CryptoKitties Mania Overwhelms Ethereum Network's Processing

(Bloomberg) -- Since its 2015 debut, digital evangelists have preached how the ethereum network will be perfect for applications such as managing supply chains and securities sales. What it's actually used for is buying kittens.

CryptoKitties, an online game that debuted on Nov. 28, is now the most popular smart contract -- essentially, an application that runs itself -- on ethereum, accounting for 11 percent of all transactions on the network, according to ETH Gas Station. That's up from 4 percent on Dec. 2 for the network, which uses the distributed-ledger technology known as blockchain.

The game is actually clogging the ethereum network, leading to slower transaction times for all users of the blockchain, which is a digital ledger for recording transactions.

"The pending transactions on the ethereum blockchain have spiked in the last 24 hours, mostly from CryptoKitties traffic," Nolan Bauerle, director of research at CoinDesk, said in an email.

In the game, players buy cartoon kittens, and then breed them with other cats. More than 22,000 cats have been sold so far, for a total of $3 million, according to Crypto Kitty Sales. One of the cats went for $117,712, although average sales price hovers around $109, according to the sales tracker. Each cat has a unique identity that's logged on the ethereum blockchain, which is a digital ledger of transactions.

Axiom Zen, a company with offices in San Francisco and Vancouver that helps incubate digital startups and new products, created CryptoKitties. "We wanted to make blockchain technology accessible to the everyday user, as we believe this is a key step in otherwise seeing the technology adopted," Bryce Bladon, Axiom Zen's communications manager, said in an emailed response to questions. "We wanted to explore blockchain applications outside of ICOs and cryptocurrencies."

He also said the company wanted to "leverage the power of fun and games" -- hence, the kitties.

CryptoKitties is one of the first blockbuster applications to emerge for ethereum. The blockchain is already used for transactions in currency called ether, the second largest after bitcoin. It's also widely used for issuing tokens in so-called initial coin offerings, with which startups raise funds. The game is the first successful non-coin related application to emerge on the blockchain.

CryptoKitties' success could be a sign that ethereum may thrive as a gaming platform. Indeed, many users of blockchains are the same kind of people who already play PC and console video games. And it could take a bite out of the $108.9 billion global games market.

If the game's popularity continues to skyrocket, it could also potentially increase average transaction prices. Since ethereum's fee structure is affected by demand, costs could go up for everyone.

--With assistance from Jeremy Kahn

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Andrew Dunn

©2017 Bloomberg L.P.