Today’s guest columnist is Lloyd Danzig, the founder and managing partner of Sharp Alpha Advisors, a firm that specializes in sports betting startups, venture capital, M&A and technology.
It has been almost impossible not to notice the explosive growth of NBA Top Shot and the broader category of non-fungible tokens (NFTs). In just the past several weeks, NBA Top Shot had one 24-hour period in which it saw $10 million in sales; Christie’s auctioned off a piece of digital art for $69 million; Logan Paul completed the sale of $5 million worth of NFTs ahead of a Pokémon card unboxing; and Jack Dorsey’s first tweet, in NFT form, sold for $2.9 million. Rob Gronkowski and Patrick Mahomes have gotten involved in the movement with their own token drops, and everyone from Sportico to Saturday Night Live has offered NFT explainers.
Headlines will continue to report record-breaking sales and new tokens that draw immense demand. Some investors are currently seeking exposure to diversified baskets of Top Shot moments and crypto art pieces, while others are targeting the proverbial picks and shovels in the NFT gold rush—the platforms on which new tokens are created and shared, similar to the roles that Shopify and Squarespace have played in the dropshipping and web development industries.
NFTs offer incredible utility, tangentially related to their current appeal as speculative assets. At their core, NFTs are mathematically engineered mechanisms for verifying ownership and authenticity. Currently, ownership of houses, cars and diamond rings is tracked manually using printed certificates of authenticity and analog chain-of-custody procedures. Particularly in countries notorious for their governments’ poor record-keeping, these documents are extremely prone to corruption and counterfeiting. Utilizing NFTs to represent ownership of important assets allows for the creation of an auditable, inalterable chain of custody and an independently verifiable way to assess authenticity. In fact, Breitling is piloting a program wherein certificates of authenticity are issued via NFT. This allows current and future owners to easily audit the sales and maintenance history of their watch and also verify that they are in possession of an original Breitling.
Regardless of the total market cap that NBA Top Shot or any other NFT obtains, the most pronounced effect of the current craze may be the widespread acceptance of virtual tokens as representations of ownership and authenticity. This would likely revolutionize the nature of digital and physical transactions.
The Ethereum blockchain, on which most NFTs are built, also supports the use of smart contracts, which are agreements between parties that automatically execute according to defined terms expressed in snippets of code. This functionality allows for integrity and security to be engineered into the fabric of agreements. For example, an individual closing on a house could enter into a smart contract whereby the NFT representing the deed to the house will be automatically transferred to the buyer upon the seller’s account receiving the pre-arranged amount of funds. Smart contracts essentially provide an automated, algorithmically executed escrow service without requiring a third party to be involved.
The seamless ability to reliably transfer ownership of digital and physical assets using cryptographic tokens is poised to proliferate at a time when zero-commission trading and legal sports betting have catalyzed the gamification of nearly every corner of the media universe.
Insofar as NFTs and smart contracts make it possible for any asset to be efficiently transferred from one owner to another, they also enable those assets to be traded and gambled. For example, users may wish to risk their favorite NBA Top Shot moments on the outcome of a particular sporting event instead of risking cash, with the moment automatically being transferred to the winning party. The long-standing tradition of skin betting in the esports community will likely evolve seamlessly to incorporate NFTs. It will even be easy to wager one person’s ticket to a Dallas Mavericks game against another person’s signed Luka Dončić jersey.
Without reliance on a third party, the NFTs representing ownership in those items would be digitally escrowed into a smart contract programmed to deliver both tokens to the winner of the wager. All stakeholders involved would be assured of the authenticity and integrity of the transaction without having to explicitly trust their counterparty, let alone rely on a third party.
While the fate of any particular NBA Top Shot moment or tokenized asset class is nearly impossible to project, NFTs as a framework are attractively positioned to fundamentally change the way transactions are executed. As a byproduct, every moment will become a gamified opportunity and every asset a riskable piece of digital or physical property.