How CryptoKitties became a blockchain sensation

Often a new technology doesn’t truly break through until someone makes a game of it. Augmented Reality only took off after the release of Pokémon Go last year. Facebook’s initial growth spurt in 2009 was helped by the immense popularity of Farmville. Now, at the end of 2017, blockchain is getting its game craze moment with CryptoKitties.

Before I tell you what CryptoKitties is, let me say upfront that there is something important happening here. Yes the game I’m about to describe is silly and as pointless as buying virtual cows on Facebook or chasing a cartoon Pokémon around a park. But as I’ll explain, paradoxically CryptoKitties is also an excellent use case for the utility of blockchain.

As the name suggests, CryptoKitties are virtual cartoon cats that can be bought and sold for cryptocurrency (specifically, Ether). Each virtual kitten is unique and you can “breed” new kittens by pairing them together.

Everything about your cat, including your ownership and its price value, is stored as bits of data on the Ethereum blockchain.

CryptoKitties launched at the end of November, with an initial crop of “Gen 0” kittens. Similar to Bitcoin’s slow release model, a new cat will be released every 15 minutes until November 2018. However, unlike Bitcoin, that won’t be the end of new kitty creation. Because of the breeding element of the game, the supply of CryptoKitties is almost unlimited.

If you’re still confused, think of CryptoKitties as a 2017 upgrade on the Tamagotchi craze from the late nineties. Tamagotchi was a virtual pet simulation game. After buying a cheap egg-shaped electronic device, you then settled down to raise a virtual pet. If you did it correctly, the pet would grow from an egg into an adult cartoon character. The game was utterly stupid, but millions of people bought a Tamagotchi and spent hours nurturing the digital creature.

The key difference between Tamagotchi and CryptoKitties is the cryptocurrency angle, which allows people to trade their virtual pet. Generally speaking, the rarer the “traits” of your digital kitty, the more value it’s likely to have.

As an example, a CryptoKitty with the “royalblue” trait is currently present in 884 kitties. That’s just 0.281% of the population, according to a community-built data analysis site called CryptoKittydex. Because the royalblue trait is rare, on average a kitty that has it is worth 0.249 ETH (equivalent to NZ$249 at time of writing). That’s 256% higher than the overall average price of 0.07 ETH per kitty (NZ$70), although you can purchase a below average kitty for less than NZ$10.

Already the value of the rarest CryptoKitties has skyrocketed to absurd amounts. After just a few weeks of CryptoKitties going live, a new site called KittySales has recorded five sales of US$100,000 or more. The most expensive was the 18th kitty ever made, acquired for 253.3368 ETH (US$110,707 at the time of sale).

So clearly CryptoKitties shares the speculative urge that’s driving the price of Bitcoin and other “altcoins” up right now. But there’s more to CryptoKitties than just another dubious market bubble.

What’s really interesting is that CryptoKitties is one of the first examples of a non-currency digital asset being traded, at volume, on a blockchain. Not only traded, but internationally with no middlemen.

In other words, if you replace the virtual kittens with something more substantial – say, houses – then you can see that CryptoKitties is a use case for trading all kinds of products on a blockchain.

Just like a CryptoKitty, a house is unique and its value depends on the “traits” it has (for example, where it’s located). So, theoretically at least, there’s no reason why you couldn’t start a site called CryptoHouses to buy and sell houses. Such a site would effectively cut out real estate agents as middlemen, since buyers and sellers can do direct transactions on the blockchain.

We’re very far from that scenario, of course. But CryptoKitties does prove the process works. Well, kind of…

There is one rather important problem with CryptoKitties, and it does pinpoint the major concern with blockchain technology at this time. Unfortunately, CryptoKitties is clogging up the Ethereum blockchain.

By some accounts, CryptoKitties is responsible for 17% of all Ethereum network traffic currently. This is slowing down the network and driving up transaction costs. While this shows how popular CryptoKitties has become in such a short time, it also highlights the Achilles’ heel of blockchain: an inability to scale. The Ethereum blockchain is capable of about 15 transactions per second, which compares very poorly to other networks. Visa, for example, is capable of thousands of transactions per second.

Looking at the bright side for blockchain developers, the popularity of CryptoKitties makes it a great test case for Ethereum’s network. That will lead to further innovations, to address the scalability issues. Blockchain is, after all, still early in its evolution.

Whether or not the CryptoKitties craze continues into the new year is anybody’s guess. But it’s already proven to be a fun way to showcase what blockchain technology is capable of, aside from fuelling Bitcoin speculation.