When blockchain gained publicity in the wake of Bitcoin’s success, futurists and gurus predicted blockchain would change the world. The great transformation we’ve been promised hasn’t arrived yet. However, blockchain is being used to bring new products and ideas to different industries.
And sports is one of them.
Blockchain powers non-fungible tokens, which are digital assets that can sell for millions. We’ve seen works of art be sold for ridiculous amounts of money as NFTs. But the NBA is cashing in on NFTs, too. The NBA has partnered with a company called NBA Top Shot, which sells NBA clips as NFTs. It’s a new marketing opportunity for leagues and especially players. But it’s unclear whether NFTs are a fad or part of blockchain’s alleged transformative power. Here’s everything bettors need to know about NFTs in sports.
What Is Blockchain?
Blockchain is still poorly understood and probably overhyped. But it’s an important technology that has many potential applications.
Blockchain is a type of software that stores data in blocks and chains them together. That makes blockchain un-hackable (as of now). If I wanted to hack someone’s computer, I would only have to hack into one computer or one server. There’s one spot that holds all the data, and if I get into where the data lives, I can change it.
But blockchain works differently. If I want to hack into one of the blockchain’s blocks, I can’t change anything if I get in. All the blocks are connected, and they reference each other. The other pieces of data “know” what the data in the hacked block is supposed to be. So, if I hack a block, the rest of the chain won’t let me change anything. It’s not falling for that nonsense.
That’s why blockchain creates such a reliable record. Every link in the chain protects each block of data. So, there’s irrefutable proof of price, product, and ownership. That record allows NFTs to exist.
What Are NFTs?
Blockchain is the technology that lets NFTs exist. NFTs are their own separate monsters.
NFT stands for non-fungible token. We’ll define it in reverse. The token is a stand-in for a real-world asset. Instead of buying a real painting, you could buy a token that says you own the painting. If you wanted to sell it at a higher price without moving merchandise, this could be an option for you.
Non-fungible is a fancy way of saying two things:
- There’s only one token.
- The token can’t be traded interchangeably with another.
Think about the Top Shot NFTs. The NBA clips can’t be traded for each other, because each one is unique in some way. They may be different clips or hold different values. They can be bought and sold at different prices, but one clip can’t be traded for another clip.
NBA Top Shot
We are so far from the first people to write about NBA Top Shot. The hype around that company is part of the wider blockchain and NFT craze. NBA Top Shot tokenized different NBA clips. The company used blockchain to make the NBA clips the “official” clips available for purchase. Blockchain allowed NBA Top Shot to create clips with data that was public, precise, and unalterable. No one can alter or copy the clips, so no one can make forgeries. Prices and ownership are fixed, too. NFTs wouldn’t work without blockchain.
But with the foundations laid, NFTs can work like virtual trading cards. Traders can buy NFT packs of varying rarity to collect or sell. By the time February 2021 ended, NBA Top Shot had done over $230 million in sales. The company makes money from transaction fees and NFT pack sales. The company will release packs of NFTs for buyers to snatch up for the first time. After that, they enter the market to be traded among other traders. For NBA fans with money to spend, this could be a fun part of the experience.
Will NFTs Last?
This is the big question on analysts’ minds. Blockchain bros are thrilled about NBA Top Shot and the limitless possibilities of blockchain and NFTs. But professional analysts have certain concerns. The Daily Show’s NFT segment dedicated its conclusion to one massive flaw. If the server that hosts the NFT goes down or the file gets deleted, then the NFT is worthless.
The NFT that traders buy is a certificate of ownership. To borrow from Trevor Noah’s metaphor, imagine you bought a certificate of ownership for a thoroughbred horse. That certificate of ownership would be worth a lot if you had a great horse. But if the horse dies, the certificate becomes worthless. That’s the downside to holding a virtual asset. It’s vulnerable to technical difficulties. The ownership certificates are safe. The source material may not be.
But more importantly, sports fans have to continue placing value on NFTs. If the prestige that comes with owning a $240,000 highlight endures, then NFTs could expand to other sports, too. However, forecasting technology is notoriously hard. (John Oliver’s cryptocurrency segment makes that point brutally well–sorry, Google Glass.)
Remember, NFTs have one big weakness. The server or website that hosts the source material can lose the clip that gives traders’ NFTs value. The first high-value NFT that goes to zero because of a technical glitch is going to set this industry back. Whether it recovers in the wake of it will tell whether NFTs have long-term potential.
NFTs In Sports
It’s unclear whether NFTs are a fad or a glimpse at the future of sports engagement. Some analysts are already saying the NFT bubble has popped. That doesn’t necessarily mean that NFTs are gone forever. It just means that a lot of NFTs and their companies will disappear.
However, some bloggers believe that NFTs are the future of not only sports but also art and finance. I don’t think they’re convincing. It’s unclear what NFTs offer that trading cards can’t–especially when sports clips and art are available for free online. If NFTs survive a popped bubble, then it may remain a niche interest.
Whatever happens, bettors should watch this space cautiously. New industries like this based on experimental technology don’t come with guardrails. Sports fans might find value in owning NFTs. But there’s just as good a chance that they’ll lose money on a highly experimental product.
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