban tells CNBC Make It. “While those things can be important, I look at blockchains as networks with development platforms via smart contracts.”
Cuban is referring to the capabilities of each blockchain beyond speed and cost of cryptocurrency transactions. Each blockchain, which is a decentralized digital ledger that documents cryptocurrency transactions and other information, is unique.
For example, the ethereum blockchain can execute smart contracts, which power decentralized applications like DeFi, or decentralized finance, and NFTs, or nonfungible tokens. The ethereum blockchain features its cryptocurrency ether, but can also work as a platform for other digital coins.
These aspects of ethereum are appealing to Cuban, he previously said. Due to its smart contracts, he likens this blockchain to the internet, since different platforms, from things like DeFi to social media sites, can be built on it.
Other experts agree. “Ethereum [is] looking for ways to become a fully working infrastructure platform,” Kathy Lien of BK Asset Management recently told CNBC. “Ethereum itself can perform a number of economic tasks, so it goes beyond” bitcoin, which is known as a peer-to-peer electronic cash system.
That’s why, according to Cuban, “the platforms that have the most active developers and create applications with significant utility for their users will have a network effect.” In turn, the blockchain could “generate significant fees,” which could fund the network, making it investible.
To mint, or blockchain verify, a token — like an NFT, for example — and transact on the blockchain, a user is typically charged a fee by the blockchain’s miners. These fees can be especially costly during high demand or congested periods.
In Cuban’s opinion, “depending on how fees are distributed, [it can] create a real revenue stream that increases the values of the tokens they mint,” he says.
For example, ethereum collects gas fees. That “makes it an income producing asset whose value should rise as its network expands,” Lien says.
Though some people may think that blockchains are only used for cryptocurrency transactions, the platforms could potentially be used for much more than that, as ethereum is. That’s why Cuban looks at the possible use cases for each blockchain before investing, rather than just the speed and cost to use them.
Cuban has invested in many blockchain companies this year, all of which are centered around smart contract capabilities. His portfolio includes NFT platforms, DeFi companies and ethereum scaling solutions.
Cuban has also been investing in cryptocurrencies like ethereum, bitcoin and others.