On February 22nd, Jesse Schwarz set an official NBA Top Shot record by buying the most expensive Moment on the platform. The 31-year-old paid $208,000 for a massive LeBron James dunk, in which he leaps over the Sacramento Kings’ Nemanja Bjelica to authoritatively slam the ball through the hoop.

Now, you can go onto YouTube and watch a clip of this dunk. A clip of the Moment is even included in the celebratory NBA Top Shot tweet announcing Schwarz’s acquisition. But you won’t own it.

Top Shot is part of the world of NFTs, or non-fungible tokens, the buzzy new use of blockchain tech that lets people buy and sell digital items by permanently inscribing ownership records. At a high level, you might consider a domain name or an event ticket a non-fungible asset since they’re goods that can’t be exchanged for something identical — and they can’t be divided into parts. This is in contrast to bitcoin, where any bitcoin is the same as another, and it’s even possible to own a fraction of a bitcoin if you so choose.

Top Shot is the best chance so far that NFTs — which are mostly the domain of cryptocurrency enthusiasts — could go mainstream. More than 800,000 Top Shot accounts are registered, leading to $500 million in sales.

There are three big things going for Top Shot: it’s easy to use (and designed with people who are unfamiliar with cryptocurrency in mind), the NBA is the second-most-popular sport in America, and purchasable Moments have a familiar real-life parallel: trading cards. Each Moment, a video clip of a specific play, comes with stats about the game it’s from and the player featured, as well as the history of sale prices. And like trading cards, you can buy them in packs.

The investing community has taken notice. Today, the company that runs Top Shot, Dapper Labs, announced it had a new funding round of $305 million, led by Coatue. Other investors include NBA players such as Kevin Durant, JaVale McGee, and Klay Thompson, as well as a smattering of MLB players, NFL players, Ashton Kutcher, and Shawn Mendes. This round means that the company has raised more than $357 million, Dapper Labs says.

Andre Iguodala, of the Miami Heat, was in the NBA bubble last year when he met with Roham Gharegozlou, the 34-year-old CEO of Dapper Labs. Iguodala had a general understanding of blockchain and cryptocurrencies at the time, but NFTs were new to him. Gharegozlou brought him up to speed. “From there, it was like, the rest is history,” says Iguodala. He loved the idea of bringing the NBA to his cap table and made his first investment last August. “The site is crazy great so far. I’m looking forward to sustainability, you know, keeping this thing going for the long haul and having some fun at the same time.”

He chose to reinvest in this round based on Top Shot’s growth since then. “This was something that’s just been having some great reception, a lot of interest,” Iguodala tells me. He has his own account, where he’s been buying packs. “I bought my own Moment just because I felt like I had to have my own freaking Moment,” he says. It’s a dunk from August 4th, 2020, number 490 of 1,000. “So I’d probably call that out my favorite moment.”

The first time anyone could purchase a Moment from a pack in NBA Top Shot was June 15th, 2020, as part of a closed beta; the open beta started on October 1st, 2020. Obviously, the pandemic wasn’t on the launch plan, but it appears to have given the platform a boost. Top Shot has had another tailwind: the boom in sports cards. On March 1st, for instance, the Luka Doncic rookie card sold for $4.6 million, the most anyone’s ever paid for a basketball card.

The players who are investing in Dapper Labs aren’t the only ones interested in Top Shot. Josh Hart, who plays for the New Orleans Pelicans, says he logs on multiple times a day to check things out. “My screen time is way up because of Top Shot,” he says.

Although Schwarz is noticeably excited when talking about LeBron James, it’s not just about being a fan. “To invest and set that record with the $208,000 purchase on LeBron just was an awesome Moment as a fan but obviously as an investor, too,” he says.

The dunk is designated as a part of a Cosmic series, which Top Shot describes as “an exclusive Series 1 set only available for presale to those lucky hoops die-hards on our fan panel.” It’s the first series minted and one of the rarest Top Shot has put out. It came out before Schwarz joined the platform, even. His Moment is one of only 49 copies of that play.

Scarcity creates value, but also, the way Schwarz figures it, the most valuable Moments will be the early ones. And if the history of social media has taught us anything, there’s a lot of money in being first — and getting the best spots early. At least, there is if Top Shot takes off.

Image: NBA Top Shot

You won’t see the word “blockchain” anywhere in NBA Top Shot’s onboarding material. “We did a lot of testing, and eliminating the word blockchain increased conversion by 400 percent,” says Gharegozlou. “People are scared of it.” (They’re possibly also not entirely sure what it is; there’s no consensus definition for what counts as a blockchain.) But that’s okay, he says. You don’t need to know about blockchain to enjoy Top Shot. You only need to know basketball and scarcity.

The process of “minting” an NBA Top Shot Moment starts with the basketball game. In any game, there is a handful of notable plays. This means deciding which Moments to mint is a time-consuming process, one that hasn’t yet been standardized, says Adrienne O’Keeffe, who leads consumer products and gaming partnerships at the NBA. Right now, it’s a stream of emails, Slack channels, and biweekly calls, she says. Once Dapper Labs and the NBA agree on a play, it goes through a review process that includes the National Basketball Players Association. Once it has signed off, the NBA and the Players Association send the Moment-to-be to Dapper Labs to go through the process of minting. In the future, O’Keeffe says, fans might help decide, too.

After that, Top Shot mints the NFT — which creates the beginning of the record. Price, ownership, and transfers will be recorded on the blockchain permanently. This is what makes each Moment unique; even if 100 Moments are made from the same play, no two will be identical.

The NBA was introduced to Dapper Labs in 2018, when the league was considering applications for blockchain in its business, O’Keeffe says. Dapper Labs launched CryptoKitties, a game on the Ethereum blockchain that let people trade or sell pictures of cats. Within a few days of its inception, more than a million dollars had changed hands. At the peak of the boom, one sold for 600 ether, about $170,000 in 2018; now, most CryptoKitties are trading for a tenth of an ether or less.

There were some problems with CryptoKitties. First, the product used the Ethereum blockchain, which is the second-most-popular after bitcoin — and CryptoKitties’ popularity meant a lot of traffic, which made it hard to process transactions. Second, CryptoKitties proved to be a short-lived fad because there was nothing else you could do with the kitties except make more kitties.

After meeting with Dapper, “it was pretty clear we both saw the potential of blockchain to transform the digital collectibles industry,” O’Keeffe says. But Ethereum didn’t just work for them.

So in 2019, Dapper finalized the architecture for Flow, its own blockchain that’s built specifically for NFTs. Flow is less of an energy hog than Ethereum because it’s more centralized and runs on proof of stake rather than proof of work. The company spent a year building it out: a core protocol, payments, credit card and cryptocurrency integrations — and then it launched Top Shot.

Most users of Top Shot won’t interact with the blockchain, though. Instead, they’re just likely to have a better user experience than CryptoKitties players. New players don’t have to learn what a blockchain is or learn about the infrastructure under Top Shot, Gharegozlou says. People who trust cryptocurrency already own cryptocurrency. To reach people who might be skeptical or intimidated, Top Shot had to take a different approach. “The people that don’t have crypto don’t have crypto for a reason, right?” he says. “They’re probably scared of it. They’re probably threatened by it. And they’re right.”

After all, from bitcoin to dogecoin, cryptocurrency is prone to speculative manias, viruses, and scams. That’s the other thing Flow is meant to solve — because it’s a sandbox controlled by Dapper Labs. “In the early days of the iPhone, a big part of what made the iPhone successful was the App Store, right?” Gharegozlou says. “A big part of what made the App Store successful is the fact that you could easily install iPhone apps without worrying about your data being stolen or worrying about your app crashing or your phone crashing.” So the idea is to create something like Amazon Web Services but specifically for NFTs — where it’s easy to build on top of the blockchain, and consumers are safe enough that they don’t really have to think about the blockchain at all.

Video: NBA Top Shot

A lot of Top Shot collectors started as sports card collectors. “I was already into sports cards,” says Libruary, who joined the community in August. He’s a moderator on both the Top Shot Discord and its subreddit. “I already had a big collection. I was already wheeling and dealing on eBay.” As soon as he saw Top Shot, he “instantly loved it.”

The first thing he did on the platform was buy a LeBron James dunk from February 6th, 2020, for $35. “This is the LeBron James Kobe tribute dunk, shortly after Kobe Bryant passed away,” he says. “So, this was a very special play and Moment. When I saw it, I knew instantly I had to get it for my collection.” Now, he’s got the ninth-most-valuable collection on Top Shot, according to evaluate.market. His portfolio was worth about $9.2 million as of March 29th.

In a sense, Libruary says, Top Shot appealed to him because it didn’t have the same problems as physical cards. “I live in Canada, and there’s a lot of logistical problems with shipping cardboard to the States,” he says. “So, part of it is maybe shipping to the buyer, hoping that they receive it, hoping that they don’t try to scam you.” This is to say nothing of cards that get damaged in transit. And the physical condition of the cards is clutch, which sometimes means sending something to one of a few companies that grade the cards, a process that’s both expensive and time-consuming.

And as physical objects, sports cards, well, take up space. “Typically, they’re actually in my closet, so they’re not seen,” Libruary says. But on Top Shot, anyone can see his collection. He doesn’t have to go rooting through his closet to get a card, take a photo, and upload it to the internet. There’s another advantage, too: he doesn’t have to go to the post office during a pandemic.

Not everyone was as bullish on Top Shot as Libruary; on a sports card forum where he compared Top Shot to regular sports cards, the first reply to his post was someone posting a GIF of a child throwing money out of a window.

Which brings us to the big objection about NBA Top Shot: you don’t need to buy a Moment to watch a play. The NBA still owns the footage. So what, exactly, are you buying — and how does that ownership work?

Well, you’re buying the Moment! Each has a unique identity stamped in the blockchain, which means you have an official version of the play, and you can sell it whenever you want. But you don’t own the copyright on the video — so no merch unless the NBA approves it in advance. You also can’t change the Moment without the NBA’s express permission, so no fancy edits allowed. The Top Shot terms of service also forbid placing the Moment next to “images, videos, or other forms of media that depict hatred, intolerance, violence, cruelty, or anything else that could reasonably be found to constitute hate speech or otherwise infringe upon the rights of others.” If you violate the terms of service, Top Shot can, at its own discretion — and without giving you any notice — either suspend or delete your account and the Moments from the app.

One way to acquire Moments is to buy a pack of Moments. (Dapper Labs, the NBA, and the NBA players split this revenue.) New packs drop sporadically. Users get an email telling them when new packs will be available. The packs range in price from $9 for a pack that contains common Moments to $230 for a pack that contains “legendary” Moments. Opening a pack is often a social affair. The Pelicans’ Josh Hart, for instance, sometimes streams opening them on Twitch. “It’s so much fun,” he says. Opening a pack of Top Shot Moments works an awful lot like physical cards: you get a wrapper that you click on to open, revealing a number of mystery Moments inside. Then, one by one, you click on your Moments to reveal them.

The packs are often themed. For instance, a Christmas-themed “Deck the Hoops” pack was released in January. A “Rising Stars” pack, released on March 7th, contains Moments of the game’s “next generation of stars,” along with some from the players who were in the 2021 NBA All-Star Game and some base set Moments.

But if you’ve logged in to Top Shot and you don’t know when the next pack drop will be, you can buy from other people; Dapper Labs, the NBA, and the players take a 5 percent cut. The market appears to view Moments from the 2019–2020 season, known as Series 1, as being more valuable than the Series 2 packs that are currently in production. Series 1 has a total of 23 sets of Moments, for a total of 840 possible plays. (The edition size on each Moment varies from one of thousands to one of, say, 70.) No more Series 1 Moments will be made, but Series 2 is still in production. So far, there are 10 sets in Series 2. In either series, low serial numbers are more valuable.

Other numbers matter, says Michael Levy, who has the second-most-valuable collection of Moments on Top Shot — worth $15.6 million, according to evaluate.market. For instance, his favorite Moment, value aside, is a Jamal Murray layup against the Lakers in the 2020 Western Conference Finals. To Levy, it seemed very acrobatic, kind of like a mirror image of a Michael Jordan play. So as the packs associated with the Western Conference Finals were being opened, he watched the blockchain. He wanted to buy number 23 — the Moment that was Jordan’s jersey number. “I really liked the combination there of the play itself, and the importance of the serial number, and the tie back to Michael Jordan,” he says. “So, that’s a fun one.”

Many collectors view the Cosmic Series 1 set — the first “legendary” set ever minted — as the sought-after set, Levy says. Jesse Schwarz’s record-setting LeBron James dunk is from this set. “These are investments,” he says. “That LeBron that I bought for $208,000 was worth seven figures right away. And, that’s a big reason why I bought it.”

Schwarz says that investing in Top Shot Moments is a lot like investing in stocks. “There’s a lot of psychology behind it,” he says. “It’s not only about what the best company or best player is. It’s about understanding what’s baked into the price and what other people aren’t seeing.” Although, in the case of LeBron James, his greatness is part of what creates the value.

Image: NBA Top Shot

One other way to get rare cards is to complete a challenge. For the Rising Stars 1 Challenge, for instance, collectors have to get nine specific Moments. If they do this by the time the challenge ends, they’ll receive an Anthony Edwards dunk, a Moment that won’t appear in packs anywhere. How scarce it is depends on how many people manage to complete the challenge. This tends to drive certain Moments’ prices up until the challenge is completed — at which point they sink in value.

Video: NBA Top Shot

All of the investors I talked to experienced a tension between the Moments they love most and the Moments that were most valuable; they are both investors and fans. This isn’t unique to Top Shot or NFTs — it’s also true of trading cards. “These are rivalrous goods,” says Lana Swartz, an assistant professor of media studies at the University of Virginia and the author of New Money: How Payment Became Social Media. “A fandom that depends on uniqueness, NFTs, and the pursuit of the holy grail object is so fundamental to the logic of this particular fandom. But it also produces value, which creates financialization and speculation, which then deprives fans of ownership of the thing they so desire.”

As of March 29th, the market cap on Top Shot is $1.1 billion, according to evaluate.market, and the platform is still in beta. But it has a tailwind: it’s easy enough to get money into Top Shot. Getting it out is somewhat more difficult. According to a post in the official Top Shot Discord on March 26th, just $18.7 million has been withdrawn from Top Shot.

At first, there was no way to get money out at all. Now, it takes 30 days to get approved for withdrawals, and an average of “less than 10 days so far” to get your first withdrawal out, though things might move faster or slower depending on any individual user’s activity, Gharegozlou says. “We just doubled the team last week,” he says. “We should be getting ahead of it.”

On March 26th, the company posted about its withdrawal backlog. Over the last four weeks, the number of people with access to withdrawals has increased by 450 percent, the post says. Another 5,000 people will receive access soon.

The reason these things take so long is that Top Shot allows anyone with any kind of currency from anywhere in the world to come into the system. That means heavy compliance checks, Gharegozlou says. Any money moving out of Top Shot has to be checked to make sure there isn’t money laundering, fraud, or other nefarious activity going on. Some accounts are easier to check on — people who are just buying packs from Top Shot, for instance.

But if you’re gifting Moments to people or receiving them or buying from a lot of other people in the marketplace, every transaction has to be chased down. “Where did this dollar go?” Gharegozlou says. “Who is this other user? What payment method did they use? And that just takes longer. So there’s a little bit of variability.”

This is not entirely unexpected. Top Shot is, after all, still in beta. As I was writing this, Top Shot turned off site sign-ups. Right now, Dapper Labs is focusing all of its efforts on scaling its operations to accommodate demand — which really took off in 2021.

But Dapper Labs has big plans: a mobile game Gharegozlou says will roll out this year. Not only will users be able to access their accounts from their phone, but the plan is to let them use their Moments to level up players in a mobile basketball game. In Gharegozlou’s vision, having a lot of good Moments means you’ll have a stronger team. “Most people in 2021 needs to try something for free before paying for it,” he says. “And so the idea is you download an app off the app store, you start playing with something, and then you realize, ‘Oh wait, having Moments would mean I look better in this game.’”

That means the Moments do double-duty: not only are they collectibles, but they also function as something akin to a Fortnite skin. And plenty of people, as video game developers will tell you, have no problem buying something that only exists online in the context of a video game.

And maybe, sometime in the future, you might be able to watch your Moments in VR or AR — they’re 3D Unity objects, Gharegozlou says. “In the future you can beam them onto your wall, and all those things,” he says. “That won’t be this year, but we’re already set up for it.”

Beyond that, Gharegozlou envisions Top Shot as a kind of fan club, ideally with perks at the real games. “The crazy thing with digital compared to physical is I can’t show up to a game with my entire card collection in my pocket, but I can show up to a game with my entire Top Shot collection in my pocket,” he says. “Then, the arena will know how big of a fan I am. They’ll know how much skin in the game I have.” And maybe the arena might do something special, like give him a free hot dog. (The ideas aren’t yet fully cooked.)

When it comes to connecting life online to life offline, Gharegozlou gets noticeably excited. He points out that with Pokémon Go, people left their houses to go on walks to catch rare pokémon — with no benefit to it outside the game. Maybe Top Shot will be part of how the NBA lures Gen Z into the stands once live events open back up. “We haven’t even gotten started thinking about those kinds of things yet. So it’s going to be a lot of fun.”

Image: NBA Top Shot

Some of the offline interactions are already occurring. Jesse Schwarz, the collector, says that NBA players are already trading Moments for real-life experiences. “They’re saying, ‘If you give me this Moment, I’ll get you a jersey,’” he says. “Or ‘If you buy this Moment from me, I’ll get you court side seats at our next game.’ That kind of thing. I think that’s really cool because it bridges the digital world and the real.”

Still, in the digital world, there is a real community. The Discord is a remarkably polite, well-moderated place. There are multiple fan-built sites, such as intangible.market, evaluate.market, and Top Shot Signals, that help users figure out how much their Moments are worth, who has specific Moments, and what the overall marketplace looks like. There’s a podcast, The First Mint, and a YouTube channel, Own the Moment.

And some people are very excited. “I have one friend I had to give the responsible adult conversation, because he was like ‘I’m putting everything into it,” Iguodala says. “And I’m like, ‘Well, there’s risk in everything you do.’ He was just so excited about it.”

The enthusiasm is important. It’s what creates demand. The market only works as long as people are enthusiastic about it — ask anyone with a box full of baseball cards from the early 1990s. To some degree, the future of Top Shot is more dependent on its community than it is on the blockchain.

Steve, who created intangible.market, joined in August. When he first bought his packs, he immediately experienced buyer’s remorse. “I was like, Well, what did I just buy? I bought about $30 worth of YouTube highlights,” Steve says. “And I sat on it for about a day and I just came to this realization that maybe there’s something more to it. So I joined the Discord as well.”

The Discord community was “awesome,” Steve says. He began putting together a document on how Top Shot worked. Then he started answering questions. Then he started writing tools to help people find Moments they wanted and to manage their collections. And then he wrote the initial code of conduct for how to trade Moments without getting scammed. “For a while there, I felt like I was pushing my budget for how much I should be spending on these things,” Steve says. “Because if there aren’t a lot of users joining you could be throwing money into a dead platform.”

Steve now has the eighth-most-valuable account on Top Shot, worth about $9.5 million, according to evaluate.market. He’s a moderator on the Discord, and it’s getting increasingly difficult to keep up. Now the question for him is how to grow Top Shot in a way that’s sustainable. There are roughly three communities in the Discord: people who are huge basketball fans, people who are really into NFTs, and people who just want to make a buck.

“Obviously the financial returns and the fun of finding a hobby that I really enjoy has been fantastic, but probably the best takeaway from my perspective is meeting the people and the community and kind of finding new friends,” says Michael Levy.

Levy’s a recurring guest on a YouTube stream called Club Top Shot, where he got to talk with the Golden State Warriors’ Damion Lee. Chris Conley, an NFL player who most recently played for the Jacksonville Jaguars, has also dropped by the stream.

Early on, everyone in the community knew each other — it was that small, Levy says. With every trade, he knew both people involved, so it was easy to send over a message to both and congratulate them. When Libruary joined, there were only 100 active buyers a day, and the Discord only had a few active users. “Any sale that was over $500 really got attention back then,” he says.

As the Discord has gotten larger, different kinds of people have come in, Libruary says. Some people are trying to shill specific Moments, but that’s frowned upon. “Whenever there’s any kind of dip in any kind of market, any values of Moments, there’s a very vocal minority that get very angry if a Moment goes down,” he says. These users are spreading FUD: fear, uncertainty, and doubt, he says. His big tool for combating that is “empathy,” he says. “We just try to spread the positive vibes. And we realize there’s going to be critics out there, but we just have to roll with it. And honestly, there’s so much positivity right now.”

There were some periods early in Top Shot’s lifespan where people questioned whether Dapper Labs was making good decisions with the supply of Moments and whether the website itself would hold up with a larger user base, Levy says. “It’s really exploded and become very, very mainstream,” he says. “So it feels validating to see it all play out the way a lot of us hoped it would.”

Top Shot Moments have something the art world NFTs do not: a community of believers who are attempting to understand the value of each Moment in real time, and that may make them a better investment than some of the flashy art world auctions. In fact, Top Shot Moments may ultimately be worth more than bitcoin, Steve tells me. No one has an emotional attachment to a specific bitcoin. It’s just a number in your wallet. But when Tyrese Haliburton shouts out Top Shot — that’s special. The fact that no two tokens are identical — that’s special, too. It encourages a sense of ownership, which in some sense, is what the fans are actually buying.

Through the blockchain, the NBA is re-adding uniqueness to something that is widely reproduced. The collector community is what determines the value; after all, it wasn’t Dapper Labs that decided that low-serial-number Moments were the valuable ones.

For anyone who’s interested in how value is formed — in art, on Wall Street, or anywhere else — Top Shot’s community is worth watching. One benefit of the blockchain is that it’s possible for outside observers to track when specific Moments began to take off in value, as well as which packs the community thinks are most important. Watching the Discord, it’s possible to see people trying to decide what a sense of ownership is worth in real time.

It’s hard not to view Top Shot as an inadvertent social experiment. Fans often feel a sense of ownership over the things they love, even if they don’t actually own the intellectual property. Top Shot essentially monetizes this, letting hardcore fans buy a sense of ownership in their favorite plays. After a while observing the community, one gets the sense that — more than anything else — Top Shot is several sociology and economics dissertations waiting to happen. What, exactly, is a sense of ownership worth in dollars?

Top Shot is a better system than the art NFTs for observing this because the community means there’s consensus around price. By contrast, Beeple’s NFT famously sold for $69 million — but there’s no real way to know if that valuation is accurate. Whether there’s a resale market for that Beeple NFT is an open question, one that might not be answered for some time.

On March 22nd, Gharegozlou tweeted that more than 300,000 people were in line for a pack drop from the Cool Cats set. Among collectors who open at least two packs and do at least two trades on the marketplace, retention is 98 percent over a 12-week period. These are impressive numbers — but 12 weeks is a limited period of time. CryptoKitties was, after all, a short-lived fad for most participants.

In the meantime, Josh Hart is collecting his own Moments, as well as those of players he thinks will be future Hall of Famers. “I have my jersey number (#3/299) Metallic Gold LE Series 1,” Hart says in an email. “I will give that to my kids one day.”

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