Hidden in Pokémon Go clone, Tencent’s plan to bring blockchain to the masses?

After several failures of wanna-be Pokémon Go-likes in mainland China, Tencent’s new mobile game “Let’s Hunt Monsters” is a hit: it immediately climbed to the top of the free game chart in the Chinese Apple store after being released in mid April. A month later, it’s still at number six.

What Tencent didn’t promote—and few have noticed—is the company’s first experiment with blockchain gaming. Hidden inside its Pokémon Go clone is a clone of CryptoKitties, which encourages players to trade virtual cats on Tencent’s blockchain and endows the cats with actual market value using the game’s strong social media features.

This might ultimately test the boundaries of Chinese regulations, which adamantly prohibit crypto trading. Some also criticize the game for not being as “decentralized” as a blockchain game should be and question Tencent’s disruption of the market as an outsized player. But Tencent’s first move into a mainstream blockchain product deserves more attention.

At first, I didn’t see what Tencent was up to. For around a week, I wandered around Beijing, playing Pokémon Go with Chinese sacred animals. But then I got to level 22 and they gave me my first cat. Now I’m running a virtual kitten mill off my cell phone: I’ve got a collection of 109 cats, two of whom are breeding.

My first cat was nude colored and cartoonish. It had round and earnest eyes, pointy ears, a single tiger tooth and spiral whiskers. These visual traits were assigned randomly from a collection of virtual genes—currently 201. Send a friend with a cat a link through WeChat or QQ—both owned by Tencent—and we can breed kittens with a combination of their traits.

People can also buy and sell cats, and they’re paying real cash: The first batch of limited “fortune cats” are listed on the game’s official market for 4,700 to 50,000 game points, which cost RMB 470-5,000 (about $58-$725). Imagine if people could breed Beanie Babies, and you get the idea.

The most fertile, and therefore valuable, cats, are generation 0 cats mined from Tencent’s Trustsql blockchain. Sound familiar? This is a clone of CryptoKitties, a viral digital goods trading game on the Ethereum blockchain that set off a buying frenzy and made a few people rich off cat trading, at least at the height of virtual currency frenzy.

The cats are as much virtual asset as game: Tencent has issued a white paper, not a usual move for a mobile game but part of due diligence for cryptocurrency. The 13-page white paper was jointly drafted by three institutes under Tencent—Tencent Financial Technology, the equivalent of Alibaba’s Ant Financial; the Tencent Research Institute; and Tencent Gaming Innovation Studio.

A nod and a wink to speculators

According to Tencent, cats are for fun, not speculation. In its white paper, the company says the “blockchain props” like the personalized cats can be bought for real money, but cannot be exchanged back for real cash, nor can players raise funds or pay with props or tokens in the game. This shows Tencent’s caution as a tech giant and its “desire for survival”—Chinese social media slang that describes companies bending over backward to show that they’re in line with the government’s rules.

The game offers an official market where users can trade their cats for an in-game currency. Users spend real money to buy the currency, and to bring a cat to market must pay an RMB 1 fee to add a cat to the blockchain.

But it’s a no brainer to users that they can profit from trading virtual assets in the game, and a WeChat black market makes it easy to sell cats for real money. The deeply integrated social networking features of the game—one can immediately pull up a WeChat group from the game—work almost seamlessly to initiate an over-the- counter transaction with RMB outside the game using WeChat Pay. One can pay for cats and other game props via WeChat Pay after adding a dealer on WeChat.

During the “fortune cat” breeding event, users were aiming to breed cats with four designated genes, which would cause them to turn into limited fortune cats. At that time, I had a cat with two of the desired genes, and I was looking for another cat with the two other genes. I could choose to find such cats in the market with a price or pair the cat via WeChat. I happened to see an advertisement in the in-game broadcast offering “cat pairing 30% off” for RMB. I could message this person in the game and exchange our WeChat ID and finalize the trade all on WeChat.

In digital cat breeding WeChat groups, some players anticipate profits from the cat breeding: “People made big bucks from the [Cryptokitties] virtual cat game! Now here’s the Chinese one.”

“WeChat, as a convenient payment channel, will promote the free flow of trade,” said Jack Yang, senior analyst with TokenInsight, a blockchain consultancy. He believes with the growing popularity of the game, it’s inevitable that the financial value of the assets in the game will be realized.

Tencent may be shocked, shocked to find real money transactions in this establishment—but a real-money collectables craze is what its made.

The risks abound. China officially bans domestic initial coin offerings and crypto trading platforms, and it keeps a tight grip on fintech.  Although blockchain has become a buzzword in the country’s tech industry and has appeared on the top legislature’s agenda, cryptocurrencies remain a taboo in China.

“Restricted by the government regulation, they [Chinese tech giants] are staying away from cryptocurrencies,” said Yang.

Is it really blockchain?

When Let’s Hunt Monsters entered testing April 2018, Tencent announced (in Chinese) that it was working on its “first game with blockchain technology.” But since then, the company has dropped the description, avoiding politically risky blocktalk in press releases about the game.

The crypto world has been developing blockchain games for some time. These, usually collectible games, allow players to earn valuable in-game commodities, promising that storing players’ assets in blockchains protects them from arbitrary changes by the developer. Some implement blockchain mining to limit asset inflation.

Tencent’s version is dismissed by some industry observers and cryptocurrency investors as quasi-blockchain.

“[It’s a] private blockchain, meaning that Tencent has absolute control over it. The mining process wouldn’t matter anyway,” said Paul Qian, a blockchain industry observer.

Qian said that the purpose of mining is to ensure fairness—the right to add an accounting record to a ledger on the public chain—and prevents one party from having too much power. But the nature of Tencent’s own blockchain makes the mining process meaningless.

“You can understand the private chain as an internal database of the company,” he said.

Despite users pumping money into the game for virtual cats and props, the reaction from Chinese crypto investors has been lukewarm. When I surveyed a few crypto investors I know, few have heard of the game.

One who had is Xin Xingji, who both plays the game and invests in cryptocurrencies. He said the biggest appeal of the game to him lies in the similarities (or likeness) to Pokémon Go. The blockchain element? Not so much.

“I don’t think the game means a lot to crypto investors,” he said. “We engage in the blockchain business because we believe in this technology, not playing games or generating profit for Tencent.”

“By the end of the day, blockchain is just a gimmick for Tencent to market this game.”

Lowering the blockchain threshold

It might be watered down blockchain—but Tencent appears to hope this entry-level offering will bring users into the genre.

“It’s a great attempt to combine blockchain with gaming, which serves as a model for the industry,” said Yang with TokenInsight.

User Xin said that the blockchain games he has tried were not so entertaining but he found Let’s Hunt Monsters enjoyable and got obsessed with it.

Tencent’s inroads into blockchain gaming have worried some insiders. Wu Xiao, CEO of independent blockchain game maker Matrixdapp called the Tencent game a “downgrade” of the genre.

Traditional blockchain games, mostly based on the public chain, require digital wallets and cryptos, which are high thresholds for the mass gamers. Plus, games on blockchain are delayed by long “blocking times,” often failing to deliver smooth and highly interactive experiences.

“But Tencent can channel its WeChat users into the game,” he said, “and its ‘centralized’ processing, on the surface level, makes blocking time painless.”

On the flipside, Tencent’s massive traffic and its proprietary blockchain solve the most outstanding problems in blockchain gaming: speed, cost and scalability. For Tencent, it’s an experiment with popularizing emerging tech concepts in the biggest market, where pioneers like Pokémon Go and Cryptokitties are unknown or unavailable.

“Users won’t need complicated blockchain know-how and it greatly lowers the threshold. Tencent attracts users to try blockchain technology and learn about its transparency and integrity, as well as how distribution and transfers work. It’s a great way to educate users,” said TokenInsight’s Yang. He predicts that Tencent could introduce users to more advanced blockchain tools, such as wallets and keys, once they are used to owning blockchain assets.

Limited as it is, Let’s Hunt Monsters could prove to be crypto’s beachhead in China—or Tencent’s beachhead in crypto.