The Next CryptoKitties? The Blockchain Might Not Be Ready

If CryptoKitties didn't come up in every single session at Token Summit II, it came close enough.

But the insanely viral trading game running on ethereum was most often cited, not as a success, but as an example of industry challenges. As put forward by developers and entrepreneurs, the world's second-largest blockchain just isn't ready to handle the buying, trading and mating of the crypto felines en masse.

As the panels proved, though, the problem is bigger than ethereum and CryptoKitties alone.

Scaling issues also influenced Earn.com's decision to create a token this year, and onstage, CEO Balaji Srinivasan spoke to a "philosophical split" in approaches to bitcoin that led to the decision.

Brian Hoffman, CEO of OB1, the startup that manages the e-commerce platform OpenBazaar, struck a similar chord in a talk in which he announced his company's plans to launch a token that will be used in conjunction with bitcoin.

Hoffman told the audience:

"You have to have a transactional currency that really works. Bitcoin fees are super high. It's really slow."

And developers largely agreed.

"Everyone in this space should be putting the pedal to the metal on experimentation," said Joseph Poon, co-author of the ethereum scaling proposal Plasma (as well as bitcoin's Lightning proposal).

User experience

But rapid growth on blockchain networks creates other kinds of choke points as well, and MyEtherWallet founder Taylor Monahan spoke to the challenges that have come from the company's rocket-like growth over the last year.

"We were not ready to scale at that level," Monahan said.

In January, MyEtherWallet was seeing about 5,000 transactions per day. The last time she looked, it was more like 150,000.

Some are pointing to this increased adoption as a sign of positive momentum, and while they're right, it's not that easy, according to Monahan. For one, these new users don't exactly understand the product – the company gets requests on a regular basis from people who don't understand that MyEtherWallet doesn't hold their keys and doesn't have the ability to recover lost funds, she said.

Despite the company's efforts to educate new users, it hasn't been able to overcome the hurdle that these new users just assume the provider can restore anyone's access to any service.

Monahan said she's had to reorient her thinking to new people, not the hacker or the crypto-enthusiast she built the service for.

"I'm no longer our user,” she said. The statements help illustrate ways in which blockchain infrastructure isn't ready for growth, even with users now hooked on CryptoKitties.

Long arm of the law

Regulation may be another choke point, and crypto attorneys assembled for the event seemed to generally agree that the U.S. wouldn't roll out a crypto-oriented regulatory framework anytime soon.

Coinbase board member and Stanford Law School professor Kathryn Haun said, "I think the odds of a new regulatory regime are pretty slim."

Instead, she predicted the SEC would go after specific tokens in the event investors lost significant funds. Other panelists offered similar predictions. This, in turn, will put entrepreneurs in the position of interpreting court cases about bad actors rather than rules written for well-intentioned actors, much as a former SEC attorney recently warned.

But, Nancy Wojtas of Cooley LLP, a law firm that has represented a lot of crypto efforts, threw a little shade on the SEC chair's recent comments in which he suggested most ICOs were securities.

"How many has he looked at? Three?" she asked.

Follow the money

More formal regulatory guidance, though, isn't the only lagging necessity. Naval Ravikant, CEO of AngelList, summed up 2017 by saying that he doesn't believe innovation has caught up with sky-high cryptocurrency prices.

"It may take five or 10 years before many of these problems get solved," he said.

Even worse, he argued, the industry may eventually learn that some of the protocols are inevitably centralizing.

For example, he said, "It may just be that the proof-of-work function forces centralization."

So, as bitcoin increases block difficulty, it could make oligopolies of miners inevitable. If that proves to be true, it would fundamentally call into question the virtues of the original cryptocurrency, and many others.

"There are still things that could go catastrophically wrong," he said.

That perspective helps to illustrate some of the urgency developers feel as they build out structures they hope can lighten these networks' loads.

In fact, while Jae Kwon of blockchain project Cosmos said he wants to see CryptoKitties succeed, he eventually admitted helping expand blockchains for digital cats isn't his top priority.

He concluded:

"All I care about is making sure we have a viable, scaleable alternative to the fiat monopoly system."

Photos via Brady Dale for CoinDesk