Can CryptoKitties Teach the World About Blockchain?

Benny Giang DMed me on Twitter in early October about CryptoKitties. "We put the first breedable kitties onto the blockchain," Giang wrote, adding "This may sound like an ICO scam or a joke but it's neither."

At first, it sounded like both. Developed by design studio AxiomZen, CryptoKitties is a game that lets you collect, raise, and breed unique digital cats on the Ethereum blockchain. TechCrunch's Fitz Tepper described the game's concept as "using Ether, an asset with arguably little tangible utility—to purchase an asset with unarguably zero tangible utility."

In case you haven't heard, blockchain is the distributed ledger technology underlying cryptocurrencies such as Bitcoin. Blockchain makes it possible to run web applications that don't depend on centralized authorities such as Facebook and Google. And in the past couple years, the world has gone crazy with distributed blockchain applications, or DApps.

Every week, I receive several pitches from blockchain startups claiming they'll change the world (or at least the internet). I reply to very few and ignore the rest. CryptoKitties seemed like a good fit for the latter.

Giang, head of community at CryptoKitties, contacted me again a few weeks before its "Initial Cat Offering." The feline-inspired event was a silly play on Initial Coin Offerings (ICO), a cryptocurrency-based crowdfunding mechanism that has drummed up quite a bit of hype around blockchain startups in the past year. Again, I didn't reply.

But in early December, a few days after its official launch, CryptoKitties drew in more than $12 million in kitten sales. Some of the rarest specimens sold at insanely high prices of $100,000 or more. The game's traffic even clogged the Ethereum network.

Although I'm still having a hard time finding value in this modern-day Tamagotchi, I believe the viral growth of CryptoKitties might have positive effects on the evolution of the blockchain industry. Pokemon Go was a silly fad too, but it brought mainstream attention to smartphone-based augmented reality (AR), which had, up to that point, been a fringe technology.

Familiarizing the Masses With Blockchain

People might think cryptocurrencies such as Bitcoin and Ethereum—and their enticing price surges—are the only blockchain applications. But there's much more to blockchain than just storing and transferring digital currency.

The game mechanics of CryptoKitties familiarizes people with the fundamental concepts of blockchain—smart contracts, transaction fees, gas prices (the internal pricing for running a transaction or contract in Ethereum), and verifying transactions.

"All of these will be crucial for any DApp looking to build a web app that interacts directly with a wallet like MetaMask," Giang told me when I caught up with him. DApps are applications that run on a blockchain instead of application servers, and MetaMask is an extension that enables your browser to work with web applications such as CryptoKitties, which run and execute transactions on the Ethereum blockchain.

But more important, the game introduced people to scarcity of digital assets. In the digital world, we've become used to seeing information copied without restriction. For instance, when you copy a file to your hard drive or in a cloud server, it's identical to the original copy. By contrast, every piece of information stored on the blockchain is unique. This means. for instance, that if you have a CryptoKitty, no one can create a copy of it. If they want it, they'll have to buy it from you. This concept of scarcity opens up opportunities for creating new applications that take advantage of these distinct digital signatures. For CryptoKitties, the result is something of a first: a virtual collectible.

"CryptoKitties became viral because, for the first time, people can truly own a digital kitty as a collectible... as real as the shiny rare Charizard," Giang told me. "We have effectively pushed two agendas with CryptoKitties: accessibility to the blockchain for all, and the enablement of cryptocollectibles."

I've spent hundreds of hours studying blockchain applications, reading whitepapers, interviewing developer teams, and testing products. I'm truly amazed at how the simple concept of distributed ledgers can upend the centralized business models that give far too much power to companies such as Google and Facebook, and create economies where every user shares in the costs and benefits. Blockchain could enable true ownership of digital information, something that is increasingly necessary as our lives become more digitized.

But I was perplexed by why these projects were having a hard time finding traction among non-techies. The overwhelming majority of internet users today are comfortable using cloud-based applications without a second thought—email, social media, and cloud storage. In this respect, CryptoKitties could serve a two-fold function. These cute blockchain-based cats could help introduce average users to the possibilities of blockchain, helping render an abstract concept tangible with the 21st century version of a Beanie Baby. At the same time, it could steer blockchain developers (in an amusing and roundabout way) toward finding applications that unlock the potential of decentralized blockchain infrastructure.

"Blockchain is just in its infancy, and a lot of the blockchain projects that are out there are mostly experimental proofs of concept," Giang said.

He also believes that rebuilding cloud solutions such as Uber, Airbnb, Facebook, and Netflix on the blockchain is not a good idea. "We are trying to remix the knowledge that we know of with knowledge that we barely have," he said. "People will still use Netflix; people will still use Lyft. The only thing we can do is to introduce them to the blockchain. Entirely new use cases that leverage scarcity and remove unnecessary third parties, and decentralize information have not been thought of yet."

Blockchain's Limitations and Potential

CryptoKitties also showed a preview of the challenges blockchains will face if they ever become the backbone of large internet applications. At some point, CryptoKitties accounted for 11 percent of the traffic on the Ethereum blockchain, slowing other applications to a crawl. SophiaTX, a blockchain startup building a platform for business-to-business (B2B) use cases, eventually had to postpone its planned ICO due to the ripple effects on the network. The congestion caused by CryptoKitties could potentially create a backlog of token sale transactions and very long wait times.

The conundrum created a rift among the Ethereum community and minor clashes over how to solve the issue. Ethereum is not the only blockchain dealing with scaling difficulties. The Bitcoin blockchain has faced its own set of challenges as the number of users and transactions and the length of the ledger have increased. Differences over the possible solutions to Bitcoin's scale problems have led to verbal feuds, death threats, and three hard forks, in which supporters of a particular solution create their own version of the blockchain.

In general, as cryptocurrencies and blockchain evolve and move from a niche industry to becoming a major digital foundation for new applications and businesses, previous structures and models may no longer be feasible. And CryptoKitties made sure everyone noticed that. Maybe it will push blockchain developers toward overcoming their differences and finding a solution before it's too late.

"We see ourselves being the best stress test for the entire network," Giang told me. "If anything, scalability development will be sped up and in turn make Ethereum more competitive to the newer blockchain. The solution would be a combination of moving away from proof of work and into proof of stake. Other ideas such as sharding, state channels, side chains will also help in taking the load off the network. All of which I'm sure are now being developed at a faster pace since the launch of CryptoKitties."

I still haven't bought my first CryptoKitty, and I don't have a mind to do so any time soon. I'm not confident the game will maintain the hype. Maybe it will spawn a series of wannabe applications, or maybe it will drift into the abyss of failed blockchain projects. But I'll be watching to see whether CryptoKitties helps spur a network effect that will lead to blockchain's mass adoption. If the technology does truly take off and become the infrastructure powering a new wave of decentralized applications, we may have to thank a few digital cats.

Update: Julian Assange announced that WikiLeaks has bred its own "WikiLeaks CryptoKitties." Assange said: "WikiLeaks likes cats and wants to help bring cryptocurrencies and smart contracts into the mainstream. Donors and crypto-kitty enthusiasts can empower WikiLeaks by bidding for one of our cute purebred cryptographic kittens. Newcomers will learn about the blockchain, acquire their very first cryptocurrency, and potentially even make a profit."

In a seemingly bipartisan move, WikiLeaks is gifting one unique CryptoKitty each to Hillary Clinton and Donald Trump. Each is worth several thousand dollars.

Blockchain, Explained