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Digital Collectibles and the AI Threat

Updated: Jun 25, 2023

Physical and digital trading cards, or “moments,” have a bright future with the appropriate technological governance. NFTs are polarizing, and with good reason. When a new technology has the potential to disrupt a traditional monolith, there will be pushback.

Digital collectibles represent an exciting future for people in the hobby. Still, several threats, including Artificial Intelligence, present a danger to the space.

Before going into the threats presented by AI, here are some cases for further adoption of digital collectibles:

· Storage. There is no need to store assets physically. All NFTs are stored on the blockchain.

· Preservation. Because NFTs are on the blockchain, they can’t be damaged or destroyed.

· Transferability. Digital collectibles can be transferred in a matter of seconds to anyone worldwide.

· Display. It’s much easier to have digital collectibles to show off online or in a digital display than to take the “right” pictures of physical cards.

· Design. Digitals can be designed to include music, movement, graphics, and art.

Here are some weaknesses of digital sports collectibles:

· Fraud. The NFT space is littered with people trying to take advantage of others. It is a Wild West with little repercussions for scam artists.

· Intellectual Property. Unlike a number of NFT projects that give owners full IP rights, sports digital collectibles have no IP rights. Because of image and likeness conflicts with athletes and leagues, digital sports collectors cannot monetize their assets.

· Adoption. The digital card market is still only a fraction of the physical product.

· Use case. At the height of the NFT frenzy, some pundits said NFTs were a new form of currency. They always were, and remain, just digital collectibles.

· Marketplace. There is no central marketplace for digital products like cards with eBay. NBA Top Shot, Panini, Sorare, and Candy all require you to visit their sites to buy their products.

NBA Top Shot

I remember when I first heard about NBA Top Shot. As a card collector, I scoffed at the idea of holding ownership of a video clip that was available for free on YouTube. I thought, why would anyone pay for that? But let’s hand it to Dapper Labs, the creators of Top Shot, for ushering in a new era of digital collectibles.

But over time, I got curious. Then I explored the website, and I liked the moments. They opened with a rush of sound and catchy music. Opening a pack was the most exciting part of my day when I could get in on a drop. I recorded opening a pack a few times and sent the recording to my friends. They eventually joined Top Shot – and I’d get mad when they would get packs, and I didn’t.

My first month into Top Shot can best be described as insanity. You could buy a digital pack of three moments for $20 and make upwards of $100 by immediately selling the moments – and that’s if you were just pulling regular packs.

If you landed a more exclusive Moment, you could make thousands in a few minutes. The thing about Top Shot is that it hit a necessary metric to give any collectible its worth – scarcity.

When Top Shot was at its all-time high, there were 15,000 packs available in a drop and more than 120,000 people in the queue to buy them. A friend bought a pack for $250, pulling a limited-edition LeBron James moment, and sold it a few minutes later for $2,500. On Top Shot, if you were lucky enough to get a pack, then you would make money if you wanted to.

Dapper Labs knew they had a cash cow on their hands. So naturally, they had more drops, with more packs, and way higher editions for each moment. The good times came to an end.

The Market

The digital collectible space is still thriving even if it is down from last year (everything is down from last year). While there is a market for digital sports collectibles, it is only a fraction of the physical cards we know, love, and hold dear to our hearts.

But the potential is huge. Last year, Top Shot reached $1 billion in sales in May 2022. Since then, sales have fallen considerably, but it may have been for the best. Now that the market has been reset, collectors can take stock of natural market demand.

The top-grossing digital sports platform is Sorare, which recorded $138 million in sales at this point last year. Sorare has recorded a still-robust $68 million in sales through April of this year.

Through the first four months of 2023, sales volume for other digital platforms is:

· Top Shot - $10 million

· Panini Digital - $5.4 million

· Candy - $1.3 million

By comparison, the Panini Group’s revenue in 2018 – a World Cup year – was reportedly $1.4 billion.

The Artificial Intelligence Threat

Artificial intelligence is the biggest threat to digital collectibles and the entire digital space. I have no idea how close we are to creating sentient artificial intelligence. However, I believe that smart AI is a matter of when not if.

These are things we don’t normally talk about in our hobby. But since so much of our business is conducted online, it’s worth considering the impacts AI can have on the hobby. Imagine

someone building an AI system dedicated to inflating comps by shill bidding. Bots that shill-bid already exist, but AI systems will make present-day bots look like ancient technology.

There are several other ways that AI can potentially manipulate our buying experiences. That can include:

· Higher, dynamic pricing based on intrusive tracking of our buying history or income

· Ever-more precise counterfeit cards and slabs

· Podcasts and videos derived from deep fakes and AI-generated content

And whether we realize it or not, we are already being manipulated. Algorithms have carefully constructed our social media accounts to engage us as much as possible. Sometimes the models show us things we like, but sometimes the algorithm knows enough to show us posts we really disagree with.

It’s no coincidence we see more of the things we don’t like. The algorithm knows people interact with posts they dislike much more than with what they like and agree with. Imagine the manipulation that will occur with a constantly-learning AI using its knowledge to act independently for its creator.

I get it; if sentient AI becomes an existential threat to humanity, trading cards and digital collectibles will be at the bottom of our priorities. No one will care about a 1/1 Superfractor of the 54th-ranked Baseball America prospect when a Terminator machine is knocking down your door.

But as people in the hobby, we should view financial technology companies touting their AI capabilities with some skepticism. AI technology can be a good thing, but we must ask tough questions like, ‘Why is the technology being developed?’ or ‘How does this help the hobby and not just your company?’

We owe that to future collectors and to a hobby about the people, not the technology.

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