The frenzy over blockchain and its possibilities began with bitcoin. The idea of a currency whose value couldn’t be manipulated and was only controlled by the market was groundbreaking. However, new secure currencies aren’t the only way software engineers can use blockchain – it also has come to the NBA.

A new company is allowing NBA fans to buy clips of game moments on a trading network. NBA Top Shot posts copies of impressive clips from NBA games. The more impressive the clip, the fewer copies NBA Top Shot uploads. Common NBA moments have over 1,000 copies while the highest tier of impressive moments only has one. NBA Top Shot has created a marketplace for traders to buy packs of these moments. If there’s an available pack by the time traders get through the virtual line, they can buy a pack. Auctions are available for the rarest moments, too.

The idea has merit – at least, customers seem to think so. Here are some company stats from CBS Sports:

	Customers	Sales
February 16, 2020	50,000	$65 million
March 2, 2020	88,000	$278 million

That’s a 76% increase in customers and a 328% increase in revenue in two weeks. Those figures dwarf competing crypto companies. So, it’s not surprising that the NBA secured a partnership with the company. The future seems bright for this company.

But a great idea doesn’t guarantee great execution. NBA Top Shot has had some serious operational flaws that do worse than compromise consumer trust. It’s still beta testing, so these glitches are forgivable. However, the company’s fast growth is a double-edged sword. NBA Top Shot is on the cusp of making blockchain business history. But it also faces the highest of failing during the height of its earliest success.

A Quick Primer On Blockchain

This company can exist because of blockchain – the same underlying technology that powers cryptocurrencies. Blockchain is a big deal, in part, because of its data security. If I wanted to – or could – hack a bank, I could drain hundreds of thousands of dollars from its bank accounts. Every account would go to zero because the changeable data is stored in one hackable place. But on a blockchain network, no single hacker could change a bank account’s value. Blockchain links data pieces together so one piece of data can’t change. For now, it’s unhackable.

If all that is confusing, the gist is that blockchain data is tamper-proof because all the pieces of data verify each other. If that sounds insanely complicated and unintuitive, don’t worry because it is. But simply put, blockchain offers the type of data security that’s ideal for a company like NBA Top Shot.

What Blockchain Is Doing For NBA Top Shot

There are a few ways NBA Top Shot is likely using blockchain. We can make some educated guesses about how blockchain is making this company so promising.

When NBA Top Shot releases a pack of NBA clips, the blockchain technology likely notes the pack’s contents. That would keep traders from hacking the exchange to get the most valuable moments. (One rare clip sold for over $200,000!) Blockchain would also secure the financial transactions of what could be contentious trades. Claiming to be owed a rare and expensive clip could create a PR nightmare for NBA Top Shot. But thanks to blockchain’s powerful verification function, that concern would be eliminated.

This advanced security puts NBA Top Shot’s founders in complete control of their exchange. That allows the founders to manage their marketplace, giving them proper control over clip rarity. But it also assures that customers will get what they pay for, creating the consumer trust needed for any of these clips – or the company – to have value.

The Biggest Threat to NBA Top Shot

CBS Sports cited concerns about NBA Top Shot’s users struggling to withdraw funds. One user withdrew his funds but still hadn’t seen them in his bank account. Many others couldn’t withdraw funds at all. Those are serious concerns for the company – especially because they’re apparently approving withdrawals manually. However, glitches should be expected during the beta-testing phase. (Although, that excuse is dubious. The company may be young, but its user base is growing too quickly for that to matter.) But before the Securities and Exchange Commission can come after NBA Top Shot, poor cash flow management could kill the company.

Why Cash Is Critical For a Start-Up

Most people think the beginning of a start-up’s life is the most dangerous. They’re close but wrong. If a start-up fails during a prototyping phase, founders and investors usually minimize their losses. There’s also relatively little money invested at the beginning anyway, with only a few basic and predictable costs.

But when the growth phase arrives, start-ups enter dangerous territory. They burn through cash paying new bills and increasing costs. Managed properly, this frenzied phase of business can be the most exciting time of a founder’s life. However, costs can also overtake revenue, sucking more money out of a founder’s account than the business can replenish. Bills go unpaid, and the company falls apart and bleeds to death.

That’s why NBA Top Shot is currently vulnerable. It has a glitchy beta platform that’s popular but could also lose its loyal customer base if those kinks aren’t ironed out. This Vancouver-based company has a lot of promise. (Lots of exciting things are coming out of Canada!) But NBA Top Shot customers and blockchain fanatics must learn the same critical lesson successful sports bettors internalize – don’t fall for hype. For all that promise, there’s plenty of room for NBA Top Shot to fail.