The rise and fall of CryptoKitties

On September 4, 2018, a user only known as Rabono purchased a vengeful-looking cartoon cat named Dragon for 600 ether, which at the time was equivalent to US$170,000, or US$745,000 at the cryptocurrency’s value in July 2022.

It represented the most significant transaction ever made for a nonfungible token (NFT), a brand-new idea for a special digital asset at the time. Additionally, it was a chance for CryptoKitties, the first successful blockchain game, to make headlines. However, the exorbitant purchase concealed a more terrible reality: CryptoKitties have been dying for some time.

A odd outcome for one of the most historically significant NFTs ever, Dragon was never resold. As the NFT market soared to record sales, amounting to nearly $18 billion in 2021, newer NFTs like “The Merge,” a work of digital art that sold for the equivalent of $92 million, left Dragon behind. Has everyone simply moved on to more recent blockchain initiatives? Or are NFTs all doomed to this fate?

Smart contracts, blockchains, and cat genes

You must go back in time to comprehend CryptoKitties’ gradual demise. Blockchain technology may have started with a 1982 study by computer scientist David Chaum, but it gained widespread notice after Satoshi Nakamoto’s anonymous creation of Bitcoin, a cryptocurrency. A blockchain is fundamentally just a big Excel spreadsheet that records transactions one after another.

The difficulty lies in how blockchains maintain the ledger’s security and stability in the absence of a central authority; each blockchain has a different method for doing this. Despite being a well-liked asset and useful for transactions that resemble money, bitcoin has little support for other uses. Because they enable complicated “smart contracts”—executable code stored in the blockchain—newer alternatives, like Ethereum, have grown in favor.

One of the earliest initiatives to use smart contracts was CryptoKitties, which used the Ethereum blockchain to link code to tokenized data structures. Each “gene”—a unit of the game’s code—describes the characteristics of a virtual cat. Players can purchase, acquire, trade, and even breed new felines. The cat’s code also makes sure that each cat’s token is distinct, just as individual Ethereum tokens and bitcoins. This is where the nonfungible token, or NFT, comes in. A fungible good is one that may be replaced by an identical item by definition; a bitcoin is equivalent to another bitcoin. In contrast, an NFT has a special code that doesn’t apply to any other NFTs.

There is one more aspect of the blockchain you need to comprehend, and that is “gas.” In exchange for the computational labor the network must perform to verify a transaction, certain blockchains, like Ethereum, levy a fee. As a result, the network of the blockchain is prevented from becoming overworked. Strong costs are a result of high demand, which makes customers hesitate to complete a transaction. The network is kept from becoming saturated and transaction times from growing unduly long thanks to the ensuing decrease in demand. However, if an NFT game becomes popular, it might be a vulnerability.

Growth and decline of CryptoKitties

CryptoKitties, which was released on November 28, 2017, following a five-day closed beta, quickly gained notoriety with the tempting tagline “the world’s first Ethereum game.” According to Bryce Bladon, a founding member of the team that developed CryptoKitties, “as soon as it released, it pretty much immediately went viral.” “That was a really confusing period.” According to nonfungible.com, sales volume increased significantly from just 1,500 nonfungible cats on launch day to more than 52,000 on December 10, 2017, with many CryptoKitties selling for prices in the hundreds or thousands of dollars. The value of the algorithmically created cats in the game resulted in coverage in countless newspapers.

Furthermore, the game’s usage of the Ethereum blockchain may have contributed to that technology’s success.

Along with the launch of CryptoKitties, Ethereum shot off like a rocket, rising from less than $300 per token at the start of November 2017 to slightly over $1,360 in January 2018. Throughout late 2017 and 2018, hundreds of new blockchain games based on Ethereum were released, contributing to the currency’s growth.

Among the more well-known examples are Ethermon, Ethercraft, Ether Goo, CryptoCountries, CryptoCelebrities, and CryptoCities. Some of them showed up shortly after CryptoKitties. This was the break that Ethereum supporters had been hoping for. However, CryptoKitties faltered as Ethereum surged higher, which would later prove to be a worrying indication for the future of blockchain gaming.

Early in December 2017 saw a peak in daily sales, which fell off in January and averaged less than 3,000 by March. The fact that the value of the NFTs itself decreased more slowly is evidence that the game still has a strong fan following, including Rabono, who purchased Dragon long after the game’s height. Through 2018, their activity broke records for the value of NFTs. The game was maintained in the headlines as a result, but no new participants were attracted.

In the present day, CryptoKitties is fortunate to reach 100 sales a day, and the overall worth is frequently under $10,000. There are still significant transactions, like the selling of Founder Cat #71 for 60 ether (about $170,000) on April 30, 2022, although they only happen occasionally. In July 2022, the majority of nonfungible furry friends will only be valued a few ethers, or a few tens of dollars.

It’s doubtful that CryptoKitties’ decline into obscurity will stop. The company that owns CryptoKitties, Dapper Labs, has moved on to other endeavors like NBA Top Shot, a website that enables basketball fans to buy NFT “moments,” which are essentially video clips from NBA games. Attempts to contact Dapper Labs for an interview regarding CryptoKitties were unsuccessful. 2019 saw Bladon leave Dapper.

What happened?

The final blog entry (4 June 2021) on the game’s website, which commemorates the breeding of the 2 millionth CryptoKitty, contains a hint about the game’s end. Breeding, a key gameplay element, enables owners to mate their current NFTs to produce artificially produced progeny. As a result, the NFTs had intrinsic worth within the game’s environment. Each NFT had the capacity to produce other NFTs, which players could resell for a profit. But the market was also oversaturated with this game mechanic. This, according to Xiaofan Liu, an assistant professor in the school of media and communication at City University of Hong Kong and coauthor of a report on the emergence and decline of CryptoKitties.

“The rarity of a cat determines its price, which is determined by its genetic makeup. The second factor is the quantity of kittens available, according to Liu. More cats appeared as more people did. More players increased demand, but they also increased the chance to increase supply by breeding additional cats. This quickly decreased each NFT’s rarity. Bladon concurs with such evaluation of the breeding process. He admits, “I think the critique is justified,” adding that the intention was to arouse curiosity and excitement. Additionally, he believed that it would persuade people to keep their NFTs rather than selling them right away because, in principle, breeding should provide long-term value.

Another, more urgent issue was brought on by the sheer volume of CryptoKitties: It effectively destroyed the Ethereum blockchain, the second-most valuable cryptocurrency in the world by market capitalization (after Bitcoin). As was previously mentioned, Ethereum prices transactions using a fee called gas. Gas costs will increase whenever there is an increase in transactions (buying, siring, and so on), and that is exactly what happened when CryptoKitties went to the moon.

According to an interview with Mihai Vicol, market analyst at Newzoo, “players who wished to acquire CryptoKitties incurred hefty gas fees.” The range of those gas surcharges was $100 to $200 per transaction. You were required to pay both the gas fee and the cost of the CryptoKitty. That’s a serious problem.

The hefty fees were an issue for more than just CryptoKitties. The entire blockchain was affected by the problem. As the game gained popularity, gas prices increased for anyone who needed to make a transaction in Ethereum for whatever reason.

For Ethereum, this dynamic continues to be problematic. When Yuga Labs published Otherdeeds—NFTs that promise owners access to metaverse real estate—on April 30, 2022, it dramatically increased the price of Ethereum gas. The average cost of gas increased from roughly $50 the day before to briefly exceeding the equivalent of $450.

Although the demands CryptoKitties placed on the network decreased as players left, gas will probably be the game’s death knell. A CryptoKitty typically costs between $40 and $50, or roughly 0.04 ether, which is frequently less than the gas needed to complete the transaction. Even casual CryptoKitties owners and hobby breeders are unable to do so without investing hundreds of dollars.

Games on the blockchain: two steps forward, one step back

The dramatic rise and collapse of CryptoKitties provided an opportunity for its many, many successors to grow and learn from its errors. Many people have ignored the lessons learned: Axie Infinity and BinaryX, two popular blockchain games, experienced a similar initial rise in price and activity followed by a protracted decline.

“Everything that represented CryptoKitties’ success was imitated. Bladon claims that most things that weren’t immediately apparent were disregarded. And it turns out that a lot of CryptoKitties’ issues were hidden from the general public. The CryptoKitties project did experience some setbacks, though. There were numerous outages. Many of the folks we dealt with had never utilized blockchain before. Tens of thousands of dollars’ worth of ether were lost due to a flaw we had. Recent NFT projects have experienced similar issues, often on a far bigger scale.

Liu is unsure about the way blockchain games can solve this issue. He replies, “I don’t know, is the short answer. The lengthy response is that it affects more than simply blockchain gaming. For the majority of the game’s existence, World of Warcraft, for instance, has experienced severe inflation. The steady influx of gold from players and the rising cost of new things added by expansions are to blame for this. Another fundamental issue with today’s blockchain games is that they are frequently overly simplistic, which is related to the constant need for new players and items.

According to Vicol of Newzoo, “I think the biggest issue blockchain games currently have is that they’re not fun, and if they’re not fun, people don’t want to invest in the game itself.” Everyone who makes a purchase wants to win more money than they invested.

Once the downhill spiral starts, that possibly idealistic wish becomes unachievable. Players rapidly leave and don’t come back because they have no other emotional connection to the game than growing an investment. Some blockchain games appear to have ignored the risks associated with CryptoKitties’ rapid rise and protracted decline, but others have taken note of the burden it put on the Ethereum network. Nowadays, the majority of blockchain games make use of sidechains, which are autonomous blockchains connected to more well-known “parent” blockchains. A bridge that connects the chains makes it easier for tokens to move between them. As all gaming activity takes place on the sidechain, this prevents a spike in fees on the main blockchain.

The fact that sidechains are proven to be less secure than the main blockchain poses issues for even this novel approach. The Axie Infinity sidechain, Ronin, was attacked, allowing the hackers to escape with the equivalent of $600 million. Another sidechain utilized frequently by blockchain games, Polygon, had to patch an exploit that put $850 million at risk and award a $2 million bug bounty to the hacker who discovered the problem. NFT owners on a sidechain are now suspiciously examining its security.

Recall Dragon

Little more than $30 worth of ether is being held by the cryptocurrency wallet that houses the almost $1 million kitty Dragon, and it hasn’t traded in NFTs in years. Since wallets are private, it’s possible that the owner of one went on to another. Even said, it’s difficult to look at the wallet’s inactivity without concluding that Rabono lost interest in it.

Bladon remains proud of what CryptoKitties accomplished and hopes it propelled the blockchain industry in a more friendly path, regardless of whether blockchain games and NFTs soar to the moon or plummet to zero. Before CryptoKitties, “everyone would have believed you were talking about cryptocurrencies if you said ‘blockchain,’” claims Bladon. “I’m most proud of the fact that it was truly novel. There was genuine technical innovation, and there appeared to be genuine cultural influence.

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