The future is meow: How the Ethereum blockchain became overrun with virtual cats

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It's the latest twist in the cryptomania saga. In recent weeks, 160,000 users have spent an estimated $15.5-million (U.S.) worth of cryptocurrency on collectible virtual kittens.

Vancouver-based startup Axiom Zen launched CryptoKitties – a virtual game that allows users to buy, sell and breed digital cats – in a bid to make blockchain technology less intimidating. After all, anyone who has purchased cryptocurrency such as bitcoin knows that it can be a daunting task.

Although the blockchain-based app is intended to be a game, some users may be buying the collectibles with the hopes that the digital cats will appreciate in value, much like the price of many cryptocurrencies has.

The price of bitcoin has been on a tear, rising more than 1,500 per cent since the start of the year. Meanwhile, the market for new virtual currencies has exploded, with early-stage companies raising roughly $3.68-billion through more than 230 new offerings, according to initial-coin-offering tracker Coinschedule. The hype surrounding cryptocurrencies and their underlying blockchain technology has caused a number of critics to sound the bubble alarm.

CryptoKitties is the latest digital sensation to benefit from the growing popularity of cryptocurrencies. In fact, the game has become so wildly popular that it caused a number of delays on the Ethereum network that hosts it – much to the dismay of users of other Ethereum-based apps. Ethereum is a software platform based on blockchain technology that allows developers to create decentralized applications.

At one point, CryptoKitties accounted for roughly 20 per cent of the traffic on the Ethereum network, according to Axiom Zen's founder and chief executive officer, Roham Gharegozlou. Since then, a number of improvements have been made to both the game and the underlying Ethereum platform to get things moving again, Mr. Gharegozlou added.

"We had to do a lot of apologizing, but at the end of the day, it's better for the [Ethereum] network to be tested under real conditions, so that we can improve its utility," he said.

Mr. Gharegozlou said CryptoKitties was created to help users understand the benefits that decentralized networks can provide.

"Every time we talk to our friends and our families and try to explain why bitcoin matters and why blockchain matters, their eyes glaze over," Mr. Gharegozlou said. "So we were thinking about the best way to really demonstrate it and make people viscerally feel the value that blockchain can provide to them, and we decided games and collectibles was the most natural choice. If you look at the history of computing, games really drive the adoption of every new platform."

CryptoKitties is centred around collectible digital cats, each one of them unique and possessing its own digital genome. The so-called "cryptocollectibles" are priced in ether, a form of digital currency used across the Ethereum platform, and transactions are recorded in an unalterable digital ledger.

The cost of each CryptoKitty varies, with average coming in at around $91, although a handful have sold for north of $100,000.

Users can also breed CryptoKitties together, with an algorithm dictating the new kitten's genome and determining its appearance. "If you want an all-white cat, you can breed towards it by selecting cats that look white," Mr. Gharegozlou said.

Toronto resident Kale Parsons owns four CryptoKitties – two that he purchased for a small amount of money and two that he created through breeding. Mr. Parsons stumbled upon the game with a friend and bought the cats mostly as a joke.

"We just thought it was hilarious that people were buying digital cats for thousands of dollars," he said. But he soon discovered that doing anything with the cats – even selling them – triggers a fee.

"I'm kind of embarrassed that I ever got into it," Mr. Parsons said.

Although CryptoKitties is meant to be a lighthearted introduction to the cryptocurrency space, Mr. Gharegozlou says the game also demonstrates how blockchain technology can be used to record ownership of unique assets such as real estate, art and inventory.

Why did they settle on cats rather than some other virtual animal?

"We kept making the joke that cats are the rocket fuel of the internet," Mr. Gharegozlou said. "So for any new platform, you just have to add kitties to it."