Cryptokitty - The Harbinger of Crash

Описание: 🌐 Whenever I get asked about Non-Fungible Tokens, I tell the story of “ Cryptokitty -The harbinger of Crash.”

This story is for everyone who wants to understand digital collectibles or thinks about investing in NFTs. And I really think that this story is important to hear!

During the first quarter of 2021, more than $2 billion were spent on NFTs. That’s an increase of about 2000% from the previous quarter.

Those are impressive numbers and from a business perspective, this tells us that we all should invest in digital collectibles, right?

What WE call NFT today is not really new. In 2017 the Cryptokitty was born. A Canadian company called AxiomZen generated 50k unique Cryptokitties on the Ethereum Blockchain. One could say, they were the first “mainstream NFTs”. Each Cryptokitty is defined by 12 features, so-called “Cattributes”. Those 50k kitties were then sold to users who traded and bred them. They spawned new generations of evolved Cryptokitties, which then again could be sold or bred. It sounds like a casual game but between 2017 and 2019 the crypto market went crazy and people invested MILLIONS into this!

The game has attracted a large number of players who were willing to pay real money for it. Many kittens sold at about $20k and the “genesis” kitten fetched a record price of $100,000.
Digital Kittens sold at exorbitant rates drew massive media attention and attracted a large number of new participants to the game. As a result, the game's popularity skyrocketed.

The game's enormous popularity lasted only a few weeks. The number of gamers has steadily decreased since then.
I read a scientific paper about Cryptokitties… Yes. I actually read a SCIENTIFIC paper about CRYPTOKITTIES. The authors identified 4 primary causes for the market's fast decrease in popularity. There is the broken balance of supply and demand, a systematic loss of profit, a significant gap between rich and poor, and finally the limitations of the blockchain infrastructure itself!
Let’s have a look at “The broken balance of supply and demand”.
During the wild expansion phase, a huge number of players flooded into the network, resulting in a huge number of kittens being created in a short period of time. Since December 4th, 2017, the number of new kitty-offerings has vastly outnumbered the number of kitties SOLD each day, resulting in a dramatic increase in the number of kitties still available on the market. The kitty market has shifted from a SELLERs market to a BUYERs market. The percentage of SUCCESSFUL SALES for kitties fell as well, and the turnover time grew longer and longer.

What about the Loss of Profit?
Cryptocurrencies have no fixed value and are solely valuated by market SUPPLY and DEMAND. Because the supply of kitties outweighed the demand by far, the price of kittens decreased dramatically. Profit is a significant motivator for gamers to continue playing the game. The gamers' excitement will fade or even VANISH if their earnings from selling kitties fall below their costs. Cryptokitties were chosen by the gamers because collectibles are expected to INCREASE in value over time. Instead, decreasing prices resulted in a LOSS of profit.

Then there is “The Gap Between Rich and Poor”.
Players earn money by selling and lending kitties. The difference between rich and poor kitty owners WIDENED in the game, just as it does in real life. A FEW participants made the bulk of profits from the game, while the majority of PLAYERS got almost nothing. Most players' gaming experiences have DETERIORATED as a result of the widening income disparity, and they have steadily withdrawn from the game.

Cryptokitties is a term that you barely hear anymore. However, everyone IS talking about non-fungible tokens, or NFTs. Every day the news are all over the place about the ridiculous sums that are thrown out for NFTs. Because of the high demand, the number of available collectibles has grown, and now EVERYONE is producing NFTs because... that's how the game works… and we know how the game will end. NFT is praised as THE NEXT BIG THING… but is it?

The tale of the Cryptokitty teaches us something about volatility and the lack of stability in the crypto-collectible market. We know, that “Value” is defined by Scarcity which means that literally, any garbage we write into a blockchain is valuable as long as a second party is willing to pay for it. Trading crypto collectibles is purely speculative and the assets have no practical use at all. In the end, all of this is a game and the Cryptokitty tells us exactly who is going to win. She is “THE HARBINGER OF CRASH”.

Music: "Reverse the Geometry" by StreamBeats