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Wall Street Journal / Biz - Money

Ethereum Network Copes With Surge of Activity as Virtual Kitten Game Goes Viral

By

Sara Castellanos

CryptoKitties, made by the company Axiom Zen, is a game that lets people collect and breed virtual cats, like this one.Photo: Axiom Zen

BOSTON – The blockchain-based Ethereum network continued to be overrun Thursday by a surge in trading virtual kittens.

The network experienced a slowdown in the processing of total transactions this week because of the popular game CryptoKitties, in which people can collect and breed cartoon cats using the digital currency ether. Since the game debuted on Nov. 28, players have spent about 18,800 ether, or more than $8.5 million, on about 53,000 digital cats as of mid-day Thursday, according to an independent website that tracks CryptoKitties sales. The highest bid on CryptoKitties topped $100,000.

Panelists discuss blockchain in the enterprise at Forrester Research Inc.'s New Tech Forum 2017 on Wednesday, Dec. 6. From left to right: Martha Bennett, principal analyst at Forrester, Heather Dahl, chief executive and co-founder of CynjaTech; Joshua Deems, assistant vice president of State Street Corp.'s emerging technologies center; Zach Herbert, vice president of operations at Sia.Photo: Sara Castellanos / WSJ

Blockchain experts and analysts say the game and its impact on the Ethereum network is evidence that such blockchain platforms still have issues with scalability and are not yet ready for enterprise-level deployment. Supporters say they’re working on ways to scale the network.

“CryptoKitties highlights a lot of the issues we’re running into with blockchain systems today,” said Josh Deems, assistant vice president of State Street Corp.’s Emerging Technologies Center, at a blockchain panel event at Forrester Research Inc.’s emerging technologies conference Wednesday.

“The transaction speed of Ethereum can’t handle the amount of demand to trade digital Beanie Babies, so how are we going to manage it to trade … with some of the major financial players in the world?” he said.

Enterprises such as State Street are continuing to experiment with blockchain technology regardless, as demand increases for novel ways of securing information and proving authenticity. Digital currency bitcoin also reached new highs Thursday as the price jumped about 40% in about 40 hours, smashing through five separate $1,000-barriers and surging past the $16,000 mark.

Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority.

Ethereum is an open software platform, comprising a currency called ether, a public blockchain ledger for keeping track of transactions and tools for building so-called smart contracts that automatically make payments when their terms are fulfilled, WSJ has previously reported.

Its backers promote it as a “virtual computer  and it can be thought of as a decentralized internet.

At its peak Thursday morning, there were a total of about 28,000 pending transactions on Ethereum, according to research site Etherscan, though the number has been fluctuating significantly. That’s up from about 2,200 total pending transactions on Dec. 3.

The slowdown in the Ethereum network is evidence that any enterprise application that’s running on public blockchains or using the same code is subject to “tremendous scale issues,” said Martha Bennett, principal analyst at Forrester, who has been tracking the virtual kitten craze.

Ethereum supporters say they’re working on several specific methods to scale the network over the next two years to help solve the slowing down of pending transactions.

“I think we’re in the early stages of the next-generation of the internet with blockchain technologies,” said Andrew Keys, co-founder of the Enterprise Ethereum Alliance, which has about 300 enterprise members.

One strategy to increase scalability and decrease transactional throughput on the network is a so-called state channel, in which thousands of micro-transactions could be batched off the blockchain, and then processed on the blockchain, he said.

Mr. Keys said the game is validating many of the reasons that enterprises are interested in adopting blockchain technology, such as the ability to track provenance in a supply chain.

With blockchain, you can prove the authenticity of a virtual cat in the game, essentially being able to track a virtual cat’s DNA, Mr. Keys said.

“Right now it’s this funny, cute game, but you can take the lessons learned from what’s being built here and actually map it very well to how large businesses could be improved,” he said.

CryptoKitties is the first real test of the Ethereum network, said Roham Gharegozlou, founder and CEO of Axiom Zen, the maker of CryptoKitties. The company said it was responsible for as much as 25% of Ethereum’s total traffic this week.

He said consumers are now understanding the benefits of blockchain by experiencing it through the game, and scalability issues will be resolved soon enough.

“Scaling is best done under fire because that sharpens focus. We’re confident that blockchain as a technology can handle what we’re throwing at it and 100 times more, we just need time to implement scaling solutions,” he said in an email.

Ether also experienced a surge in trading in June that led to debilitating bottlenecks, driven by investor demand for a so-called initial coin offering.

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