by Jamie Holmes
CryptoKitties is the latest obsession in the crypto space. Reminiscent of the Beanie Baby craze in the 90’s, users can sell these Ethereum-based virtual cats for eye-watering amounts. While many are making money from the craze, there are some questions over the ownership status of the digital assets.
Unlease the Kittens
In early December, the Ethereum-based, virtual pets known as CryptoKitties were unleashed on the world and many in the cryptocurrency community pounced on the opportunity to own these digital assets. Cats with rare attributes are worth more, and the endeavor is similar to cryptocurrency trading; but without charts and technical analysis, users have to utilize their intuition to profit from the breeding and sale of the kitties.
For instance, The Verge reported that one man based in Texas has made more than $40,000 by buying, breeding and selling CryptoKitties. By spending 30 ether on the game in total, and accounting for his losses and gains, he now has 90 ether worth of the virtual pets. For him, the virtual pets are another way of holding ether, but explains it could be highly risky:
“As if crypto weren’t speculative enough, this is extremely risky. I’m debating whether or not this is going to be around in two weeks. Or maybe it’s just getting started since it plays into that kitschy collectible toy culture that’s been going on for decades.”
The game was so popular it even slowed the Ethereum network to a halt and highlighted the urgent need for scaling solutions. The network is still very slow at the time of writing, affecting several games based on Ethereum have already been in the works, such as EtherPlay, but it seems CryptoKitties achieved an ideal mix of gaming and digital assets on the blockchain.
Apples and Oranges
But do the owners own the CryptoKitties? One lawyer, Greg McMullen, explored this question in a Medium post dated December 14. Once you pay in ether, the blockchain entry containing the cat’s DNA is transferred to you. The DNA is combined with graphic elements to form your CryptoKittie. But, it turns out you just own the ‘DNA,’ a string of random numbers and letters.
While with a baseball card, you will always own the image, with CryptoKitties it is a different story; AxiomZen owns the all of the artwork, so owning a virtual pet does not give you the rights to the artwork. You need written permission from AxiomZen to use the artwork, and the company is not obliged to give it to you. Therefore, the durability of these Ethereum-based assets is questionable.
At least if Topps goes out of business, your baseball card remains durable. The point is the rights you have to physical property are not translated to the digital property of the kitties.
So the critical difference between a CryptoKittie and a baseball card is that the manufacturer of baseball cards cannot come into your house and change the image on the card. Your Babe Ruth baseball card will always have a picture of Babe Ruth, whereas, with CryptoKitties, there is the possibility that AxiomZen can change the artwork. Alternatively, if they go out of business, there are no guarantees that you will have rights to any of the unique aesthetics of the kittens.
Of course, the lawyer stated that he is not under the impression AxiomZen are going to sabotage your virtual litter but is merely making it clear that the ownership of the digital kittens lies firmly in the hands of a centralized entity.
What you do own is the DNA, which is just a string on the Ethereum blockchain. While the legal team at AxiomZen were setting the company up for branding and merchandise, McMullen said a bit of creative legal drafting could allow owners to be truly in control:
“But in blockchain world, if Axiom Zen wants us to truly own our Kitties, a bit of creative legal drafting could make it happen. Contracts could change the default to make CryptoKitties just like baseball cards. One easy fix would be to change the terms to grant you a limited license to use the specific arrangement of graphic elements defined by your Kitty’s DNA.”
While the law doesn’t recognize digital property in the same way as physical property, it will catch up one day. A careful combination of law and technology is needed, according to McMullen, to bring actual digital ownership to people today. Peter Van Valkenburgh also sheds some light on the legal perspective of CryptoKitties, arguing there is good news for the owners, as the digital assets are not considered securities.