Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. Cryptocurrency markets are extremely risky so you should only invest money you are willing to lose.
We're not laughing at CryptoKitties. Truth be told, we're kicking ourselves for not thinking of it first. Helloooooooo! internet ... kittens .... duuuuuuuuh!
But what really has us excited is that CryptoKitties is proof positive that the meteoric rise of cryptocurrencies is barely in its infancy.
With a set of 5 Ethereum smart contracts, the game leverages blockchain's scarcity and self-validating characteristics to the hilt by creating the first decentralized cat breeding game that not only self-verifies ownership and transactions but also provides continuity and "heritability" of a 256-bit "genome" that runs through the ancestry and offspring of each kitty, like DNA, and plays a role in determining potentially valuable traits.
The value of those traits is not determined by some algorithm or central authority, but by the collective cat-breeders themselves.
The Value of Scarcity
Bitcoin's meteoric rise demonstrates that people value scarcity, even in the digital realm. Only 21 million bitcoins will ever exist, and since bitcoin is still considered by most to be in a very early adoption phase, speculation about its fair value can differ by orders of magnitude, with some saying $10,000 is too high, and others predicting a fair value of $1 million or more.
A Whole New Level
CryptoKitties takes the scarcity principle to a whole new level, demonstrating that the value of scarcity isn't limited to fungible items like money, or even tangible ones like live, purring cats.
What's more, scarcity doesn't have to be pre-determined or hard-coded but can instead be generated by the blockchain ecosystem itself. Each Kitty's genetic code is a product of its progenitors' genetic codes, and so on, all the way back to that 6-figure genesis cat.
Trust In Scarcity
The unique traits of each cat are determined by different types of interactions (dominant, recessive, mixed, crossover, etc...) of its parents' genes. In order for people to trust and value the scarcity of those traits, they need to trust that cryptographic math will seal and lock blocks into place with math puzzle solutions in a way that will preclude alteration of ownership or production of fraudulent kittens.
The breeding of kittens in this context gives players, even kids, a visceral feel for the trustworthiness of a distributed ledger secured by blockchain, giving them confidence that ownership and transaction data verifies itself, and that the scarcity of their kitten's traits can be predictably relied upon as a store of value fairly determined by the ecosystem itself.
Making Math Cute
Cryptographic math is asymmetric - really really hard to solve but ridiculously easy to verify solutions. Blocks in the chain are sealed and locked into place with the solutions to math puzzles that would take a single computer years to solve, but are disposed of by the entire network in a few minutes. Once a block gets a verified spot in the chain, it is cryptographically connected to all the previous puzzle solutions, which precludes tampering, altering, hacking, or counterfeiting, and it can be verified with certainty by any computer on the network at any time.
What About Kittens?
The explanation above is not cute or sexy at all - In my experience it gets mostly yawns. How could I jazz it up? What about kittens? Yes - of course! Kittens!
Your cat has stripes, a beard, and a gold background because of the chain of its parents genetic codes, which goes back to their parents, and so on. The value of your rare "jaguar" kitty can't be reproduced or counterfeited because its unique genetic code has a mathematically secure spot in a chain of ancestors and offspring that is nearly impossible to alter or counterfeit.
Now doesn't that sound better?
A Visceral Feel
The kitty is lovable, if only in the virtual sense. It's traits are tangible, if only as pixels on a screen. And trust in its provenance and scarcity is much more relatable than the zeroes and ones of bitcoin. This experience gives anyone, even a child, a visceral feel for the security of math and how it can engender trust in a distributed blockchain.
The predominant reason that CryptoKitties is a sign that the cryptocurrency revolution is barely in its infancy is that it unequivocally demonstrates that many of the most creative use cases and killer apps to emerge from the blockchain ecosystem have yet to be dreamed of.
While banks and brokers are planning complex blockchain-based derivatives swaps and my barber is wondering when Starbucks and Amazon will start accepting bitcoin, there are people designing CryptoKitties, entire online ecosystems whose architecture is centered around blockchain and whose value is determined by individual users, one-by-one, as they begin to grasp the power of the scarcity, secure ownership, and self-verifying nature of blockchain, and begin to feel comfortable with the complete absence of a central database, managing entity, or trusted third party.
A Sense of Ownership
I imagine that the people breeding cats on CryptoKitties feel a sense of creation and ownership, not just of their own cats but of the whole ecosystem. Like they're not just playing a game on someone else's platform. This is, as Satoshi would have wanted it, decentralized, distributed, and purely egalitarian.
When people call the meteoric rise of cryptocurrency a "bubble", they're comparing it to tulips and dot-com stocks. But that's not a fair comparison. We know what tulips and stocks are for. We still haven't got a clue what cryptocurrencies could be used for.
CryptoKitties shows us that we haven't yet dreamed of the killer apps and use cases in the future of cryptocurrencies.