CryptoKitties and the Future of Corporate Financial Reporting

tl;dr: Transparent financial accounting at all levels of an organization will become the standard. An analysis of CryptoKitties’ business gives us a sneak preview.

One of the biggest complaints about analysts who track Google (Alphabet) is the lack of visibility they have into how YouTube performs as a business unit.

Innovation Alert: Blockchain 3.0, Terra Protocol, an ICO Portal & more – Data Driven Investor

In Alphabet Shares Post Worst Day Since 2012, we read:

“Google, like many of its Silicon Valley peers, provides only a high-level view of its finances with virtually no disclosure on key units such as the YouTube video-streaming service.

That has gone swimmingly in an era of unchecked growth for technology companies but carries dangers when they surprise to the downside with little to no explanation, as Google did on Monday.”

and in Alphabet Investors Search for Clues Inside Tech Giant, we read:

“YouTube is as ever a financial black box. While CEO Sundar Pichai said last quarter that the video-streaming service is key to Google’s future, investors can only guess at its finances because the division’s results aren’t broken out in earnings.

Video advertising is surely on the up, but expensive forays into YouTube’s original content haven’t broken through and its cable-replacement service is a niche product at best. The division is also an increasing headline risk, like the streaming of last month’s New Zealand mosque shootings show.”

Now let’s contrast that with everyone’s favorite blockchain-based application, aka the original gangster of dApps, CryptoKitties.

Financial Analysis in the Blockchain Era

Now, let’s take a look at this article, CryptoKitties Traction Part 1/5 — Revenue Analysis.

Disclosure: Dapper Labs, creator of CryptoKitties, is a former client. Plus, I like them.

Since the dapp, CryptoKitties, resides on the Ethereum blockchain, everything is visible and, thus, available for analysis.

And that’s exactly what the author, Ganesh, CEO of Covalent, does brilliantly.

First, he calculates down to the penny, how much the game has generated in revenue, since the beginning of time.

Next, he determines if the business is growing or not, from a revenue perspective.

The best part of this section, in my opinion, is the fact that one of his readers was able to look at the blockchain data and correct an error he had made. It’s like a combination of crowd-sourced and open-source financial analysis.

CORRECTION FROM 0XMAKI

November 2018 spike was created by an exchange purchasing a huge amount of kitties for a marketing push (XS2 exchange). Here you can see their wallet proof and if you look at the kitties on the blockchain all their name have been changed to a link of their website: https://xs2.exchange/transparency. They own 9017 CryptoKitties.

Then, he looks at the user base and its growth rate, followed by my personal favorite, the various revenue streams (initial sales of kitties, auctions, and siring fees).

Imagine if you could look at Fortnite and assess which skins were selling and which were not. Or, which add-ons or modules were driving Call of Duty sales.

Not possible, but with blockchain, it is

He finishes up this first article by looking at how much money the users/players of CryptoKitties have generated (gross). Others in the series to follow (it’s geeky, but I’m actually looking forward to this) include:

  1. CryptoKitties Traction — Revenue (this post)
  2. CryptoKitties Traction — Retention
  3. CryptoKitties Traction — Reach
  4. CryptoKitties Traction — Ratios
  5. CryptoKitties Traction — Growth Opportunities

What blockchain-level transparency means for investors

One day, you’ll be able to acquire fractional ownership of a game like CryptoKitties thanks to crypto-tokens.

This will have obvious marketing value as you will be incentivized even more to evangelize it. Plus, if you are a super-fan (like those of MS Paint, for example), you’ll be able to buy into a dApp and affect (through voting/governance) the developmental direction.

But it potentially goes WAY beyond that.

It will give investors a far better read on that state of a business.

They won’t have to guess like they do with Google/YouTube. They won’t have to make assumptions about how a business is faring.

There won’t be insider information because everyone is an insider.

To me, this could (eventually) be one of the biggest impacts on markets as crypto-savvy investors set the expectation that financial reporting is transparent by default.

The days of companies hiding revenue, only reporting a “high-level view,” or even quarterly earnings will seem quaint and anachronistic.

https://medium.com/media/0707f5c806284d01a4a13c7b13a91ce3/href


CryptoKitties and the Future of Corporate Financial Reporting was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.