11/1/2022

Smart contract - Cryptokitties

By: Changhee Han

    A SMART contract is, literally, a transaction protocol for various contracts, from simple trade to diverse applications, based on blockchain technology. According to the US National Institute of Standards, a smart contract is defined as a ”collection of code and data that is deployed using cryptographically signed transactions on the blockchain network,” meaning that a smart contract is a computer program for transaction activities. It would be easier to understand the procedure with simple examples like in-game currency, e-commerce reward points, and the Frequent-flyer program (Mileage service). These virtual currencies could be redeemed for purchases or other reward services in certain contract cyberspace. Similarly, in a smart contract, consumers use cryptocurrency to pay for services or products. As cryptocurrency becomes more popular, this digital currency-based business also becomes more valuable and active. In this post, I will introduce one of the smart contract-based businesses, Cryptokitties.      Cryptokitties is a collectibles business that sells items regarded as valuable or meaningful to customers. Crypto-collectibles are unique digital assets secured in blockchain technology and visually represented objects, such as digital pets, characters, or avatars. As with collecting art, stamps, or seals, owning crypto properties is also worthy because these online items are protected from digital scarcity. This scarcity ensures a permanently limited supply of items, and any owner can exchange the item for a premium. Based on this uniqueness, various businesses launched collectible platforms, and one of the famous companies is ‘Cryptokitties.’     CryptoKitties offers an artificial pet game in which players own a cat avatar, breed them to grow up, and trade items or cats between users. Dapper Labs developed this program based on Ethereum. Once released, CryptoKitties attracted massive attention as much as its transactions covered more than 10% of the entire Ethereum traffic in early December 2017. According to Etherscan, the active Ethereum addresses surged after the business launched. Moreover, a famous celebrity, Stephen Curry also purchased the tokenized digital cat, and the company expanded the business item by adding celebrity branded series. This business growth accompanied another collectible business adopting characters like puppies, flowers, monsters, and robots (Etheremon, Ethertulips, and CryptoBot).     After a few years, the popularity of these virtual games inspired people to open marketplaces like OpenSea and RareBits. These platforms host crypto collectibles and allow direct selling or auction. In 2022, Opensea recorded $13 billion in market valuation, and in May 2022, the trading volume peaked at $2.7 billion for just one day.     If this huge growth is a response to the launch of Cryptokitties, then which crypto products or services could drive market growth again? Global research firms forecasted that the market worth of Non-Fungible Tokens had been expected to reach $231 Billion by 2030. However, the NFT market was in a bubble and collapsed 97% from the peak of 2022. No one knows whether this decline is a temporary downturn or market failure. Nevertheless, it is highly probable that another type of crypto business will return to a global market with more stable and smart contracts.