BLAME THE KITTENS

BLOCKCHAIN CAT-TRADING CRAZE FORCES MESSAGING APP KIK TO PRESS PAUSE ON THE RELEASE OF ITS CRYPTOCURRENCY.

Cuddly, adorable digital kitties trading on the Ethereum blockchain are to blame for a delay in distributing Kik Interactive Inc.’s new cryptocurrency to users of the Waterloo, Ont.-based messaging app.

In a Q&A streamed live online this week, Kik chief executive Ted Livingston said the network congestion caused by the CryptoKitties craze is an example of deeper reliability issues with Ethereum, a platform for making decentralized applications based on blockchain technology.

Kik still plans to introduce Kin, its new Ethereum-based cryptocurrency, to a small group of users in the next few weeks, but Livingston said he’s planning to move the token to a different network called Stellar before introducing it to everyone else.

“We’ve been using Ethereum today, and to be honest, I call it the dial-up era of blockchains,” Livingston said. “The scale is very low. Even at 10,000 users, we’re starting to push the limits of what the Ethereum blockchain can handle.”

Cryptocurrencies are collectively worth more than US$500 billion and evangelists are touting the blockchain technology powering them as having more economic potential than the internet. Kik was the first mainstream, established company to announce plans to raise money by issuing a cryptocurrency using a mechanism known as an initial coin offering, raising almost US$100 million from accredited investors and the public in September.

Since then, Kin’s market capitalization has fallen to US$51.4 million, with investors taking to Reddit to express their frustration with the project’s delays and the company’s decision to move away from Ethereum. Kik’s experience trying to integrate a cryptocurrency into its business demonstrates the gap between blockchain’s potential and what it’s actually capable of today.

Ethereum provides developers with a programming language that allows them to build apps on its blockchain, with the ultimate vision of eliminating the need to trust any one company, person or government to keep massive amounts of money and data safe and secure. Achieving that vision is going to require a significant amount of technological progress, however, since a single popular app involving the breeding and trading of tamagotchilike digital cats has managed to clog the network so badly that other transactions are being delayed.

Because CryptoKitties operates on the blockchain, the digital cats created by the game will continue to exist even if its creators disappear, making them permanent collectible digital objects.

The most popular CryptoKitties have traded for sixfigure sums, with users spending a total of about US$16 million on the game.

Sid Kalla, a cryptoeconomics expert and co-founder of Turing Group, a research driven crypto protocol development and advisory firm, said it’s fair to ask whether it makes sense for valuations to be so high for a technology that has a lot of potential, but can’t currently even handle a popular game without causing glitches.

“The market has gotten ahead of itself,” Kalla said. “You have to remember, blockchains are incredibly inefficient databases. Any blockchain is going to have scalability issues.”

Anthony Di Iorio, a founder of Ethereum and chief executive and co-founder of Jaxx, a multi-cryptocurrency wallet, and Decentral, a Toronto innovation hub, said he doesn’t mind that Kik is leaving the platform he helped create.

“I’m an evangelist of the entire ecosystem. I’m never tied to one particular coin or the other,” Di Iorio said. “A move for Kik to move off of Ethereum to Stellar, if they’ve done the research and it’s looking good and it makes sense, then yeah, I’m all for it.”

Di Iorio, who invested in the Kin ICO, said he’s not concerned about the cryptocurrency’s loss of value. He said the company is dealing with a steep learning curve and a community of investors that’s quick to lash out.

“You’re always going to disappoint people,” he said. “It’s good to see them testing, trying and seeing what’s going to work.”

THE MARKET HAS GOTTEN AHEAD OF ITSELF.

Ted Livingston