My introduction to the Crypto kitty craze unfortunately came at a time when i decided to jump into the crypto market. I picked up some Ethereum because i couldn’t justify the Bitcoin price at the time, (and i still can’t) and 2 min later Ethereum dropped from the $500 to $400 and so did my mouth.
20% draw down is no joke and any investment and even as a seasoned fx trader, i knew immediately that this was a market that I was to expect extreme volatility with. This is like currency wars x 1000. At the time i really didn’t know or understand what i was getting into as the emergence of block-chain technology is something that is definitely going to disrupt the way we live our lives but to what extent will be left to how people adapt to this technology.
The concept of decentralizing everything is so hard to grasp since almost everything we are a custom to is centralized. Your education, your money, the firms you work for, and the decentralization concept creates a dynamic so radical that i don’t even know if the developers themselves comprehend a percent of what type of change they are going to create, only to know that they are going to leave a huge footprint on evolution of man kind.
To start, i’ve been a producer, designer, and now currently a product manager in the Mobile Freemium space for 15+ years. I’ve built anything from city builders, match 3 games, gambling games, rpg games and now currently product managing a Triple A action RPG game with a one of the top content publishers in America.
My interest in block change technology came from the deep interest in economics and the interest to gamify this space.
Enter Crypto Kitties
A couple of weeks ago Cryptokitties was a hot topic in the crypto space as a bulk of the Ethereum transaction were coming from this game. Etherscan reports a 6 fold increase in transaction. Good for the game but underscored a glaring weakness in Ethereum core tech: its lack of scalability.
According to Kittysales, Over 1.4 Million Unique kitties have been sold and have sold over $16 Million (USD) with the average sales price being $89.22. Which is insane for a singular layered breeding game. (Ill get into this later)
Now Wtf is a Cryptokitty
These cute lovable cats can be purchased via Ethereum at the market tab in the game. There are 3 different ways you can own these kitties:
Selling your Kitty: (Sale): User can put their own kitty up for sale and set his or her determined price.
Siring (Breeding): User can choose a mate to breed their Kitty with and produce a offspring that has the potential to take the characteristics of each parent kitty using a Genertic Algorithm they have created for this game.
Gen0: Axiom Zen (Developers of Cryptokitties) adds new kitties into the market place and users can purchase newly minted kitties here.
How Cryptokitties incorporates blockchain technology into their game.
Gen0: A cryptokitty rendition on how they issue new coins into the market. They’ve created a concept called Kittyminting where an algorithm monitors the current market supply and gradually adds more kitties into the market to manage the supply and demand of the game. Since there is a hard cap of only 50k Crypto Kitties to exist and any given time. Users are required to “Breed, Breed, Breed” if the Gen0 Algorithm was to generate and release more kitties into the Cryptokitty world.
The above 2 systems are commonly found systems in most Cryptocurrencies where the developers attempt to create demand through a coin to obtain tangible or intangible things. You will also find that most cryptocurrencies will have a hard cap on how much coins will be distributed into the market. The dynamic this creates is that as long as the company can increase the demand of their coin, the value of the coin will grow as well.
Gamifying this space
What Axiom Zen incorporated a breeding system (Siring) to exponentialize the demand of these cute lovable kitties.
Crypto kitties uses something called the Genetic Algorithm in solving their breeding (siring) feature. Utilizing the blockchain technology, they represent a genome with a few numbers and by creating a crossover with 2 numbers (Parent genomes) the output becomes the Offspring. On the Ethereum blockchain, you can store data (for this instance its the genome), and perform calculations with the data using Smart Contracts.
Now wtf is a Smart Contract. You’ll have to go elsewhere to fully understand the tech behind this.
Dissecting Cryptos’ Design Loops
Although very simple in the surface, Crypto kitties has an extremely engaging game loop that creates a demand that has exceeded well over $16 million in revenue in just a short period of time. Let’s take a look on how they achieved this.
Players have 2 options in the game.
Both Purchase and Gen0 are Ethereum sinks and for players to engage in this system, the GA algorithm is required to yield > value than the sum of its parts
In the case of the 2 options
Sales > Purchase + Sire
Sales > Gen0 + Sire
If this wasn’t the case, this game wouldn’t be compelling at all, as the users investment on their returns will always yield negative. Therefore the developers were required to answer 2 economical questions to make this product successful.
- Manage Supply
- Create demand for the product
Supply management is a core fundamental feature of the blockchain technology and gamifying this technology was a brilliant idea.
Along with these core loops, Axiom Zen incorporated the ever popular gacha / loot box system (most commonly found in freemium games) in their game with the ‘Sire’ mechanic A perfect fit for a Pet Nurturing game. The lootbox concept works so well because selling a dream will always amount to a greater yield than selling the facts. And because of the supply cap in Kitties, the cost of these kitties have nowhere to go but up as the factor of inflation will never be an issue. This is something freemium games always have issues with as developers flood their economy with their soft currency cause all their items to devalue. What usually happens in this case is for the developers to create a brand new currency and start all over again.
The supply and demand fundamentals are rather straight forward, in the above diagram. If the supply were to increase, there will be a shift in the demand, which pulls the price down to adjust for an price vs supply equilibrium, therefore if the supply is capped and more users start to want these kitties, demand increases, causing the opposite effect leading to the price to eventually increase to reach the S&D Equilibrium. This is what Axiom Zen looks to create but with a singular layered breeding system.
What will be very interesting to see is when the DAU (Daily Active Users) start to decrease, will the price (median) of these kitties start to decrease as well?
Because of the 50K Cryptokitty cap. one is to assume that price of each kitty will start to increase as the churned users will be picking away at the supply cap. And if theses kitties do start to appreciate in price user acquisition and converting users will become a harder task as the utility of these kitties is nothing more than a static image.
In my column, i discuss a lot of concepts around (DAU) Daily Active Users and (DAC) Daily Active Customer. For these gamified blockchain technology i would assume that the DAC data is more so important than the DAU data as the obstacle for converting a new users should be very very high. I don’t know the data behind this but at a $90 price point and not much game play it’s hard to imagine how much more value you can add to these kitties.
Personally, i think the key for cryptokitties continued success in this space will revolve around what additional features they release to keep players engaged, and also provide more value to their kitties. (Product Differentiation) – This is probably a no brainer but as the front runners in this space it’s exciting to see that a new market is brewing before our eyes and i relish the moment these types of games become the new norm, as was freemium games were to me back in 2005.
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