20 ms·

The collapse of cryptokitties, the first big blockchain game

394 points by cycomanic 4y ago

yellow_postit 4y ago
CryptoKitties was a great initial introduction (for me) into the mechanics of setting up a wallet, transferring funds, trading nfts,etc. The wild monetary value swings definitely captured the BeanieBaby mentality they were aiming for as well.
teraflop 4y ago
One thing I don't see addressed in this article is that as far as I know, it's basically impossible to trust the reported price or volume of NFT transactions, because there's no way to distinguish fake wash trades from real ones. So it's hard to draw any conclusions about whether the data reflects an actual peak in user activity, or just a peak in scams.
- arcticbull 4y ago
  Or selling NFTs to yourself to launder money.
  - renewiltord 4y ago
    How does that particular thing work? You run the exchange, then have dirty untraceable money traded on the exchange to dirty participant and you take the exchange fees? You'd have to KYC both participants, right?
    - officialchicken 4y ago
      Not everyone, the "participants" in the chain (typically 8-10 addresses) can arbitrarily inflate pricing by only paying fees which are trivially covered by the final trade. Once inflated, that final address can use a "mixer" to exit (for example) and essentially if KYC is performed in the conversion to fiat, it's after the mix and relatively untraceable.
    - stouset 4y ago
      Buy a “rare” NFT with clean money. Sell it a few months later for some multiple of the original price, the “buyer” is still you but using dirty money. NB: I work in fintech but have no particular experience on the fraud / KYC / AML side of things. This is just how I imagine it would work at a high level.
      - renewiltord 4y ago
        But if you do that, I think you'd be first on the list of people investigated for the dirty money. It has to be cleaned in some way by obscuring it. The approach described here seems more plausible https://news.ycombinator.com/item?id=32857382 https://news.ycombinator.com/item?id=32857382
        stouset 4y ago
        Thanks for this!
    - polygamous_bat 4y ago
      Imagine you have $X million from a hack on wallet A, and you want to launder it. First, you run it through tornado cash (RIP) a few times and move them to wallets B1 to B1000. Then, you mint an "exciting NFT collection" on your public, KYC'd wallet C, list them on a "decentralized exchange", and have wallets B1 to B1000 buy those NFTs. Even better, seeing how fast your NFTs are selling out, a few suckers join in on the stampede and get mixed in alongside B1-B1000. Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. You cash out on Coinbase, give the taxman his due, and you are good to go!
      - jaywalk 4y ago
        > Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. It's not "legal" at all, because it's still proceeds of crime. Although it may "appear" legal and be very difficult to trace back to the source, it's still not actually legal.
        ForHackernews 4y ago
        Yes, that's how money laundering works.
        UncleEntity 4y ago
        It is legal until proven illegal -- just like you are innocent until proven guilty.
      - yieldcrv 4y ago
        Only need to do Tornado cash once, and you can still do that, it still works Nobody cares that you sold your nft to a virgin address funded solely by the tornado cash relay
      - renewiltord 4y ago
        The Tornado Cash tumbler allows you to create sort-of-Sybils so it looks organic. The no-KYC Dex allows you to push from a no-KYC account to a KYC'd account. The KYC'd account lets you withdraw fiat. I see. Okay, each of the pieces are necessary. Thanks for the explanation.
- simsla 4y ago
  Isn't that always the case? My friend was talking about a rare Magic The Gathering card being worth a silly amount of money... Except the card had only been sold once or twice at that price. Unless you have enough comparable items (e.g. paintings by the Dutch masters) it's really difficult to determine the value of something that's rarely sold.
  - __MatrixMan__ 4y ago
    "value" is kind of a made-up thing, so I'd argue that by selling something for the first time you're setting its value, not determining it
    - maxbond 4y ago
      It's important to note that price, the last traded price, and value are all distinct concepts. The last traded price is the only one of these we can measure ahead of time, so we often use it as a metanym for these other concepts. But we don't know the price of something until we make a binding offer on it and it is accepted; that doesn't necessarily mean the next transaction won't be very different, we just have heuristics about how the next price ought to look. But it's the process of negotiating a deal or bidding on an auction that defines the price, not the historical prices. If you go to a grocery store and see that milk costs $5.25, and you remember last week it costs $5.00, you don't say the price is wrong; you understand that this is the offer the store has made you, and that the price has gone up since your last visit. When the oil futures went negative, it wasn't the case that the value of oil was negative - this was about the structure of the market and the sorts of positions people were caught in when the pandemic hit. We continued to consume oil throughout the pandemic, and so I'd say we continued to value it. Another example would be, if a rancher has a lot of cow poop, they might pay a farmer to take it away. You could say that the cow poop has a negative price on it. But the farmer is going to make use of it as fertilizer; from the farmer's perspective, this is a commodity that has value. It's true though that there are a million theories of value and it's impossible to say what something's value is definitively, you can only make a decision about what is value is to you. But when wash trading is and to impact the perceived value, it does so fraudulently; it supplies information to traders - "there is a lot of interest in this security, and the (last traded) price is rising" - which is a lie. Some people will argue this too is a normal and healthy part of markets, but I don't think they've given enough thought to what sort of equilibrium that game will settle into.
- zeroclip 4y ago
  > there's no way to distinguish fake wash trades from real ones Ah, like that $532M Punk wash trade that was clearly visible on-chain?[1] I guess we'll never know if it was real or fake. [1] https://decrypt.co/84756/no-someone-didnt-really-pay-532-million-cryptopunk-nft https://decrypt.co/84756/no-someone-didnt-really-pay-532-mil...
  - rnk 4y ago
    Please explain your comment for the rest is us. Was that a sarcastic "it really happened because it made it to the chain" or a "we'll never know whether value was exchanged from one person to another because the owner of both wallets could be the same person" - or both, neither or?
    - zeroclip 4y ago
      Commenter said "there's no way to distinguish fake wash trades from real ones" and I showed a case where a wash trade was, to anybody looking at it, very obviously fake. I agree with the other part of the comment. Blockchains do not track "persons" but "wallets" and so metrics like "number of users" will not be accurate. But it is not accurate to imply that it is impossible to recognize wash trades. In many cases they are very obvious, and even can be automatically flagged. In other cases - like with CEX mixers - only the authorities can detect the fraud.
      - pas 4y ago
        OP probably meant fake wash trades and real non-wash trade ones, not fake and nonfake wash trades
        zeroclip 4y ago
        The flash loan trade was a wash trade, obviously “fake.” Other wash trades are also - very often - obvious because the blockchain is transparent and easily analizable.
  - andrewmutz 4y ago
- yieldcrv 4y ago
  Correct, not possible if you dont want someone to know But of you’ve ever traded NFTs its hard to really begin with the assumption that trading volume is fake because bots and market makers buy from you so fast. You know that wasn't a fake or wash trade, while there is a pervasive audience of onlookers that are trying to prove a negative. You know that funds in bankruptcy court have successfully sold $30,000,000 worth of the NFTs on their books as ordered, without issue or further controversy about where the proceeds came from You know that DAOs have liquidated $30,000,000 worth of NFTs on their books as determined by the community, without issue How much convincing does anyone need to move off of “its all wash trading and money laundering” to “yeah thats possible there is also lots of liquidity”, it doesn’t really make sense to make the former perception their whole identity
  - simonw 4y ago
    "because bots and market makers buy from you so fast" Does that still hold true today, or was that the case six months ago before the NFT market crashed?
    - yieldcrv 4y ago
      it still holds true today for the same top projects most collections are essentially just tokens with a picture, the same practices on token exchanges are prevalent on nft marketplaces
  - teraflop 4y ago
    Right, I'm not saying there's no real trading, just that it's impossible to say how much. Which makes the graphs and anecdotes quoted in the article a bit meaningless, IMO.
    - yieldcrv 4y ago
      I agree that the data collection possibilities are limited this is more so for others who are looking for validation of only wash trading. I’m mostly saying some assumptions have to be made, and relative comparison to other projects and understanding actual trades occur… a lot, moves the assumptions towards more distinct market participants than assuming the nonexistence of any market participants
- swalsh 4y ago
  Can someone tell me how to successfully do a wash trade? because I frankly have no idea. If you fund it from your coinbase account, coinbase is going to tell the taxman about both your wallets... so no buerno. If you fund another wallet from a known wallet... the tax man can still see that. If you use Tornado cash, Coinbase is going to block it. I just don't think it's as easy as people think it is.
  - jy1 4y ago
    You can report everything to the taxman. Wash trading in this context isnt to do with taxes. Its about how you hard it is to verify claimed sale prices since you can transact with yourself.
  - deleted 4y ago
    [deleted]
dopidopHN 4y ago
I agree with the part where they describe existing on chain games as too simplistic. The handful I saw indeed sucks. No skills really needed beside being able to click and pay the initial fee.
Zaskoda 4y ago
Calling CryptoKitties a "game" is a bit generous.
- cookiengineer 4y ago
  Everything is a game once you look for an equilibrium.
  - H8crilA 4y ago
    Newsflash: watching paint dry is a game (until the solvents reach an equilibrium with the air).
- minimaxir 4y ago
  It was the gateway to getting gamers interested in crypto/web3, which resulted in the absurd "play2earn" concept which has been the subject of justified mockery.
- xtracto 4y ago
  Wait until you learn about "game theory"!
- bze12 4y ago
  I'm always surprised that projects like cryptokitties are referred to as games. I guess saying "game" makes it sound more legitimate, but there's almost nothing to do with your characters besides sell them.
- themagician 4y ago
  "Gaming" often refers to gambling. There is a whole world of gaming separate from video games—online slots, poker, etc.. Intentional or not, most crypto games are much closer to traditional gaming than video games.
spywaregorilla 4y ago
> Today, CryptoKitties is lucky to break 100 sales a day, and the total value is often less than $10,000. This seems shockingly high to me
- j0hnyl 4y ago
  "Bluechip" NFTs like CryptoKitties become commodities that people trade day in and day out.
O__________O 4y ago
Know zero about NFT market caps, but if I pull up few years on the site below, hardly looks like a collapse: https://nftgo.io/collection/cryptokitties/overview https://nftgo.io/collection/cryptokitties/overview Anyone with more knowledge able to clarify?
- mumblemumble 4y ago
  I think that you can get your answer from the tooltip on that market cap widget: > Market capitalization is calculated as the sum of each NFT valued at the greater of its last traded price and the floor price of the collection, respectively. So their market cap calculation does not attempt to capture a current fair market value for all outstanding CryptoKitties. For a non-fungible asset like this, just using the last sale price like this will always give a lagging indicator. In some sense, you could argue that it lags the fair market value by a possibly infinite amount of time. Concretely, this method would assume that the Dragon cryptokitty that the article discusses has been worth a constant 600 ETH that hasn't fluctuated by even one iota in over 4 years. I don't know how much better one could do for a market cap calculation. It certainly wouldn't be practical to individually appraise all 2 million cryptokitties on a regular basis. Perhaps one could look at how prices of more frequently traded cryptokitties have fluctuated over time and use that to generate a scaling factor for the old ones. But even that might have downsides. How do you account for the possibly large percentage of cryptokitties that belong to wallets whose keys have been lost? It doesn't make sense to count those into the market capitalization, because they are no longer part of the market. The method being used at least has the advantage of being clean and objective. It's just not particularly useful, is all.
- CaveTech 4y ago
  There's no liquidity. The market cap is pure fabrication based on historical sales, there's no current day sales, so no way to pull money out of that cap.
- elcomet 4y ago
  Market cap is not really significant, if the sales are down. Most of the market cap is from old sales. I could create a new coin with a huge market cap very easily: I'm creating 1,000 billion coins, and I'm selling to a friend one coin for $1, then never selling anything again. The market cap is now $ 1,000 billion right?
cwkoss 4y ago
It hasn't collapsed, the endgame is just a much much higher difficulty
fab1an 4y ago
I feel that NFT pricing exuberance (or lack thereof) is distracting both critics and even fans from the core innovation here - 1. the capacity to signify a digital original and 2. to decentrally organize ownership (though it's more like possession) of these items. The ultimate question for crypto as a whole is whether the mass market wants digital possession that transcends a single centrally managed database. Personally am convinced we'll get there, but the onboarding mustn't happen through speculation, but specific unique utility, mostly interoperability/composability.
- sithadmin 4y ago
  The major distraction is that a 'digital original' is a fiction. I can ignore your blockchain and make any digital IP fungible.
  - smoldesu 4y ago
    Yep. Just to tack on - even if you minted a "master copy" of your digital asset on the Blockchain, it still doesn't represent anything meaningful: - It doesn't guarantee that you are the first or exclusive owner of this digital asset - It doesn't correlate to physical ownership - It doesn't hold any water in a legal sense, if you want your ownership of an NFT to be ratified then you need to use the same centralized avenues as everyone else
  - Tao3300 4y ago
    You're one evil motherfunger!
- alasdair_ 4y ago
  >whether the mass market wants digital possession that transcends a single centrally managed database Even if the market wants this, it's certainly not what is being offered. If OpenSea delists your NFT in their single centrally managed database, it may as well no longer exist.
  - WFHRenaissance 4y ago
    This is a problem that's actively being worked on (SudoSwap as an AMM for NFTs, Scatter.art as a competitor, et cetera).
stephc_int13 4y ago
My intuition about CryptoKitties and many other NFTs is that market manipulation has been ridiculously easy and profitable, everything is somewhat more scrutinized nowadays, but I think that the scams and schemes are far from over. Impersonating both sides of a transaction does not seem too difficult, and not very costly, as long as the fees are kept small.
yieldcrv 4y ago
Yes, all nft collections suffer from supply dilution if the creator wants to keep making money. The “NFT” aspect distracts most from the obvious: The physical collections market is hugely profitable, supply is hugely manipulated and unknown, and we just had no transparency into any of this until it went onchain None of the consumer activity in the NFT collections market is really unique, we just get to see issuer revenue numbers in real time and supply All the market is saying is “wow I should really be selling stuff to collectors“
secretsatan 4y ago
I read these articles sometimes about crypto games, but they all never seem to describe the actual game, it’s like crypto is the primary concern, and game is secondary, and i’m getting the distinct impression none of these games are any fun and everyone in the space has to avoid mentioning it. I think that the people writing these things only have a very slim grasp of gaming, but they know it would be a good market to capture
- Melchori 4y ago
  Gaming with being able to earn money is something I normally call gambling or work. It's depressing to think about it. And yes people who made gold in wow were also not gaming but working. It wasn't cool, fun or whatever 10 years ago
  - coding123 4y ago
    I also had fun making gold in Skyrim, which was offline. I don't recall it being work, but whatever.
    - bombcar 4y ago
      It can be a puzzle with a built in score and fun, but rarely are these direct-to-cash games fun. D3 got much better when the real money auction house closed.
      - supernewton 4y ago
        I mean, the real improvement to D3 was they massively upped the drop rate of rare items, which "coincidentally" happened when they stopped taking a cut off people selling their rare items for real money.
        bombcar 4y ago
        Yeah. The money always causes a conflict with the fun. Only the pure cosmetic games seem to avoid that when the money flows.
Kiro 4y ago
CryptoKitties was amazing and a pioneer before NFTs were even a thing. You shouldn't conflate them with the current wave of play-to-earn scams.
deleted 4y ago
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Glyptodon 4y ago
In a vacuum I'd have assumed that attempting to make transaction fees undercut things like credit card processing fees would have been a key design goal of post-bitcoin block chains, so it's surprising to me (as someone not terribly invested in keeping up with crypto) to realize that transactions fees can be so high (though in some ways I suppose it's kind of like combining title registration with supermarket checkout more than it is just a transaction). But besides side chains are there other approaches to allowing newer crypto currencies to be highly liquid and handle large volumes of transactions at low cost? This issue seems like it's a recurring problem for crypto.
mkaic 4y ago
> What Went Wrong? It's in the title of the article. It's a "Blockchain Game". That's what went wrong. It was a flawed concept from its inception. Blockchains are pretty cool from a math/cryptography standpoint, but they really do not provide added value in most areas people try to apply them to. CryptoKitties is a digital trading card game. You get cards, you can "breed" cards together to make new cards, you trade/buy/sell cards. That's it. Nowhere at any point in this "game" is a blockchain necessary. Nowhere at any point does a blockchain add any value whatsoever. In fact, due to transaction fees, I'd argue the blockchain actively detracts from the game. The idea of an artist signing their work in a cryptographically unique way is not new or revolutionary, and it certainly doesn't need a blockchain. There's a reason the general sentiment the art community has towards NFTs is overwhelmingly negative: it's because they literally actively harm us.
- reidjs 4y ago
  More accurately it can be described as a digital trading card game built on Ethereum.
  - deleted 4y ago
    [deleted]
- saurik 4y ago
  In the real world, people play trading card games all the time and a big part of the ecosystem is trading the trading cards. Only, it is really annoying to have to ship around and maintain physical cards, and I want my card collection in the cloud. Some people would thereby prefer to play an online version of, say, Magic: The Gathering, or whatever the Pokémon one is called, etc. The problem now is... how do you do the trading part? You could go to the trouble of yourself building a marketplace for the cards and then integrating all of the payment methods required, and then dealing with all of the trust and fraud issues that result from people sending money via banks or PayPal that they later chargeback or refund, all while dealing with whatever crazy tax implications come up from running a market. But you don't want to do any of that: you want to code a game, and it isn't like Wizards of the Coast is trying to take money off of the aftermarket! They just make money by selling the initial randomized official card packs. Because you went digital now you are doing a ton of extra work and are wasting a ton of time dealing with payment processing issues when none of that is related to your actual business model or product design. And, at the end of the day, doing that giant marketplace is a hard job that other companies specialize in. If I told you eBay provided some kind of digital asset API that let you simply assign tracking numbers to products but then eBay kept track of the ownership as it changed and all your game had to do is ask "what cards does this user still own?" when it opens, I imagine a ton of developers would jump on that bandwagon. Only, eBay doesn't provide that API, and likely would avoid doing so out of concern you would shut down the game on a whim and cause them issues; and, even if they did, now your entire game backend would then be built around a single marketplace that might randomly pull your game for some reason and shut down your entire company in a way where you are SCREWED as your end-to-end ownership pipeline is modeled inside of eBay's database rather than being something you control and can migrate. If only there were some off-the-shelf technology for tracking digital assets that you could trivially add as a dependency to your project, letting you write a few lines of code to define your asset and which had APIs for querying ownership... one which was an open ecosystem controlled by a shared protocol instead of a single company, thereby allowing not just one market but any number of competing markets with different ideas on auctions or escrow to exist. Wouldn't that be amazing?! Well: that's Ethereum; like, that's precisely what Ethereum is doing. If you think collectible trading card games aren't a dumb idea--and even if you hate them and think the premise is bad for gaming, I am going to remind you that these things are SUPER POPULAR and so your opinion doesn't in some sense matter here as you are just ignoring reality--then Ethereum is a GLORIOUS idea that makes it absolutely trivial for game developers to build them and for users to participate.
bze12 4y ago
There's an amusing mobile game similar to CryptoKitties about breeding mutant ducks https://apps.apple.com/us/app/clusterduck/id1531250914 https://apps.apple.com/us/app/clusterduck/id1531250914 , but it's single player (self plug) I'm also working on an NFT parody game https://apps.apple.com/us/app/id1609874752 https://apps.apple.com/us/app/id1609874752 - it's a simulated trading & collecting market for emojis. I'm always confused why people call cryptokitties a game, there's barely anything to play with. Maybe using blockchain makes it a lot harder to implement actual game features, or maybe it just corrupts your incentives lol.
faangiq 4y ago
CryptoKitties is the only interesting blockchain use case besides BTC. It’s over for ETHcels.
SergeAx 4y ago
> What went wrong? Absolutely nothing went wrong. 1-3 USD is a totally fair price for a random set of bytes producing random picture of cat. What was wrong in the beginning with those who paid thousands - that is the question.
- ajhurliman 4y ago
  The article threw me off, saying that the project had “crashed” or had a “demise” as of it were no longer operating or there was some sort of scandal. They’re still operating and nothing major has happened other than them losing value. They’re inflationary collectibles that were a fad, of course they’re going to lose value. The article feels intellectually dishonest.
kderbyma 4y ago
I bought some cats back in the day for $30USD, and I made out with a whopping 5x-10x over the years on those cats. I still have half my supply, and occasionally would get a purchase come through. I will remain hopeful for the resurgence
chris_wot 4y ago
So basically, as Ethereum gets more popular, the price of gas goes up. Eventually the cost of making a transaction will often become higher than the transaction itself, all of which you have no control over because it is all determined by how many people are using Ethereum. If true, this seems insane.
- everfree 4y ago
  What seems insane to you about using an auction model to efficiently price a scarce resource? (The auction model is the transaction fee bidding market, the scarce resource is block space until/unless Ethereum scales.) If you're sidelined by the market because resources are being used by people who feel they have a greater need for them than you (who bid higher), that's an efficient market. It's no different than being priced out of buying corn or wheat - there's not an infinite amount available for everyone to buy at whatever price they please.
  - Gigachad 4y ago
    Ok, I’ll keep using the credit card and traditional banking system where I don’t need to enter an auction and pay $20 to make a transaction.
    - everfree 4y ago
      This is such a weird flex, I don't understand what you're trying to say. Continue not purchasing things you don't get value out of, I guess? Good for you.
      - chris_wot 4y ago
        No, he’ll continue paying for things he gets value from using a medium that works for him.
        everfree 4y ago
        Mediums are themselves services that a consumer decides whether to use based on marginal cost and utility. They are services that are used to purchase products and services. Purchase decisions are made about these services in the same manner as purchase decisions about the end product, at least under the rational choice theory of economics.
wikitopian 4y ago
I remember back when cryptokitties came out KNOWING that useful real world blockchain applications were right around the corner. Simpler, happier times.
Waterluvian 4y ago
Is there a curated list somewhere of all the examples of crypto/blockchain being used for grifting and fraud?
- WFHRenaissance 4y ago
  - nicbou 4y ago
    This is not a good comparison. You frequently use the internet for other things. It seems like crypto is only used for this, with every other use being closer to an edge case.
    - WFHRenaissance 4y ago
      - Waterluvian 4y ago
        Name some concrete examples where the value of using crypto is obvious, is successful at scale, and isn’t about financial speculation.
- Tao3300 4y ago
  It's your lucky day https://web3isgoinggreat.com/ https://web3isgoinggreat.com/
  - Waterluvian 4y ago
    Precisely what I was curious for. Thank you.
jollybean 4y ago
They keep talking about technology but the primary issue here is social phenomenon, these are memes. Cryto Kittes -> Beanie Babies -> Cabbage Patch Dolls Cryto itself is like an ideological movement, a bit akin to the heady utopian populism of socialism in the start of the last century.
birracerveza 4y ago
This thread will be interesting to look back at in about 5 years.
thedrbrian 4y ago
> Dapper Labs, which owns CryptoKitties, has moved on to projects such as NBA Top Shot, a platform that lets basketball fans purchase NFT “moments”—essentially video clips—from NBA games. So do they own the rights to those clips or is it another url to something someone else owns?
- no_butterscotch 4y ago
  As you have clearly guessed already, no, they literally don't own anything. Any news/sport organization that wants to use some clip of LeBron dunking that's been "tokenized" doesn't need to reach out to, pay, or even care about the NFT "owner".
- gnrlst 4y ago
  NBA Top Shot is more like a collecting game and it's officially licensed by the NBA IIRC. So like a digital version of baseball cards, except you don't need to worry about shady ebay sellers
vogon_laureate 4y ago
Is it though...
zeroclip 4y ago
This is not a “game” any more than beanie babies or tomagachi is a game. These are digital collectibles, and digital pets. If you’d like to see a “blockchain game” that is succeeding and not dependent on simple buy/sell token mechanics, see Dark Forest and 0xMonaco. https://dfwiki.net/wiki/Main_Page https://dfwiki.net/wiki/Main_Page https://www.0xmonaco.com/ https://www.0xmonaco.com/

394 points by cycomanic 4y ago

CryptoKitties was a great initial introduction (for me) into the mechanics of setting up a wallet, transferring funds, trading nfts,etc. The wild monetary value swings definitely captured the BeanieBaby mentality they were aiming for as well.

teraflop 4y ago

One thing I don't see addressed in this article is that as far as I know, it's basically impossible to trust the reported price or volume of NFT transactions, because there's no way to distinguish fake wash trades from real ones. So it's hard to draw any conclusions about whether the data reflects an actual peak in user activity, or just a peak in scams.

arcticbull 4y ago
Or selling NFTs to yourself to launder money.
- renewiltord 4y ago
  How does that particular thing work? You run the exchange, then have dirty untraceable money traded on the exchange to dirty participant and you take the exchange fees? You'd have to KYC both participants, right?
  - officialchicken 4y ago
    Not everyone, the "participants" in the chain (typically 8-10 addresses) can arbitrarily inflate pricing by only paying fees which are trivially covered by the final trade. Once inflated, that final address can use a "mixer" to exit (for example) and essentially if KYC is performed in the conversion to fiat, it's after the mix and relatively untraceable.
  - stouset 4y ago
    Buy a “rare” NFT with clean money. Sell it a few months later for some multiple of the original price, the “buyer” is still you but using dirty money. NB: I work in fintech but have no particular experience on the fraud / KYC / AML side of things. This is just how I imagine it would work at a high level.
    - renewiltord 4y ago
      But if you do that, I think you'd be first on the list of people investigated for the dirty money. It has to be cleaned in some way by obscuring it. The approach described here seems more plausible https://news.ycombinator.com/item?id=32857382 https://news.ycombinator.com/item?id=32857382
      - stouset 4y ago
        Thanks for this!
  - polygamous_bat 4y ago
    Imagine you have $X million from a hack on wallet A, and you want to launder it. First, you run it through tornado cash (RIP) a few times and move them to wallets B1 to B1000. Then, you mint an "exciting NFT collection" on your public, KYC'd wallet C, list them on a "decentralized exchange", and have wallets B1 to B1000 buy those NFTs. Even better, seeing how fast your NFTs are selling out, a few suckers join in on the stampede and get mixed in alongside B1-B1000. Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. You cash out on Coinbase, give the taxman his due, and you are good to go!
    - jaywalk 4y ago
      > Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. It's not "legal" at all, because it's still proceeds of crime. Although it may "appear" legal and be very difficult to trace back to the source, it's still not actually legal.
      - ForHackernews 4y ago
        Yes, that's how money laundering works.
      - UncleEntity 4y ago
        It is legal until proven illegal -- just like you are innocent until proven guilty.
    - yieldcrv 4y ago
      Only need to do Tornado cash once, and you can still do that, it still works Nobody cares that you sold your nft to a virgin address funded solely by the tornado cash relay
    - renewiltord 4y ago
      The Tornado Cash tumbler allows you to create sort-of-Sybils so it looks organic. The no-KYC Dex allows you to push from a no-KYC account to a KYC'd account. The KYC'd account lets you withdraw fiat. I see. Okay, each of the pieces are necessary. Thanks for the explanation.
simsla 4y ago
Isn't that always the case? My friend was talking about a rare Magic The Gathering card being worth a silly amount of money... Except the card had only been sold once or twice at that price. Unless you have enough comparable items (e.g. paintings by the Dutch masters) it's really difficult to determine the value of something that's rarely sold.
- __MatrixMan__ 4y ago
  "value" is kind of a made-up thing, so I'd argue that by selling something for the first time you're setting its value, not determining it
  - maxbond 4y ago
    It's important to note that price, the last traded price, and value are all distinct concepts. The last traded price is the only one of these we can measure ahead of time, so we often use it as a metanym for these other concepts. But we don't know the price of something until we make a binding offer on it and it is accepted; that doesn't necessarily mean the next transaction won't be very different, we just have heuristics about how the next price ought to look. But it's the process of negotiating a deal or bidding on an auction that defines the price, not the historical prices. If you go to a grocery store and see that milk costs $5.25, and you remember last week it costs $5.00, you don't say the price is wrong; you understand that this is the offer the store has made you, and that the price has gone up since your last visit. When the oil futures went negative, it wasn't the case that the value of oil was negative - this was about the structure of the market and the sorts of positions people were caught in when the pandemic hit. We continued to consume oil throughout the pandemic, and so I'd say we continued to value it. Another example would be, if a rancher has a lot of cow poop, they might pay a farmer to take it away. You could say that the cow poop has a negative price on it. But the farmer is going to make use of it as fertilizer; from the farmer's perspective, this is a commodity that has value. It's true though that there are a million theories of value and it's impossible to say what something's value is definitively, you can only make a decision about what is value is to you. But when wash trading is and to impact the perceived value, it does so fraudulently; it supplies information to traders - "there is a lot of interest in this security, and the (last traded) price is rising" - which is a lie. Some people will argue this too is a normal and healthy part of markets, but I don't think they've given enough thought to what sort of equilibrium that game will settle into.
zeroclip 4y ago
> there's no way to distinguish fake wash trades from real ones Ah, like that $532M Punk wash trade that was clearly visible on-chain?[1] I guess we'll never know if it was real or fake. [1] https://decrypt.co/84756/no-someone-didnt-really-pay-532-million-cryptopunk-nft https://decrypt.co/84756/no-someone-didnt-really-pay-532-mil...
- rnk 4y ago
  Please explain your comment for the rest is us. Was that a sarcastic "it really happened because it made it to the chain" or a "we'll never know whether value was exchanged from one person to another because the owner of both wallets could be the same person" - or both, neither or?
  - zeroclip 4y ago
    Commenter said "there's no way to distinguish fake wash trades from real ones" and I showed a case where a wash trade was, to anybody looking at it, very obviously fake. I agree with the other part of the comment. Blockchains do not track "persons" but "wallets" and so metrics like "number of users" will not be accurate. But it is not accurate to imply that it is impossible to recognize wash trades. In many cases they are very obvious, and even can be automatically flagged. In other cases - like with CEX mixers - only the authorities can detect the fraud.
    - pas 4y ago
      OP probably meant fake wash trades and real non-wash trade ones, not fake and nonfake wash trades
      - zeroclip 4y ago
        The flash loan trade was a wash trade, obviously “fake.” Other wash trades are also - very often - obvious because the blockchain is transparent and easily analizable.
- andrewmutz 4y ago
yieldcrv 4y ago
Correct, not possible if you dont want someone to know But of you’ve ever traded NFTs its hard to really begin with the assumption that trading volume is fake because bots and market makers buy from you so fast. You know that wasn't a fake or wash trade, while there is a pervasive audience of onlookers that are trying to prove a negative. You know that funds in bankruptcy court have successfully sold $30,000,000 worth of the NFTs on their books as ordered, without issue or further controversy about where the proceeds came from You know that DAOs have liquidated $30,000,000 worth of NFTs on their books as determined by the community, without issue How much convincing does anyone need to move off of “its all wash trading and money laundering” to “yeah thats possible there is also lots of liquidity”, it doesn’t really make sense to make the former perception their whole identity
- simonw 4y ago
  "because bots and market makers buy from you so fast" Does that still hold true today, or was that the case six months ago before the NFT market crashed?
  - yieldcrv 4y ago
    it still holds true today for the same top projects most collections are essentially just tokens with a picture, the same practices on token exchanges are prevalent on nft marketplaces
- teraflop 4y ago
  Right, I'm not saying there's no real trading, just that it's impossible to say how much. Which makes the graphs and anecdotes quoted in the article a bit meaningless, IMO.
  - yieldcrv 4y ago
    I agree that the data collection possibilities are limited this is more so for others who are looking for validation of only wash trading. I’m mostly saying some assumptions have to be made, and relative comparison to other projects and understanding actual trades occur… a lot, moves the assumptions towards more distinct market participants than assuming the nonexistence of any market participants
swalsh 4y ago
Can someone tell me how to successfully do a wash trade? because I frankly have no idea. If you fund it from your coinbase account, coinbase is going to tell the taxman about both your wallets... so no buerno. If you fund another wallet from a known wallet... the tax man can still see that. If you use Tornado cash, Coinbase is going to block it. I just don't think it's as easy as people think it is.
- jy1 4y ago
  You can report everything to the taxman. Wash trading in this context isnt to do with taxes. Its about how you hard it is to verify claimed sale prices since you can transact with yourself.
- deleted 4y ago
  [deleted]

dopidopHN 4y ago

I agree with the part where they describe existing on chain games as too simplistic. The handful I saw indeed sucks. No skills really needed beside being able to click and pay the initial fee.

Zaskoda 4y ago

Calling CryptoKitties a "game" is a bit generous.

cookiengineer 4y ago
Everything is a game once you look for an equilibrium.
- H8crilA 4y ago
  Newsflash: watching paint dry is a game (until the solvents reach an equilibrium with the air).
minimaxir 4y ago
It was the gateway to getting gamers interested in crypto/web3, which resulted in the absurd "play2earn" concept which has been the subject of justified mockery.
xtracto 4y ago
Wait until you learn about "game theory"!
bze12 4y ago
I'm always surprised that projects like cryptokitties are referred to as games. I guess saying "game" makes it sound more legitimate, but there's almost nothing to do with your characters besides sell them.
themagician 4y ago
"Gaming" often refers to gambling. There is a whole world of gaming separate from video games—online slots, poker, etc.. Intentional or not, most crypto games are much closer to traditional gaming than video games.

spywaregorilla 4y ago

> Today, CryptoKitties is lucky to break 100 sales a day, and the total value is often less than $10,000. This seems shockingly high to me

j0hnyl 4y ago
"Bluechip" NFTs like CryptoKitties become commodities that people trade day in and day out.

O__________O 4y ago

Know zero about NFT market caps, but if I pull up few years on the site below, hardly looks like a collapse: https://nftgo.io/collection/cryptokitties/overview https://nftgo.io/collection/cryptokitties/overview Anyone with more knowledge able to clarify?

mumblemumble 4y ago
I think that you can get your answer from the tooltip on that market cap widget: > Market capitalization is calculated as the sum of each NFT valued at the greater of its last traded price and the floor price of the collection, respectively. So their market cap calculation does not attempt to capture a current fair market value for all outstanding CryptoKitties. For a non-fungible asset like this, just using the last sale price like this will always give a lagging indicator. In some sense, you could argue that it lags the fair market value by a possibly infinite amount of time. Concretely, this method would assume that the Dragon cryptokitty that the article discusses has been worth a constant 600 ETH that hasn't fluctuated by even one iota in over 4 years. I don't know how much better one could do for a market cap calculation. It certainly wouldn't be practical to individually appraise all 2 million cryptokitties on a regular basis. Perhaps one could look at how prices of more frequently traded cryptokitties have fluctuated over time and use that to generate a scaling factor for the old ones. But even that might have downsides. How do you account for the possibly large percentage of cryptokitties that belong to wallets whose keys have been lost? It doesn't make sense to count those into the market capitalization, because they are no longer part of the market. The method being used at least has the advantage of being clean and objective. It's just not particularly useful, is all.
CaveTech 4y ago
There's no liquidity. The market cap is pure fabrication based on historical sales, there's no current day sales, so no way to pull money out of that cap.
elcomet 4y ago
Market cap is not really significant, if the sales are down. Most of the market cap is from old sales. I could create a new coin with a huge market cap very easily: I'm creating 1,000 billion coins, and I'm selling to a friend one coin for $1, then never selling anything again. The market cap is now $ 1,000 billion right?

cwkoss 4y ago

It hasn't collapsed, the endgame is just a much much higher difficulty

fab1an 4y ago

I feel that NFT pricing exuberance (or lack thereof) is distracting both critics and even fans from the core innovation here - 1. the capacity to signify a digital original and 2. to decentrally organize ownership (though it's more like possession) of these items. The ultimate question for crypto as a whole is whether the mass market wants digital possession that transcends a single centrally managed database. Personally am convinced we'll get there, but the onboarding mustn't happen through speculation, but specific unique utility, mostly interoperability/composability.

sithadmin 4y ago
The major distraction is that a 'digital original' is a fiction. I can ignore your blockchain and make any digital IP fungible.
- smoldesu 4y ago
  Yep. Just to tack on - even if you minted a "master copy" of your digital asset on the Blockchain, it still doesn't represent anything meaningful: - It doesn't guarantee that you are the first or exclusive owner of this digital asset - It doesn't correlate to physical ownership - It doesn't hold any water in a legal sense, if you want your ownership of an NFT to be ratified then you need to use the same centralized avenues as everyone else
- Tao3300 4y ago
  You're one evil motherfunger!
alasdair_ 4y ago
>whether the mass market wants digital possession that transcends a single centrally managed database Even if the market wants this, it's certainly not what is being offered. If OpenSea delists your NFT in their single centrally managed database, it may as well no longer exist.
- WFHRenaissance 4y ago
  This is a problem that's actively being worked on (SudoSwap as an AMM for NFTs, Scatter.art as a competitor, et cetera).

stephc_int13 4y ago

My intuition about CryptoKitties and many other NFTs is that market manipulation has been ridiculously easy and profitable, everything is somewhat more scrutinized nowadays, but I think that the scams and schemes are far from over. Impersonating both sides of a transaction does not seem too difficult, and not very costly, as long as the fees are kept small.

yieldcrv 4y ago

Yes, all nft collections suffer from supply dilution if the creator wants to keep making money. The “NFT” aspect distracts most from the obvious: The physical collections market is hugely profitable, supply is hugely manipulated and unknown, and we just had no transparency into any of this until it went onchain None of the consumer activity in the NFT collections market is really unique, we just get to see issuer revenue numbers in real time and supply All the market is saying is “wow I should really be selling stuff to collectors“

secretsatan 4y ago

I read these articles sometimes about crypto games, but they all never seem to describe the actual game, it’s like crypto is the primary concern, and game is secondary, and i’m getting the distinct impression none of these games are any fun and everyone in the space has to avoid mentioning it. I think that the people writing these things only have a very slim grasp of gaming, but they know it would be a good market to capture

Melchori 4y ago
Gaming with being able to earn money is something I normally call gambling or work. It's depressing to think about it. And yes people who made gold in wow were also not gaming but working. It wasn't cool, fun or whatever 10 years ago
- coding123 4y ago
  I also had fun making gold in Skyrim, which was offline. I don't recall it being work, but whatever.
  - bombcar 4y ago
    It can be a puzzle with a built in score and fun, but rarely are these direct-to-cash games fun. D3 got much better when the real money auction house closed.
    - supernewton 4y ago
      I mean, the real improvement to D3 was they massively upped the drop rate of rare items, which "coincidentally" happened when they stopped taking a cut off people selling their rare items for real money.
      - bombcar 4y ago
        Yeah. The money always causes a conflict with the fun. Only the pure cosmetic games seem to avoid that when the money flows.

Kiro 4y ago

CryptoKitties was amazing and a pioneer before NFTs were even a thing. You shouldn't conflate them with the current wave of play-to-earn scams.

deleted 4y ago

[deleted]

Glyptodon 4y ago

In a vacuum I'd have assumed that attempting to make transaction fees undercut things like credit card processing fees would have been a key design goal of post-bitcoin block chains, so it's surprising to me (as someone not terribly invested in keeping up with crypto) to realize that transactions fees can be so high (though in some ways I suppose it's kind of like combining title registration with supermarket checkout more than it is just a transaction). But besides side chains are there other approaches to allowing newer crypto currencies to be highly liquid and handle large volumes of transactions at low cost? This issue seems like it's a recurring problem for crypto.

mkaic 4y ago

> What Went Wrong? It's in the title of the article. It's a "Blockchain Game". That's what went wrong. It was a flawed concept from its inception. Blockchains are pretty cool from a math/cryptography standpoint, but they really do not provide added value in most areas people try to apply them to. CryptoKitties is a digital trading card game. You get cards, you can "breed" cards together to make new cards, you trade/buy/sell cards. That's it. Nowhere at any point in this "game" is a blockchain necessary. Nowhere at any point does a blockchain add any value whatsoever. In fact, due to transaction fees, I'd argue the blockchain actively detracts from the game. The idea of an artist signing their work in a cryptographically unique way is not new or revolutionary, and it certainly doesn't need a blockchain. There's a reason the general sentiment the art community has towards NFTs is overwhelmingly negative: it's because they literally actively harm us.

reidjs 4y ago
More accurately it can be described as a digital trading card game built on Ethereum.
- deleted 4y ago
  [deleted]
saurik 4y ago
In the real world, people play trading card games all the time and a big part of the ecosystem is trading the trading cards. Only, it is really annoying to have to ship around and maintain physical cards, and I want my card collection in the cloud. Some people would thereby prefer to play an online version of, say, Magic: The Gathering, or whatever the Pokémon one is called, etc. The problem now is... how do you do the trading part? You could go to the trouble of yourself building a marketplace for the cards and then integrating all of the payment methods required, and then dealing with all of the trust and fraud issues that result from people sending money via banks or PayPal that they later chargeback or refund, all while dealing with whatever crazy tax implications come up from running a market. But you don't want to do any of that: you want to code a game, and it isn't like Wizards of the Coast is trying to take money off of the aftermarket! They just make money by selling the initial randomized official card packs. Because you went digital now you are doing a ton of extra work and are wasting a ton of time dealing with payment processing issues when none of that is related to your actual business model or product design. And, at the end of the day, doing that giant marketplace is a hard job that other companies specialize in. If I told you eBay provided some kind of digital asset API that let you simply assign tracking numbers to products but then eBay kept track of the ownership as it changed and all your game had to do is ask "what cards does this user still own?" when it opens, I imagine a ton of developers would jump on that bandwagon. Only, eBay doesn't provide that API, and likely would avoid doing so out of concern you would shut down the game on a whim and cause them issues; and, even if they did, now your entire game backend would then be built around a single marketplace that might randomly pull your game for some reason and shut down your entire company in a way where you are SCREWED as your end-to-end ownership pipeline is modeled inside of eBay's database rather than being something you control and can migrate. If only there were some off-the-shelf technology for tracking digital assets that you could trivially add as a dependency to your project, letting you write a few lines of code to define your asset and which had APIs for querying ownership... one which was an open ecosystem controlled by a shared protocol instead of a single company, thereby allowing not just one market but any number of competing markets with different ideas on auctions or escrow to exist. Wouldn't that be amazing?! Well: that's Ethereum; like, that's precisely what Ethereum is doing. If you think collectible trading card games aren't a dumb idea--and even if you hate them and think the premise is bad for gaming, I am going to remind you that these things are SUPER POPULAR and so your opinion doesn't in some sense matter here as you are just ignoring reality--then Ethereum is a GLORIOUS idea that makes it absolutely trivial for game developers to build them and for users to participate.

bze12 4y ago

There's an amusing mobile game similar to CryptoKitties about breeding mutant ducks https://apps.apple.com/us/app/clusterduck/id1531250914 https://apps.apple.com/us/app/clusterduck/id1531250914 , but it's single player (self plug) I'm also working on an NFT parody game https://apps.apple.com/us/app/id1609874752 https://apps.apple.com/us/app/id1609874752 - it's a simulated trading & collecting market for emojis. I'm always confused why people call cryptokitties a game, there's barely anything to play with. Maybe using blockchain makes it a lot harder to implement actual game features, or maybe it just corrupts your incentives lol.

faangiq 4y ago

CryptoKitties is the only interesting blockchain use case besides BTC. It’s over for ETHcels.

SergeAx 4y ago

> What went wrong? Absolutely nothing went wrong. 1-3 USD is a totally fair price for a random set of bytes producing random picture of cat. What was wrong in the beginning with those who paid thousands - that is the question.

ajhurliman 4y ago
The article threw me off, saying that the project had “crashed” or had a “demise” as of it were no longer operating or there was some sort of scandal. They’re still operating and nothing major has happened other than them losing value. They’re inflationary collectibles that were a fad, of course they’re going to lose value. The article feels intellectually dishonest.

kderbyma 4y ago

I bought some cats back in the day for $30USD, and I made out with a whopping 5x-10x over the years on those cats. I still have half my supply, and occasionally would get a purchase come through. I will remain hopeful for the resurgence

chris_wot 4y ago

So basically, as Ethereum gets more popular, the price of gas goes up. Eventually the cost of making a transaction will often become higher than the transaction itself, all of which you have no control over because it is all determined by how many people are using Ethereum. If true, this seems insane.

everfree 4y ago
What seems insane to you about using an auction model to efficiently price a scarce resource? (The auction model is the transaction fee bidding market, the scarce resource is block space until/unless Ethereum scales.) If you're sidelined by the market because resources are being used by people who feel they have a greater need for them than you (who bid higher), that's an efficient market. It's no different than being priced out of buying corn or wheat - there's not an infinite amount available for everyone to buy at whatever price they please.
- Gigachad 4y ago
  Ok, I’ll keep using the credit card and traditional banking system where I don’t need to enter an auction and pay $20 to make a transaction.
  - everfree 4y ago
    This is such a weird flex, I don't understand what you're trying to say. Continue not purchasing things you don't get value out of, I guess? Good for you.
    - chris_wot 4y ago
      No, he’ll continue paying for things he gets value from using a medium that works for him.
      - everfree 4y ago
        Mediums are themselves services that a consumer decides whether to use based on marginal cost and utility. They are services that are used to purchase products and services. Purchase decisions are made about these services in the same manner as purchase decisions about the end product, at least under the rational choice theory of economics.

wikitopian 4y ago

I remember back when cryptokitties came out KNOWING that useful real world blockchain applications were right around the corner. Simpler, happier times.

Waterluvian 4y ago

Is there a curated list somewhere of all the examples of crypto/blockchain being used for grifting and fraud?

WFHRenaissance 4y ago
- nicbou 4y ago
  This is not a good comparison. You frequently use the internet for other things. It seems like crypto is only used for this, with every other use being closer to an edge case.
  - WFHRenaissance 4y ago
    - Waterluvian 4y ago
      Name some concrete examples where the value of using crypto is obvious, is successful at scale, and isn’t about financial speculation.
Tao3300 4y ago
It's your lucky day https://web3isgoinggreat.com/ https://web3isgoinggreat.com/
- Waterluvian 4y ago
  Precisely what I was curious for. Thank you.

jollybean 4y ago

They keep talking about technology but the primary issue here is social phenomenon, these are memes. Cryto Kittes -> Beanie Babies -> Cabbage Patch Dolls Cryto itself is like an ideological movement, a bit akin to the heady utopian populism of socialism in the start of the last century.

birracerveza 4y ago

This thread will be interesting to look back at in about 5 years.

thedrbrian 4y ago

> Dapper Labs, which owns CryptoKitties, has moved on to projects such as NBA Top Shot, a platform that lets basketball fans purchase NFT “moments”—essentially video clips—from NBA games. So do they own the rights to those clips or is it another url to something someone else owns?

no_butterscotch 4y ago
As you have clearly guessed already, no, they literally don't own anything. Any news/sport organization that wants to use some clip of LeBron dunking that's been "tokenized" doesn't need to reach out to, pay, or even care about the NFT "owner".
gnrlst 4y ago
NBA Top Shot is more like a collecting game and it's officially licensed by the NBA IIRC. So like a digital version of baseball cards, except you don't need to worry about shady ebay sellers

vogon_laureate 4y ago

Is it though...

zeroclip 4y ago

This is not a “game” any more than beanie babies or tomagachi is a game. These are digital collectibles, and digital pets. If you’d like to see a “blockchain game” that is succeeding and not dependent on simple buy/sell token mechanics, see Dark Forest and 0xMonaco. https://dfwiki.net/wiki/Main_Page https://dfwiki.net/wiki/Main_Page https://www.0xmonaco.com/ https://www.0xmonaco.com/