What are CryptoKitties, and why do they matter?

What CryptoKitties can teach us about crypto assets and value

Oh, the twists and turns folded into the road of cryptocurrencies on the way to mainstream adoption. Today’s twist is CryptoKitties.I was just attending a crypto event the other day where the founder of the cryptocurrency neo was saying that there are a lot of blockchain apps for smart contracts, but no one is really using them yet. Well, now there’s CryptoKitties, a smart contract game based on the ethereum blockchain where users buy virtual cats and breed them with other virtual cats. As of this writing, 40,383 unique cats have been sold generating almost $7 million. The median price for a kitten is $25.51. And now there is a dedicated site for tracking CryptoKitty sales.

So what does this all mean?

Remember when YouTube was just starting out and it was known for its vast collection of cat videos? I think that’s what this is. It’s ethereum’s first major app that is driving up the number of transactions (CryptoKitties accounts for 10 percent of the network) while making ethereum and crypto more accessible.A representative from the Vancouver and San Francisco-based Axiom Zen, the company behind CryptoKitties told Bloomberg that the goal was to create something that would allow people to engage with the blockchain, and that wasn’t another ICO, which seem to to be dominating the space.And, well, as we have learned from the internet, cats have some sort of universal appeal.

CryptoKitties as a proof of concept

Beyond getting more people to interact with ethereum’s blockchain, the CryptoKitties is also showing that blockchain-based digital products and goods can be purchased, traded, and collected. In a way, it’s a proof of concept for crypto assets as the internet of value.At its root, the CryptoKitties movement proves that digital scarcity is a powerful concept that can be applied to any digital asset, including cartoonish kitties. The app also proves that backing virtual assets with tokens can create value (the highest amount paid for a CryptoKitty so far is $110,375). The app uses a new kind of ethereum token standard, ERC721, which creates non-fungible tokens, meaning that each token has unique standards and can’t be swapped for another token.Crypto assets have a clean and verifiable way of showing that there is only one unique copy in existence, which allows them to be sold and traded with confidence. Thinking beyond kitties, imagine if this kind of smart contract was used for trading or collecting copies of digital art, or books, or music. Also, it’s looking like gaming, or apps like CryptoKitties might also be a popular use case for ethereum.Another unique wrinkle about CryptoKitties is that the asset can be bred. In other words, two CryptoKitties can produce a unique offspring, using what the CryptoKitties project calls “a genetic algorithm.” This post is technical, but also provides a good explanation of how the genetic algorithm works (and how you can write your own).  I guess, in a sense, that means the game could go on forever?What CryptoKitties also reveals is that ethereum (like other cryptocurrencies at the moment) have some serious scaling issues to overcome. Currently, the ethereum network can only process about 15 transactions a second, which is continually getting maxed out by the introduction of CryptoKitties. While there are scaling solutions in the works, it will be hard for the network to support other apps or projects until transactions speed grows by orders of magnitude.The biggest question is what can possibly follow CryptoKitties. Where do we go from here?