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NBA Top Shot: Non-Fungible Tokens Go Mainstream

Updated: Jul 13, 2021

It’s 2021, and cryptocurrency is as popular as ever. The price of Bitcoin has soared, and consumers who have never interacted with the blockchain before are reading stories about Dogecoin and other assets reaching new heights. For those who didn’t get in at the beginning, it can be frustrating and confusing to even consider wading into the crypto market with so many coins to choose from.

With those new users in mind, Dapper Labs has created NBA Top Shot, offering digital assets officially licensed by the NBA and NBPA. Fans can purchase “Moments,” highlights from popular players and games, and buy or sell them on a marketplace. The beta release of NBA Top Shot has meant big money, and its popularity has grown so fast the company has had trouble keeping up. So what is NBA Top Shot, and is it worth investing in?

Cryptocurrency Vs. Non-Fungible Tokens

Most savvy consumers are aware of cryptocurrencies like Bitcoin, which employ the use of a decentralized public ledger, AKA blockchain. What sometimes confuses novices is the difference between the blockchain and its currency. Bitcoin is the name of a cryptocurrency, and it is traded on a blockchain. Another blockchain is Ethereum, on which Ether is sold, but Ether is not the only thing sold on Ethereum’s blockchain: it also hosts another asset class called NFTs, or Non-Fungible Tokens.

Most cryptocurrencies, like Bitcoin, are similar to fiat currencies (such as dollars or pounds) in that they are fungible. If you have a dollar, it doesn’t matter which dollar you have; all dollars are worth the same, and you can spend fractions of a dollar. Bitcoin has no physical presence, but it is fungible: all Bitcoins are alike, and you can buy and sell fractions of a Bitcoin. Ether, Dogecoin, Litecoin, and many other coins are like this.

Now, let’s talk about baseball cards. If you had baseball cards when you were a kid, you likely remember looking up their values, and selling or trading them with friends based on those values. Some old cards were worth millions, and kids held onto their cards in the hopes that something in their collections might one day make them rich. But you couldn’t sell part of your baseball card, and they weren’t all worth the same amount. Their value was determined by a single marketplace, and within that marketplace, certain rare cards were worth a lot of money. That makes them non-fungible.

In the same way, some crypto assets are also non-fungible. Ethereum’s blockchain gave birth to a standard known as ERC-721, which governs non-fungible tokens. The blockchain is used to keep track of who owns these items. NFTs can represent things in the actual world – in the future, having an NFT for your car could replace the need for a physical title – as well as digital items.

One of the earliest popular NFTs was CryptoKitties. Created by Dapper Labs, it was essentially an online form of Beanie Babies: digital cats with unique properties. The market for these kitties exploded, resulting in millions in transactions, with some rare kitties worth hundreds of thousands of dollars. People were betting big that they would keep going up in value.

But remember what happened in the late ‘90s when baseball cards got less popular? They became almost impossible to unload except at a loss, as the bottom fell out of the market. The same thing happened to CryptoKitties, as the novelty wore off. However, in recent years, the market for the rarest baseball cards has rebounded, with some high-value cards being sold for more than ever. Anyone who owns a CryptoKitty now is hoping for a similar rebound down the line.

The earliest NFTs had no intrinsic value, so while early adopters made a lot of money, some were stuck holding the hot potato when the buzzer sounded. Unique tokens can have practical uses, but currently, most are based on games. To players of these games, rare items are worth a lot, just as rare Pokemon cards are, but it’s a niche market.

CryptoKitties' popularity was ultimately its downfall: it caused congestion in the network, preventing new users from joining in the fun. Dapper realized if it wanted this to be more than a short-term frenzy, it needed a solution that could accommodate more players.

Enter the Flow Blockchain, which is what powers NBA Top Shot. With the league involved and a new blockchain designed for high-volume trading, Dapper is hoping basketball fans are the next market for non-fungible tokens.

How NBA Top Shot Works

The NBA has decided it’s time to reinvigorate collecting as a hobby with a digital form of cards for the digital age. On NBA Top Shot, users can purchase “Moments,” short highlights from famous players. Like cards, they contain stats and historical information, and are released in “Packs” from different sets. Unlike cards, they have no physical presence and feature high-quality videos.

A pack of “Common Moments” costs as little as $9, while a “Rare Pack” costs $99 and a “Legendary Pack” costs $999. Buyers don’t know which Moments will be contained in a certain pack, but they could get lucky.

The marketing of NBA Top Shot makes it clear the NBA thinks this is a product for fans, something to give them bragging rights if they own a cool Moment like a Steph Curry three-pointer or a LeBron James dunk from the NBA Finals. There’s even a feature called “Baller Status” which ranks users based on reaching certain milestones, and “Challenges” that can be completed to unlock rare sets.

The user interface is also aimed at those new to blockchain. The Dapper wallet lets participants purchase with ETH, BTC, or BCH, or use a credit card to purchase in USD, giving easy access to those who don’t know much about or even understand crypto. A 5% fee is charged for each sale on the marketplace.

A Booming Marketplace

The marketplace is where the real money has been made. There, users can sell sought-after Moments for as much as they desire, and top Moments have gone for a lot of money. As of March 2021, there have been over 2 million transactions and more than $300 million worth of collectibles sold.

The amount of money changing hands shows that those getting in early are not fun-seeking basketball fans; they’re in it to make money, and some are, in a big way. Investors are purchasing Moments and selling them at a profit or holding onto them with the hope that they’ll gain value. And unlike physical cards, Moments don’t degrade over time, take up no space, and can’t be faked.

However, Top Shot has experienced the same issue as CryptoKitties: demand has grown faster than the platform can keep up with. There aren’t enough packs to go around, many users have been unable to withdraw money from their wallets, and the site went down the weekend of March 6-7, keeping users from accessing the marketplace. For those with thousands of dollars invested, this was a worrisome development.

It’s the same story as CryptoKitties: speculative investors have driven up prices before the general public has been able to participate, and though this product seemingly has broader appeal, it’s a worry that Dapper didn’t see this coming. For outsiders who aren’t used to blockchain, will this be enough to scare them off for good?

The Future of Top Shot and NFTs

The question now is what the future will hold for NBA Top Shot. It’s obviously popular, and has a brand and platform more valuable than anything the crypto world has seen before. Provided Dapper can fix its current limitations (and that’s not guaranteed), will it be a long-term success?

There is still the issue of intrinsic value. Moments don’t really have value, even if they are NBA-licensed. You don’t have to own a Moment to watch that particular highlight. The value is like that of cards: players will want their favorite players’ Moments, and they’ll want to hold onto them in the belief that one day a Zion Moment will become as valuable as a LeBron Moment. Top Shot also plans to introduce Hardcourt, a 3D game that could increase participation. The key to all of these elements is getting regular fans involved, and we don’t know yet if they’ll come.

The question is not “Can you make money off NBA Top Shot?” You can. People are making money, and lots of it. The question is: “Will you be able to get in while the big money is still being made?” That answer depends on two things: how well Top Shot fixes its issues, and how high prices eventually climb. If Top Shot never fixes its tech issues, it has no hope. If it does, and remains popular, the sky is the limit.

Look at the prices of comic books, paintings, stamps, and rare coins. Those things don't have intrinsic value, either. If you would have bought an issue of X-Men #1 for $10,000 in 1970, people may have called you crazy, but by now, it’d be worth half a million.

That said, those items all benefit from the allure of “Mint condition.” Kids believed that if they kept cards protected, eventually they’d be rare. This is where NBA Top Shot’s strength (Moments never degrade) can also be a weakness: with physical cards, the others like yours might get damaged or end up in a landfill while you keep yours in pristine condition. With Moments, that’ll never happen, so the rarity will not change.

Current investors are betting that eventually, Moments will be more popular than they are now. CryptoKitties didn’t have staying power because people didn’t want them for any reason other than making money. NBA Moments? Fans might want them for the reason the NBA thinks they will: because they’re dedicated fans.

The issue for Top Shot now is that the people getting in early are doing so because they want to make money, but to truly last, it needs to attract users who want to own these Moments simply to own them. If those fans are priced out by day traders, what happens when the traders move on to something else? Will the fans show up?

It’s a big deal that a business like the NBA is recognizing the potential of blockchain, something we’re already seeing in other industries. Rock band Kings of Leon recently announced that their next album will be released as an NFT. Expect to see many more industries utilizing the blockchain to market new products as more consumers understand the technology’s potential. Not everyone is going to succeed, but those who do will be seen as pioneers.

The worth of a collectible is in the eye of the beholder, and we just don’t know which ones will be seen as valuable down the line. Owning an NBA Top Shot Moment may one day be like owning a first edition Sherlock Holmes or a Jackson Pollock painting. Jack Dorsey is even selling the first Tweet as an NFT, with a potentially huge price tag. Some rich person will likely use it for bragging rights, and unlike other works of art, it can’t be faked. Will it go up in value? That’s a risk some are willing to take.

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