Blockchain-obsessed cat lover? CryptoKitties may be for you

With the financial world gripped by bitcoin and whether the market for cryptocurrencies is a bubble, the same technology behind the phenomenon is being used to tap other familiar cultural obsessions: collectibles. And cats. Lots and lots of adorable cats.

CryptoKitties is an electronic game from Canadian firm Axiom Zen, where people can electronically buy, collect and trade cartoon cats. Purchases are made using ether, an emerging tool for online payment, via the Ethereum online marketplace. Each kitty has its own unique electronic DNA, according to an Axios Zen video explaining how the game works. What's more, kitties can be "bred," just like real cats, resulting in new kittens with unique codes. 

Indeed, the way these digital felines evolve are a good way to explain blockchain, the technology underlying bitcoin and other cryptocurrencies, to those who just don't get its lure.

"Typically, when people who are excited about the blockchain talk about a blockchain, they talk about data sovereignty, trustlessness, rules without rulers -- all sorts of things that make no sense to anybody and also don't solve problems that people know they have," Mack Flavelle of parent company Axiom Zen said in an interview. "All of those are great, big and important ideas. And they are millions of miles away from what people know in day-to-day life. Whereas if you can say, 'Hey you can own, you can collect, you can breed these adorable little kitties, that falls into a normal interest sphere."

"So it makes tangible some of these concepts that are big and strange around distributed ownership that are otherwise impenetrable," he added.

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CryptoKitties

Flavelle, whose title at Axiom Zen is "instigator," said the game also brings back a concept of ownership and scarcity that's been lost in the electronic age. 

Sound like the makings of a fad akin to Beanie Babies or Cabbage Patch dolls? Maybe. But Flavelle thinks Cryptokitties will have more staying power than other collectible toys because consumers themselves are in control and can make their own unique kitties, rather than waiting for a company to produce new ones.

CryptoKittes are less like securities than some other blockchain instruments in part because "you can and actually do take delivery of your CryptoKitty," Peter Van Valkenburgh, director of research at the non-profit firm Coin Center in Washington, explained in a blog post earlier this month. "You don't have to keep them in your bathtub. You don't have to rely on the CryptoKitty team to take care of your cats or breed them for you, the cats don't eat and 'breeding' is just an ethereal transaction that you (and only you) can make by using any free and compatible Ethereum software client." 

So why cats?

"I had the idea that if you are going to build consumer interest products, you should not explain why you are using cats. You should explain why you are not using cats -- that it is opt out, not opt in, " Flavelle said. "And so my first sense was that we should bring those to the blockchain as well.  I think the results have generally spoken for themselves."

There's no standard CryptoKitty price. Rather, users set their own starting price when they sell a cat, and the price falls until the auction ends or until the kitty is bought by another user, according to CryptoKitty's website. The company releases a new "Gen 0," or generation zero, CryptoKitty every 15 minutes. A Gen 0  kitty price is determined by the average price of the last five cats sold plus 50 percent, according to the company. 

Ethereum's price hit an all-time high this week after it increased its transaction speed, according to CoinTelegraph.   

Within days of the game's debut in November, more than $1 million changed hands buying and selling the virtual cats, according to Techcrunch. As of Wednesday, consumers had purchased more than 160,000 unique kittens worth a combined $17 million, according tp CryptoKitties Sales, a website that follows transactions. Total sales topped 1.7 million, with the average sale price of $82.71 each and a median sales price of $14.87.

The priciest kitty sold to date went for more than $110,000 on Dec. 6, and now has a listed value of nearly $215,000, according to the CryptoKitties Sales. 

Other signs point to CryptoKItties' growing popularity. The game slowed trading on the Ethereum network, at one point accounting for 11 percent of traffic. According to The Verge, one man made more money trading kitties than in his IRA during a booming stock market.

That prompted Axiom Zen co-founder Roham Gharegozlou to tweet a note of caution advising users not to use the game as a financial instrument, like bitcoin.

"This is not an investment -- this is a game, this is a game, this is a game," Flavelle said. "There's no other way to say this -- this is a game. It is a game in which some people have managed to have some interesting returns early on, and for them I'm very happy, but that is not the point, that is not why we built it. There is a dramatic emphasis on the alt-coin nature of this, and that is an incredibly false dichotomy."

CryptoKitties isn't the only game capitalizing on the power of blockchain. Its success has boosted interest in similar games, including CryptoPuppies, CryptoPets and even CryptoPunks, according to a recent report from CoinDesk, which follows the industry.

Meanwhile, investor interest in companies specializing in crypto products and services is on the rise, even as companies in the sector turn to Initial Coin Offerings to raise money. This year alone, venture capital firms have poured more than $1 billion into cryptocurrrency and blockchain-related startups, notes PitchBook, which tracks venture capital.