Cryptokitties: A Giant Pyramid Scheme?


The world of cryptocurrencies expanded into lighter fun genres using the core dAPP or decentralized App functionalities. One such category is CryptoKitties. However, it turns out that for a fun game, these virtual assets (cats) trading game invented by blockchain-ist –Axiom Zen, works similar to fiat-currency Ponzi schemes.


What are CryptoKitties?

CryptoKitties are a non-fungible token (NFT) over the Ethereum platform. CryptoKitties uses smart contract, to issue tokens to buyers/users. The rate is approximately 15 minutes in a year, which generates 672 such items or assets and given an ERC-721 token and is non-fungible. Therefore, every asset is able to have attributes which are unique to it.

Thus, the number of kitties in circulation is limited to 4 billion cats in total. The smart contract will include the phenotype-specific visual appearance and two the genotype- or the genetic features which are not open to edits or changes.

Since every cat is a token, the blockchain technology is deployed to sell, transfer and guarantee ownership. Prices of these Kitties are set in Ether (ETH) and can be auctioned by owners.


What is the game about?

Every virtual asset is owned uniquely by a single user/buyer and is validated via the blockchain network it nestles on. The value of such virtual asset shall depreciate or appreciate in accordance with kitties-market forces. Single each of these ‘digitized’ assets is unique and unduplicated, it cannot be co-owned or transferred without even the developers seeking the owner’s permission.

Hence owners can use their asset for buying, selling and even breed these assets and christen them with unique numbers, distinct genetics, DNA and other attributes. All contributions are considered in ETH.


Why is CryptoKitties interpreted as a pyramid scheme?

As one of the first blockchain-based applications developed for recreational use, CryptoKitties appeared to be a fun way to demonstrate the use and adaptability of the technology.

However, where it proves to be a tool for fraud is in the way the expensive Ethers are used for the purchase of non-existent, virtual cats. Real money or ETH is being put into the system, with the ambitious hope that the next level of the buyer of these assets will feed the higher level investors who initially bought into the system and bought these cat-assets.

The result is that, when there are no new recruits or buyers of these kitties, the pyramid will collapse. At the apex level of the pyramid are the initial or founder-buyers who used up several of their ETH in the hope that there will be a new level of buyers who will purchase the kitties from them since every kittie is unique to a single user or wallet. The second-level buyer purchases from the apex-buyer in the hope that a new level will repeat the process and he gets not only to sell the virtual asset but also make profits by creating a pump and auctioning it.

Hence, there are several parallels to the way CryptoKitties operate to how fiat-currency pyramid schemes operate, thereby inferring that the former are ill-intentioned scams!


The following article showcases the thoughts and view of the writer and does not encourage the readers and viewers to make any investment decisions related to any company or project. The readers should do their own due diligence before making any investments or actions. Coinnounce is not responsible directly or indirectly for any damage or loss in connection with any company or project mentioned in the article.



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