Amidst the raging bull market of the fall of 2017, was a mini and brief bull market centered around an Ethereum decentralized application (dApp) called CryptoKitties. Put simply, CryptoKitties was basically tradeable cats on the blockchain. Prices of these virtual cats, also known as cryptokitties, rose meteorically, with some cats selling for hundreds of ether. The frenzy didn't last for long though; the prices of cryptokitties fell as fast as they rose and the whole affair was over in less than a month.
A cryptokitty is essentially a string stored on the Ethereum blockchain that's managed by the CryptoKitties dApp. The CryptoKitties website turns the string into an image of a cat. Parts of the string determine what "cattributes" the cryptokitty has. Cattributes range from minor ones like eyebrow position to major ones like having the body of a chicken. Two cryptokitties can be bred together to create a new cryptokitty with a mix of cattributes from its parents and perhaps completely new cattributes. Certain cattributes are more coveted, and thus more expensive, than others. Besides breeding them, users can also buy and sell cryptokitties.
A Runaway Success In The Start
CryptoKitties combined cute cats, the blockchain, and an unregulated market fit for rampant speculation. It was no surprise that the dApp was going to be successful right out of the gate. Within a week after its launch the cryptocurrency community went wild for cryptokitties. It was so popular, mainstream media caught on as well, with publications like Quartz, Motherboard, and Techcrunch writing about virtual blockchain cats. Even organizations like WikiLeaks decided to take part in the fun by selling official WikiLeaks cryptokitties, giving the cats names like "Spy Files Kitty" and "Internet Censorship Kitty".
For many, the initial intrigue of cats on the blockchain turned into greed when they realized that money could be made flipping cats with rare cattributes on the market. As a result, people went wild for trading and breeding cryptokitties. Cryptokitties with rare cattributes were snatched off the market and either bred in hopes of getting more cryptokitties with rare cattributes or sold when the price rose. And the price did rise, spectularly. From an average daily price of 0.02 ether per cryptokitty, average daily price peaked at 0.40 ether per cryptokitty. The most expensive cryptokitty went for 247 ether on December 2nd, which was $111,150 at the time!
The CryptoKitties was so popular it clogged up the Ethereum network. The network could only process a limited number of transactions at a time (about 15 transactions/second). Every interaction with the CryptoKitties dApp, besides reading its state, requires sending an Ethereum transaction. With so many people playing, Ethereum's network couldn't keep up. Daily average pending transactions rose from 1,500 transactions to 11,000 transactions and the dApp at one point account for 25% of Ethereum traffic. As a result, people were paying astronomical fees and waiting hours on end for their transactions to be confirmed.
As the dApp does arely two weeks after the dApp's launch, CryptoKitties surpassed 150,000 users, processed over $15 million USD in transactions, and there were 260,000 cats in existence.
Kitty #23 is one of the best examples of CryptoKitties irrational exuberance. This cat was traded for more than 210 ether (about $94,500 at the time) over 4 days.
It was first sold for just 10 ether, before being sold for 70 ether (a 60 ether profit for the seller), and it was finally sold for 133.9 ether. After this last sale, the market started its downfall before the final owner could sell it for more. 133.9 ether was worth around $60,000 at the time. So much for a string on the blockchain that was turned into a cute drawing of a cat on the Internet.
Examining The Market Collapse
The price of cryptokitties fell as fast as it rose. Take a look at these charts below (found on www.kittyexplorer.com/stats). From a peak of 4833 transactions per day on December 4th, CryptoKitties processed just 201 transactions on December 21st. From a peak average daily price of 0.4 ether per cryptokitty on December 4th, the average price on December 21st was just 0.04 ether.
Although this price chart looks like a pump and dump, CryptoKitties was not one, at least not one that was centrally coordinated. Prices rose so fast because the dApp was a novel and fun concept on first impression, but there was little depth to the dApp and it became so expensive, slow, and clunky to use at the height of its popularity that when prices started teetering, everyone wanted to exit at once. In the back of every user's mind was the impression that the popularity of CryptoKitties was too silly to be trueeven though
However, I will end by saying that even though CryptoKitties was a brief fad, there are positive aspects to it. For one, it's the first dApp that saw significant usage and garnered serious mainstream media attention. Second, although the dApp had too little depth to sustain its large userbase, it's still a fun and innovative take on blockchain-based decentralized applications that the public has not seen before. CryptoKitties gave the cryptocurrency community a taste of what a successful dApp could be, and encouraged many hobbyist developers and entrepreneurs to consider and try out dApp development. This has significant long term benefits for not only Ethereum's ecosystem, but the wider cryptocurrency ecosystem as well.