The CryptoKitties Economy
What does the future of virtual kitties hold?
If you’re reading this article, you’ve probably already seen the picture of this adorable, sparkly kitty all over the media. You probably also remember it to be the virtual cat that sold for over $100,000. Undeniably, that’s probably why you bought some kitties for yourself last week, hoping to earn some Ethereum on rare ‘cattributes’. I was one of those cat-crazed people.
For those of you new to CryptoKitties: Unlike Neopets, Tamagotchis and other virtual pet games, CryptoKitties is based on Ethereum, a type of tradeable cryptocurrency and platform that people actually buy with real money. For tips on how to play, here’s a great article.
What’s so great about dem kittehs?
From an economic standpoint, the kitty fad is completely irrational. CryptoKitties are no more than bits of code stored within a database. Even Arthur Camara, a software engineer on the CryptoKitty team in Vancouver, stated:
“Look, we haven’t said kitties 1–100 are rare. That’s people’s perspective of scarcity. People just think they’re more important for some reason, maybe it’s how they look. The way the game works is that the kitties that breed the most will make those traits more popular. So if you breed a lot of kitties with green eyes, that’s going to be less scarce. People control that scarcity in a way, and create that value themselves. It’s the users creating that idea of scarcity with the genes and with their kitties.” (Pearson, Dec 7)
Camara pointed out that no one in particular is controlling how the game is being played out — it is the user that create the idea of scarcity based on favorable and unfavorable traits of the kitties. With this concept in mind, we’ll explore the CryptoKitties economy on a business cycle.
Stage 1: Growth
The first stage of CryptoKitty economy is growth. In the past two weeks, we saw a a huge increase in the demand for kitties, as well as their prices. The average cost of a starter kitty was $4, and that continued to rise along with a shortage of kitties and surplus of users. By the end of week one, users were paying $7-$8 for their first kitties.
Stage 2: Peak
After week one, CryptoKitty reached what seemed like a peak in kitty demand and prices. With CryptoKitties’s increasing popularity, more users decided to join the game and farm kitties. Each user had one goal in mind: to profit from breeding rare cats by selling/siring them for more than the initial cost. At first this meant that more users were purchasing kitties than selling, hence the favorable high prices at the time. The liquidation rate was pretty swell; all a user had to do was invest in two semi-rare kitty, breed them, and sell the offsprings to get a return of nearly double the costs.
As a CryptoKitty player, I initially invested $50 in three rare kitties and gained a return of $135. The key was to invest in kitties that were no later than Gen 12 (after Gen 13, the breeding rate becomes significantly slower to begin with, making Gen 14+ unfavorable). During that peak week, on average Gen 13 kitties with good traits were worth about 0.08–0.15 ETH. New Gen 0 kitties were worth ~7.7 ETH.
Stage 3: Recession
As most things go, when there’s a rise, you can bet there will be a fall. Kitties are no different. Since the beginning of this week, kitty prices have plummeted drastically. As of today Dec 12, kitties deemed rare are barely worth 0.05 ETH. Gen 0 prices actually fell down to ~2.8 ETH (Gen 0 are produced every 15 min at 150% of the average price of the last 5 CryptoKitties sold). It is unfortunate to say that basic kitties are barely worth 0.01 ETH, which can’t even cover the cost of breeding or siring.
Having invested some money earlier in this game when kitties were worth more, I was quick about liquidating my cats, but wasn’t quite fast enough. Now I have more than 20 rare kitties — assets —sitting and waiting for someone to pick them up, yet I’ve only sold 3 because let’s face it: prices are dropping fast. Many users are holding onto their wallets because who knows, maybe kitty prices will drop even further.
Stage 4: Depression?
As of now, it isn’t clear whether kitties will hit rock bottom before recovering. With the ever increasing popularity of CryptoKitties, more and more users will populate the system and buy the surplus of kitties, and therefore recovering the kitties economy.
That said, all that a user really need is a pair of kitties to start a litter of their own. The number of kitties available in the market will potentially go up exponentially with each user that joins the game. However, this market scene changes in Nov 2018, when Gen 0 kitties will no longer be released. At that time, kitty breeding time will slow drastically, making it harder to produce kitties with desired traits. There is high probability that users will still continue to breed the kitties after Gen 0 have been stopped, as there are 5,201 fancy cats still to be discovered as of today. This alone should win a collector’s heart and bring users back to the chase for breeding rarity, even at a hefty price.
In terms of how CryptoKitties will impact Ethereum: after Gen 0 stops getting released, kitties will be like minted gold ETHs. Kitties will become solid, reliable and relatively fixed in prices, making them a great way to store ETHs.
Looking Ahead
All in all at the time I’m writing this, it’s a great time to invest in kitties. We’re going through what appears to be a recession stage, so buy yourself some lovely furry friends while they’re still cheap.
As for the rest of us who have already invested a sum and thinking about making money back: the game is the game of stocks. Don’t sell your kitties when they’re not worth much, don’t go into a price war and sell lower than others to compete with them, and don’t give up out of frustration. Kitties are assets that don’t take up space. They don’t need anything, and they’re certainly worth something. With the right timing and strategy, you can earn back what you invested in your kitties and folds more.
One last thing: Camara is right about scarcity. We create the idea that some cattributes are better than others. We breed more rarity and find that it becomes more common, so we keep rarity pricey so as to limit its quantity. This push and pull mechanism is the reason behind CryptoKitties’s success. Understanding this concept and knowing how to manipulate it is what will differentiate you from other players in the kitty world.
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Thank you for reading this article! I hope my first person perspective on this topic was insightful. I am simply a kitty-loving user who wished to share some personal thoughts. You’re welcome to comment below on what YOU think the future of CryptoKitties beholds. Happy breeding ~
Also feel free to stop by my kitties!
