Crypto Collectables? Ethereum's Next Killer App Is on Its Way

As silly as it might sound, the popular CryptoKitties app might foreshadow a powerful up-and-coming use case for ethereum – digital collectibles.

After its launch last week, CryptoKitties quickly became the most popular ethereum app – so popular in fact that there's now CryptoPuppies (for those that prefer man's "real best friend"), and CryptoPets (which lets users choose any kind of digital animal pet they prefer).

But while some in the crypto community are skeptical of this new trend ("Dear god no," said one reddit user to the idea of Pokemon on the blockchain), others see CryptoKitties as an unlikely pioneer in what could be one of the platform's biggest applications.

Blockchain thought leaders such as litecoin creator Charlie Lee and Earn.com CEO Balaji Srinivasan, to name a few, argue the app is "actually important," because it shows the promise of using the blockchain to instantly transfer all kinds of assets without a third party.

Lesser known, though, is that there's reason to believe a real uptick in usable, consumer-friendly applications could be on the horizon. That's because the system for creating these collectibles hinges on a technical standard similar to ERC-20, the same tech that sparked the boom in initial coin offerings (ICOs) in 2017.

Strange as it may seem, your favorite furry fluffball is made possible by a powerful technical standard underlying CryptoKitties called Ethereum Request for Comments 721 (ERC-721).

"People have been talking about [ERC-721] for a long time, but no one implemented it before. CryptoKitties happened to be the first," Philippe Castonguay, developer relations manager for cryptocurrency exchange protocol 0x, told CoinDesk, adding:

"There's a very big market incoming for ERC-721."

The utility of uniqueness
According to many crypto developers, ERC-721 is better suited for digital collectibles than ERC-20.

For starters, tokens created with ERC-20 are "fungible," meaning every token is just as good as any other token, like every U.S. dollar is just as good as any other U.S. dollar.

While this is a necessary property for a currency, it isn't suited for "crypto collectibles" like CryptoKitties, since different cats need to have unique attributes, such as age, breed or color, permanently attached to them. In this way, some mixture of attributes within certain cats can become super rare, making them not only highly sought after, but also remarkably valuable.

One such cat on CryptoKitties traded for $110,000.

Secondly, ERC-20 tokens are divisible, meaning users can divide them up into tiny amounts for buying, selling or trading.

While this property is, again, useful for currency, it isn't helpful for collectibles, since collectibles are generally only as good as their condition.

In CryptoKitties, half a cat wouldn't be that fun or valuable to have.

All that said, there are still questions surrounding ERC-721. Although, it's quickly gaining traction and is already being used, it's not yet complete and several developers are unhappy with the code as it stands today.

As such, Castonguay expects the standard to evolve:

"It will mature into a more robust and more acceptable standard over time."

From punks to kitties
That said, the ideas underpinning ERC-721 aren't completely novel, but are instead iterations on already functioning digital collectible systems.

For example, CryptoPunks created its own non-fungible token for trading pixelated punk heads over ethereum (CryptoPunks has even seen a spike in usage since CryptoKitties launched).

Following the success of CryptoKitties, startups and developers are beginning to express interest in ERC-721 as a way of making crypto assets easier to use.

James Martin Duffy, co-founder of startup LoomX, which is working on scaling infrastructure for ethereum, told CoinDesk, he has plans to deploy projects using the standard going forward.

"I see [ERC-721] tokens having huge potential in the realm of digital collectibles and online games," Duffy said. "You could use them for digital playing cards ... or in-game items in a massively multiplayer online role-playing game. The tokens could represent the swords, armor and other objects that your character has in his inventory. "

And it doesn't stop there. According to Duffy, ERC-721 could also facilitate the tracking, trading and management of real-world assets such as houses or cars.

He's not the only one that's excited about the potential, though.

Developers of 0x, a decentralized exchange for ERC-20 tokens, see such a promising future for ERC-721 that they're planning to add support for the token soon. In this way, ERC-721 tokens can be traded for ERC-20 tokens and ether as well.

Castonguay concluded:

"We see a future where all of these different kinds of tokens can be exchanged seamlessly."