Over the last few months, CryptoKitties has often been cited as an example of stupid money being thrown into crypto. Bloomberg columnist Matt Levine expressed amused skepticism about breeding cartoon cats on the blockchain and being able to put little hats and socks on your kittens. In the crypto community, people complained about CryptoKitties jamming the Ethereum network in December and raising transaction fees. And in March, people snickered at its $12 million series A round led by a16z and USV.

In this piece I’ll provide two defenses for breeding rare digital cats on the blockchain.

Toys

Working on things that could be dismissed as “toys” often produces good startup ideas. As Paul Graham explains in his essay “How to Get Startup Ideas”:

When something is described as a toy, that means it has everything an idea needs except being important. It’s cool; users love it; it just doesn’t matter. But if you’re living in the future and you build something cool that users love, it may matter more than outsiders think. Microcomputers seemed like toys when Apple and Microsoft started working on them. I’m old enough to remember that era; the usual term for people with their own microcomputers was “hobbyists.” BackRub seemed like an inconsequential science project. The Facebook was just a way for undergrads to stalk one another.

Aaron Harris builds upon this argument in his essay “Why Toys?”. There are two main reasons why some of the biggest tech companies looked like toys in the beginning.

First, expectations.

If you give people a tool and tell them it will perfectly solve an important problem, any imperfection in the tool is going to make them angry. If you give someone a toy and say “Look what I made! Isn’t it fun? It kinda does this thing.” then you’ve set yourself up for a positive reaction. It’s much easier to beat low expectations than high ones, so you’ve materially increased your chances at having a happy user. And “happiness” is an important way to think about early users. People spend more time with something that makes them happy, especially when they don’t expect it. Happy users are easy to get feedback from, because they know that you can make the product better and make them happier. They’re also likely to tell friends about the cool new product that they’re using, which means you start to get users without having to dip into the dark arts of marketing.

Second, seriousness.

If you are serious right from the start, a number of things start to go wrong. [First], you become unwilling to experiment with ideas that aren’t clearly aligned with making a big company. [Second], you signal to the bigger and better funded companies already in the marketplace that you are onto something important and profitable. [Third], you immediately start optimizing on the things that you believe serious businesses should — profit and margins.

If you apply this “toy” framework to the early days of Internet e-commerce, you’ll see that the early users of the Internet were often hobbyists. Amazon started as an online bookstore that could carry rare books not found in traditional brick and mortar stores. Ebay started as a marketplace for collectibles such as Pez dispensers (though this story has also been disputed). But eventually these companies outgrew their original use cases and became $700 billion and $40 billion companies that defined the Internet era.

Likewise, CryptoKitties has attracted a passionate group of early hobbyists. At the same time, we’re also seeing platforms such as OpenSea being built for trading digital collectibles. If history repeats itself yet again, we may be at the cusp of a new wave of billion dollar companies that expand beyond the niche of digital collectibles.

Scarcity

What makes CryptoKitties valuable? Scarcity.

Scarcity is the same reason why art is valuable — that I can create something only I can have but you want. With CryptoKitties, finding the right species of rare cats to breed a genetically unique offspring has almost become an art in of itself.

Commodities that will always be scarce, even if copies are mass produced, are non-fungible assets. Non-fungible assets are goods that are identical in specification but individual units cannot be mutually substituted. Artwork and real estate are good examples. Two arbitrarily chosen paintings or houses cannot be equally interchanged with each other.

One of the promises of blockchain is tokenizing real-world assets. If we could have a global shared database of pointers to physical assets — and update those pointers as ownership gets changed — then we could save lots of overhead in various industries. The real estate title insurance industry, as an example, is a $13 billion market that’s about to be disrupted.

What this means is that CryptoKitties can be thought of as a proof-of-concept “toy” for the future tokenization of “serious” non-fungible assets such as real estate titles. As a toy, people are much more willing to tolerate current problems with ERC 721 non-fungible Ethereum tokens — scalability and cost of on-chain computations are two issues that come to mind. And in doing so, we can have productive discussions around these problems and build solutions that lay the foundation for “serious” real-world applications of non-fungible tokens.

Thanks to Nick Tomaino and Alok Vasudev for conversations that led to this article.