NFTs Explain: Why Do People Spend Millions on JPEGs?

By Tereza Bizkova

Whether you’re descending the non-fungible token spiral (NFT) on Reddit or opening a thread under a tweet posted by a proud new owner of Bored Ape, there’s a question you’ll often come across: “Why should people buy a NFT when could they right-click and save the image? “

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Although it initially sparked heated discussions, it is now used almost ironically within the NFT community. This is because these JPEGs are actually sold for millions of dollars and reached an impressive trading volume of $ 17.6 billion in 2021.

But it’s true that ownership of digital assets didn’t make much sense in the past. If everything online was abundant and ubiquitous, why bother paying, let alone collecting something? Well, the NFTs have changed that. Their ownership and validity can be tracked and verified directly from the moment the data is uploaded to a blockchain ledger.

NFTs make the Internet proprietary, which means we can finally draw the line between using and owning a digital asset. This creates significant earning opportunities, but there are also some interesting psychological dynamics that suggest that our attraction to NFTs extends far beyond their monetary value.

Scarcity attracts us

We could buy the exact replica of our favorite painting, but would it be as special as hanging the original in our living room? As soon as. As humans, we simply love the concept of genuine authenticity and rarity.

According to Mark Cuban, NFTs tick these boxes well. “The buyer knows how many will be made and has proof of blockchain ownership.”

As far as our collecting instinct is concerned, rarer means better. The most sought after NFTs are the hardest to obtain. Interestingly, psychology states that hunting – the process of seeking and attempting to acquire the item – releases more dopamine than the property itself. It is the apparent inaccessibility that our mind finds attractive and stimulating.

We pursue social status

In October last year, CryptoPunk # 6046 shocked the world by turning down an offer to sell NFT for 2,500 ETH (about $ 9.5 million at the time). While it may have been “the biggest on-chain NFT sale ever in USD,” the owner says punk has become his identity on social media and helped them build a successful brand in the space.

With owners like Jay-Z, Steve Aoki or Serena Williams, the iconic pixelated characters have earned a solid reputation. So much so that having one as a profile picture screams, “I’m an important person in space.”

We want to feel unique and owning a rare item can help us achieve this. Spending money to improve our social status is very humane. However, what’s interesting is that while it could have been a Ferrari or a Prada bag in the past, our status symbols are changing now that we’re starting to inhabit digital worlds more and more.

Gary Vaynerchuk is convinced that NFTs will play this role in the future. “We are talking about social currency; it’s no different from the car you drive, where you live, the clothes you wear, “he says. And the more we can showcase our unique digital assets in virtual spaces, the more we appreciate them, one of the reasons why Twitter introduced NFT verification of the ‘profile picture.

The community plays a fundamental role

Science suggests that the main motivation for many collectors, consciously or unconsciously, is to improve their network of friends. This also applies to NFTs, as token ownership comes with a deep social motivation.

Connection and involvement are at the heart of many NFT projects. Through exclusive communities, cardholders can interact with like-minded people and unlock Zoom links, invitations to private chat rooms, and even real-life events.

These relationships are designed to be lasting. NFTs are not a simple one-way transaction between a business and a customer, where the exchange ends once an asset is exchanged for cash. Usually, they tend to have well thought-out roadmaps peppered with incentives for interacting with rewards and ranking systems.

Decentralized Autonomous Organizations (DAOs) are also a powerful psychological magnet. As holders of NFTs or governance tokens, we can gain voting rights and become much more integrated into the project.

We want to live unique experiences

Ownership implies skill and as owners we can do something that others cannot. Whether it’s a party at Decentraland or a chat with Tom Brady, NFTs entice us with unique utilities and experiences that we couldn’t get anywhere else.

A great example is Untamed Elephants, the first mission-focused project in NFT space. As part of their utility package, one of the NFT holders was invited to visit Sri Lanka for two weeks and see the project-supported elephant sanctuary, with most of the costs covered.

It should also be noted that who we are is intrinsically formed by the experiences we live. In digital worlds, an NFT can become a tiny fraction of our identity – a digital memory – that we can keep in our wallets forever.

NFTs tap into our sense of purpose

Without the need for an intermediary, NFTs encourage new levels of fandom. They allow us to directly support the causes or creators we care about, to stay involved for extended periods of time, and even to be rewarded for believing in them in the first place.

Gary Vaynerchuk shares a great example. “Imagine if Nirvana came out today and said, Hey, for our first fans, we’re going to give away 20% royalties in perpetuity if you buy this token for $ 2,000, because we don’t want to sign with this label and lose our rights. this way we could hear Smells Like Teen Spirit, retired and happy to have supported a band we loved, even “before it was cool”.

Purpose fuels our sense of self-importance, making us feel that what we do matters. It is a perfect match for many social impact and sustainability projects. Since NFTs live forever on the blockchain, if we help save a species, for example, that’s something we could show our grandchildren one day.

Chris Dixon noted that ads monetize attention while NFTs monetize enthusiasm. This may explain why 68.4% of NFT holders say they have an emotional attachment to their tokens instead of saying “no, it’s just an investment”. It is the projects that manage to touch our psychological chords that will be most successful and that will not die out with their fleeting clamor.

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