Can a digital good be rare?

You have probably heard the term blockchain being used many times in the past few months, but have you understood what it is? Let’s use the example of Cryptokitties to help us understand better!

There are maths formulae that gives us a unique series of characters called a hash that is different for any two files.

One file’s hash might look like this:

2fd4e1c67a2d28fced849ee1bb76e7391b93eb12

But a file with just one changed character might look like this:

de9f2c7fd25e1b3afad3e85a0bd17d9b100db4b3

This makes it possible for us to make sure the file we get is accurate and not tampered with. This process is called hashing. Hashing is easy, however, getting the original file from a hash is nearly impossible! This is a one-way process.

A company has made use of these maths formulae to create hashes that represents a specific design of a cartoon cat. People can breed two of these cartoon cats and get a new cat! However, how do we make sure that people do not simply copy these hashes and make an identical cat that you have.

Enter blockchain. By hashing entire networks of cat and storing these information on everyone’s computer, we make sure that there can only be one of every cat at the same time, thus preventing hackers from simply copypasting your cat.

In fact, this formula gives us a lot of information! We use these information to share the task of security together, computers check with each other to make sure that there are no malicious actions done by hackers! This makes this series of character you bought rare. In fact, it has to be the only one in the world! This makes your cat rare, giving it a high value and making it possible to make money investing on cats. Considering the immense security of these systems, it is easy to see why banks have started to use this to secure customer transactions. Seems like cartoon cats and banks share something in common after all. :)

Inspired from Vox Media’s “Why people are buying cartoon cats on the blockchain” Images courtesy of Cryptokitties and The Next Web