Sorry, Ethereum - Crypto Kitties Were Just The Beginning
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If you bought an original copy of Action Comics #1 back in 1938 and managed to keep it in pristine condition for 75 years, you made a shrewd investment. The comic book (containing the first appearance of Superman) skyrocketed in value from $0.10 to $3,207,852 over the years.
In today’s market, collectibles come in the form of Crypto Kitties and CryptoPunks. Everyone’s scrambling to figure out which of these non-fungible digital collectibles they’ll be able to retire off. Each Kitty and Punk is unique, and some are worth more than others, just like with physical collectibles.
Comic books and trading cards were big businesses at the end of the 20th century. Baby Boomers and the Silent Generation destroyed many of the earliest versions, storing comics in destructible cardboard and using baseball cards to make their bicycles sound like motorcycles. By the time Generation X came along, these collectibles had known value. Everyone started collecting Ken Griffey Jr.’s rookie card and Spawn #1, thinking they could one day retire off these investments.
Markets were flooded with collectible cards and comics by the 90s, driving down prices of both, as rarity, an essential ingredient in an item’s after-market value, was extinguished. These days, so many people own copies of so many cards and comics that the value mostly flatlined, and the collector’s market is small.
Will collectible Crypto Kitties and CryptoPunks gain value over time like Action Comics #1 or will they remain stagnant like Spawn #1?
We dug into the underlying ERC-721 technology to find out.
What’s This About Fungi?
When discussing fungibility, we’re not talking about those shrooms you bought on the Dark Web with bitcoin back in 2012. Fiat currencies (and most cryptocurrencies, stocks, and other investments) are considered fungible in that they are replaceable when used in paying debt. If I purchase a bitcoin with U.S. dollars, for example, that bitcoin’s value will be measured the same across all markets, as will the dollars.
If I loan you a bitcoin, you can pay me back with another bitcoin, and the debt would be considered paid. It doesn’t have to be the exact same bitcoin, as every bitcoin is worth exactly one bitcoin. Even though each bitcoin has a unique transaction history, they’re all valued the same.
A car isn’t fungible though. If you loan me your car, you’ll be annoyed if I return a different car to you, even if it’s the same make and model. This concept also applies to baseball cards and comic books. Slight differences in design and content make each baseball card completely different. An Upper Deck Ken Griffey Jr. rookie card has a different value than a Fleer or Topps Ken Griffey Jr. rookie card, and even two of the same card will have different values depending on the condition, buyer, etc.
Artist Kevin Abosch made history in February by successfully selling the Forever Rose, a blockchain-based digital print, for $1 million. His vision of injecting art into the blockchain isn’t far off, and it’s being accomplished through ERC-721 Ethereum tokens.
Holding Cryptos to Different Standards
Ethereum smart contracts have a variety of possible standards, with ERC-20 being the most common. Nearly every Ethereum-based ICO we review is ERC-20-compatible. The ERC-721 standard is gaining ground, however (and even these tokens tend to be ERC-20 compatible too).
Crypto Kitties are among our favorite ERC-721 tokens, and many analysts and collectors compare them to Tamagotchi and Beanie Babies. Each Crypto Kitty is unique, and they’re inspiring people to collect them all like Pokémon. Even Wikileaks is getting in on the action, naming Crypto Kitties after various leaks the site publishes. They’re not the only crypto-collectibles on the block. So far, Crypto Kitty sales surpassed $12 million, and that number will keep climbing.
CryptoPunks are also gaining ground, with an estimated market cap of $1,461,231.72 and average sale price of $231.17. Each CryptoPunk is unique, and there are only 10,000 in existence (versus CryptoKitties, which can be bred by collectors and will experience generations, much like baseball cards). Larva Labs (the CryptoPunks creator) gamified the collection with a leaderboard, and the top collector already owns 986 CryptoPunks.
Rare Pepes join Dogecoin as memes that evolved from Internet jokes into legitimate cryptocurrencies with a real economy behind them. However, while the Dogecoins are fungible, Rare Pepes are not. They’re collectible digital works of modern art with varying values depending on the individual works.
Virtual reality is also an important technology, and crypto is finding its way into that market too. Decentraland is a VR world like Minecraft, with ERC-721 tokens representing ownership of land parcels of differing sizes. This virtual real estate simulation is where we start to see where non-fungible tokens have real-world value beyond just collectibles. A $200,000 house in San Jose, California will have a much different lot size than one in Marion, Indiana.
WePower also uses the ERC-721 standard, as each tokenized electricity token can represent a different time frame, amount, or type of energy (solar, wind, hydro). Electricity is a non-fungible commodity, as opposed to the Lady Finger banana, which is the fungible commodity backing Bananacoin.
So, while non-fungible ERC-721 tokens are currently being used to power fun and games on the blockchain, they’re a very important investment instrument that may soon see more widespread usage. Whether or not those use-cases will support the values of Crypto Kitties and CryptoPunks remains to be seen. Beanie Babies owners, for example, are quickly finding that market is gone, and nobody is collecting them anymore. But Beanie Babies don’t have the transaction history
Crypto Kitties do, and you can breed them.
Even in non-fungible markets like comic books, where the vast majority of issues barely retain their value over time, there are still million dollar babies. While the full Crypto Kitty and CryptoPunk collections may not gain value, individual ones can do just that. If you’re holding the right one at the right time, you could find yourself surpassing the profits made by the sellers of Action Comics #1.
And you’ll do it without the overhead costs of preserving them.