NBA Top Shot non-fungible tokens are skyrocketing in value : The Indicator from Planet Money A non-fungible token (NFT) for a LeBron James dunk recently sold for over $200,000 on NBA Top Shot. Anyone can watch the clip online, so why is the NFT worth so much money?

The $200k NBA NFT

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. Stacey and Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Holden Reniker (ph) is a huge fan of the NBA, the National Basketball Association, and his favorite team is the Portland Trailblazers.

HOLDEN RENIKER: Yeah, just been a fan ever since I was born, growing up in Portland and going to games my whole life.

STACEY VANEK SMITH, HOST:

And Holden got really excited about a month ago when he heard about this website called NBA Top Shot, where he could buy and sell this new kind of collector's item entirely online - these short video clips of basketball players making spectacular plays, each clip just a few seconds long.

GARCIA: These video clips are called moments. And Holden, who is a civil engineer in Durango, Colo., now owns about 75 moments. And their prices - Stacey, if you'll excuse me - have been jumping out of the gym.

RENIKER: I've put $11,000 into it, which is pretty crazy...

GARCIA: Wow.

RENIKER: ...To say right now. And I estimate my account collection worth is probably $65,000 right now.

GARCIA: That's incredible. You don't think that after having your money go up by six times - do you ever stop and think, this can't be; this is too good to be true?

RENIKER: (Laughter) Yeah. No. I mean, yeah, definitely. Obviously, that's pretty incredible, especially when it - you know, 11,000 to me - that's not nothing in my life, you know? Like, that's...

GARCIA: You can buy a decent used car for $11,000, you know?

RENIKER: Yeah, I know. I have a $3,000 Honda Civic, so I can buy a few of those.

VANEK SMITH: Here is what is fascinating about all this. So buying a video clip on NBA Top Shot does not give Holden ownership of the clip anywhere outside of the Top Shot website. For example, Holden paid $1,900 for a video clip of his favorite player, Damian Lillard, dunking the basketball.

GARCIA: And Stacey and I are watching that exact same clip on YouTube literally right now, right this second.

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UNIDENTIFIED ANNOUNCER: Lillard attacks, flies through the air.

GARCIA: And also, that video clip can be watched for free by anyone on NBA Top Shot itself.

VANEK SMITH: So why are the hundreds of thousands of collectors on NBA Top Shot willing to spend so much money on these clips? Today on the show, we explain the sudden and extraordinary popularity of the market for a new kind of digital good - NFTs - what they are, the psychology behind owning them and the risks of trading them.

When Holden Reniker spent $1,900 for that video clip of Damian Lillard dunking, what he actually bought was something called a nonfungible token, or an NFT. An NFT is a digital certificate, kind of like a digital barcode, which certifies that Holden does, in fact, own that specific video clip on NBA Top Shot.

GARCIA: And there is a limited number of NFTs for each video clip. For example, the Damian Lillard clip has 299 NFTs, these digital ownership certificates. So if I wanted to buy that video clip, I would have to buy Holden's NFT if he was willing to sell it to me or buy one of the other 298 NFTs for that clip.

VANEK SMITH: And the most important thing to know about an NFT is that it cannot be duplicated. Each NFT can only ever have one owner at a time. And on NBA Top Shot, the website where Holden buys and sells these basketball NFTs, everyone can see exactly who owns each NFT and how much they paid for it.

GARCIA: Yeah, it's all public because NBA Top Shot runs on a blockchain, which is kind of like a public spreadsheet. It's where Holden can proudly say to his friends, hey, that's my NFT. Everyone can watch the video clip, but I'm one of the few people who owns it.

RENIKER: I think it's a psychology that I, you know, even can't wrap my head around sometimes. But it's just - you own something that is limited, in a way, but it's - I don't know. It's an authenticated, verifiable little piece of the NBA that you own as a fan. It's a different way of thinking about traditional objects that people own.

VANEK SMITH: And if you think that the $1,900 Holden Reniker spent on that one Damian Lillard moment sounds like a lot, meet Jesse Schwartz (ph), an investor and collector who lives in Los Angeles.

JESSE SCHWARTZ: I am the record-setter for NBA Top Shot with the highest purchase of all time so far - $208,000 for a cosmic LeBron James moment.

GARCIA: Wow - 208,000. And the NFT that Jesse bought for that LeBron James moment, a video clip of LeBron James viciously dunking, is referred to as a cosmic moment on NBA Top Shot precisely because it is so rare. Only 49 NFTs exist and will ever exist for that dunk. Other moments have way more NFTs. They're more common, and therefore, they are much cheaper.

VANEK SMITH: And those are the NFTs that most people across NBA Top Shot are buying and selling. This tiered system where some video clips have a lot of NFTs you can buy and others only a few - that is how NBA Top Shot is designed. It is a marketplace that runs on scarcity.

GARCIA: Yeah, and the way it works is that NBA Top Shot introduces new moments into the site in packs, so you can buy a pack of three moments from Top Shot or seven moments without knowing what you're going to get inside. Then you open the pack. It's all online, of course. And you see if you got a video clip that's valuable that maybe you can sell.

VANEK SMITH: It's like baseball cards. You're, like, hoping for the...

GARCIA: Exactly.

VANEK SMITH: ...Babe Ruth rookie card or something like that, right?

GARCIA: Exactly. Yeah.

VANEK SMITH: But so far, the demand from collectors to buy these moments has overwhelmed the supply of new moments. And so the prices have shot up. We spoke with Caty Tedman of Dapper Labs, the company that runs NBA Top Shot.

CATY TEDMAN: We think it's sustainable, and we don't think prices are out of control. We just think that they reached more maturity faster than we expected. And so some of the moments that are meant to be most common are actually really scarce now because we grew so fast, and we weren't quite able to kind of scale up with content delivery at the same time. But our goal is to get packs in people's hands. Our goal is always to have different tiers of scarcity in order to have different tiers of pricing, which will make the product more accessible.

VANEK SMITH: But the fact that Dapper Labs controls the scarcity of these moments is also why people are skeptical about the very high price for the moments right now, like Charlie Lee, the founder of Litecoin, a digital currency.

GARCIA: Charlie says, look; yes, NFTs themselves are here to stay, and NBA Top Shot is not going to sink into the hardwood floor. Sorry. Yeah, basketball thing. But Charlie finds it unlikely that people will keep spending such high amounts for a single NFT because soon, there are going to be new NFT markets for other sports besides basketball and for all kinds of other things.

CHARLIE LEE: So today NBA Top Shot is doing really well. But let's say in a few years, the NFL, the MLB, the NHL are doing them. And thousands of artists are creating millions of NFTs for their artwork, and every musician releases NFTs for their albums and songs. Demand is there today for someone paying $100,000 for an NFT to a short video clip on nbatopshot.com, right? But I don't think that's going to persist.

GARCIA: So Jesse Schwartz, the $200,000 LeBron dunk guy - he's not too worried about this. He says he plans to hold on to that LeBron James NFT for the long term and, partly, says he's comforted by the involvement in NBA Top Shot of the NBA itself, the National Basketball Association, along with the basketball players union. They both get a cut of each sale on NBA Top Shot as part of their arrangement with Dapper Labs.

SCHWARTZ: And because the NBA is saying, we're putting our stamp of approval on this; this is an official NBA product - they're using the players. They're using the teams. I think this attracts NBA fans as well as NFT fans.

GARCIA: Plus he also says the NBA is a global brand. He's hoping that there's still lots of people throughout the world that someday might join Top Shot and invest so that even as the number of NFTs goes up and up, the number of investors and collectors bringing their money to NBA Top Shot might also keep climbing, which would, obviously, keep up the value of his NFTs.

VANEK SMITH: Because even though this is a new kind of market, its prices are determined by ye olde (ph) economic principles, right? - the contest between supply and demand.

GARCIA: And those high prices right now show that demand for NFTs is in the lead. But it's early - still just a couple of minutes into the first quarter. Stacey, this game...

VANEK SMITH: Oh, man.

GARCIA: ...Has only just started.

VANEK SMITH: This is so bad.

GARCIA: (Laughter) That too - by the way, if you want to hear more about how NFTs are radically reshaping other markets, tomorrow's show is all about an artist who made millions of dollars in a single weekend selling NFTs for his digital art.

This episode of THE INDICATOR was produced by Emma Peaslee and fact-checked by Sam Cai. It was edited by Jolie Myers, and THE INDICATOR is a production of NPR.

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