On June 10, 2021, DraftKings shareholder, Shalom Meckenzie, bought a CryptoPunk for a record $11.8 million. The Covid Alien’s sale marked the most someone had paid for a CryptoPunk since their creation in 2017. This sale also marks an important milestone for NFTs more broadly. A high-profile, high-dollar purchase like that shows how mainstream NFT trading has become. It will also draw new NFT investors, whether they can afford the risk or not. If DraftKings users are considering NFT investments, they should understand what they’re getting into.
What Are CryptoPunks?
CryptoPunks are a group of 10,000 24×24 pixelated pieces of digital art. Originally, the only thing they cost was a transaction fee. However, as NFTs grew, the CryptoPunk collection became a high-dollar venture. Like other assets, not all CryptoPunks are equally valuable. Here’s how they break down:
- 6,039 Male
- 3,840 Female
- 88 Zombie
- 24 Ape
- 9 Alien
So, it’s easy to see why one of the Aliens sold for so much money. Masked Alien was also the only Alien with a mask, so it was even more of an exclusive prize.
CryptoPunk’s Key Vulnerability
But these digital trading cards carry important risks, too. As many critics have pointed out, NFTs are vulnerable to server outages. If the server hosting the NFT goes down, the NFT disappears. Stock portfolios aren’t wiped out if the New York Stock Exchange goes down. Trades are missed, but investor portfolios remain untouched. NFTs must grapple with this vulnerability.
The $11.8 million Masked Alien is more secure than others because it’s such a high-profile sale. Sothebys, the online auction website that sold Masked Alien, says as much in its condition report:
“The following Condition Report is provided by nameless™. This non-fungible token (NFT) is in Excellent condition. Excellent here means that even though it would be technically difficult to recover a CryptoPunk if the hosting service failed, we find such significant history behind this piece that the actual risk of non-recovery is extremely low.”
Since it’s part of such an important transaction, the server hosting Masked Alien will likely be well-maintained. However, the risk of catastrophe remains, making even high-profile NFTs vulnerable to the long march of time. Hype and attention are poor security measures. In the age of social media especially, publicity can shift rapidly from day to day. If enough public attention and money move away from CryptoPunks, those investments may become less safe.
That doesn’t mean CryptoPunks will fall into disrepair. But this is a common shortcoming of NFTs that new investors must be aware of.
Could DraftKings Get Into The NFT Game?
One shareholder isn’t enough to move an entire company into NFTs. However, it’s easy to imagine an NFT related to sports betting. An NFT that captures a massive win could become a sports betting trading card similar to NBA TopShot. But it wouldn’t be run by a sportsbook company. It would be run by some company that specialized in NFT development. If such a company was created, DraftKings and other sportsbook operators could potentially partner with it. It could be part of a profit-sharing agreement or create new marketing opportunities.
However, the biggest obstacle to sports betting NFTs is sports betting legislation. Sports betting legislation is a patchwork of different state bills. With no federal framework, sports betting NFT businesses face the specter of federal legislation that’s unfriendly to sports betting NFTs. A handful of states could also pass legislation that limits sports betting NFTs.
Alternatively, that lack of legislation could give a sports betting NFT company limitless room to operate. With no oversight, it would be free to do whatever it needed to get up and running. But that lack of oversight would pose a risk to customers. Without guardrails, customers have no consumer protections to keep their money safe. If an entire company’s NFTs are lost on its servers, then customers’ legal recourse would be limited.
CryptoPunks, NFTs, And Sportsbooks
CryptoPunks are a popular type of NFT. They’re a set of 10,000 8-bit digital art pieces. They’re similar to online trading cards, and they appeal to a sense of nostalgia that old-school gamers will understand. But like all NFTs, they’re vulnerable to bugs or server outages and can’t be recovered once lost. That’s a massive risk unique to NFTs. So, if NFTs ever collide with the sports betting world, bettors shouldn’t dive into NFT investing without thinking about it. Wealthy executives can afford to accept NFT risk, but sports bettors who wager $5 at a time should reconsider.