Last March a group of investors invested $12 million in CryptoKitties. As can be seen by analysing the CryptoKitties smart contracts, usage was already decreasing at this time. So why did these experienced investors (they also invested in Airbnb, Facebook and Twitter, among others) invest in CryptoKitties?

Source: @arbedout

Initially, I thought the investment was made because of the ecosystem arising around CryptoKitties. You can buy apparel and accessories for your digital cats, race other kitties and there is even a social network for CryptoKitties.

However, today I saw a video that the developers, nor the investors had foreseen this:

As said, I do not think these investors are stupid. There must be another rationale for this investment.

It is often said that investors invest in people, not ideas. The current product might not take of, but if you fund the team you are in the front seat for later investments in their new products.

I think that's the case here as well. CryptoKitties might have become less popular, the team is still world-class.

CryptoKitties uses the ERC721 protocol. ERC20 is used to create new tokens on the Ethereum blockchain such as VeChain, 0x and Augur. ERC721 is used to create non-fungible tokens. Non-fungible tokens are used for digital collectibles. Because they can not be split (unlike ERC20 tokens) there exists only one.

In the future ERC721 could be used for other digital collectibles and even to use the non-fungible tokens to transact ownership of tangible (off-line) assets.

CryptoKitties' head of blockchain (Dieter Shirley) came up with ERC721. As part of the investment, CryptoKitties also become a separate company, independent from the company that created it.

Chris Dixon has a famous blogpost entitled "the next big thing will start out looking like a toy." ERC721 might currently be used for digital cats, but can be used for much more in the future. CryptoKitties is at the moment still a toy. The team behind it however, is the best team in the world to make non-fungible tokens a success.