NFTs explained: Why do people spend millions on JPEGs?

By Tereza Bizkova

Whether you’re descending the non-fungible token (NFT) spiral on Reddit or opening a thread under a tweet posted by a new, proud Bored Ape holder, there’s a question you’ll often come across: “Why do would people buy an NFT when they could right-click on it 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 selling for millions of dollars and they have reached an impressive trading volume of $17.6 billion in 2021.

But it’s true that in the past, ownership of digital assets didn’t really make sense. If everything online was abundant and ubiquitous, why bother to pay, let alone collect something? Well, NFTs have changed that. Their ownership and validity can be directly tracked and verified 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 money-making opportunities, but there are also some interesting psychological dynamics suggesting that our attraction to NFTs goes far beyond their monetary value.

Scarcity attracts us

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

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

As far as our collecting instincts go, rarer means better. The most wanted NFTs are the hardest to get. Interestingly, psychology claims that hunting – the process of seeking and trying to acquire the object – releases more dopamine than the property itself. It is the seeming inaccessibility that our minds find both appealing and stimulating.

We chase social status

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

With holders 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 someone important in space.”

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

Gary Vaynerchuk is convinced that NFTs will play precisely this role in the future. “We are talking about social currency; no different from the car you drive, where you live, what clothes you wear,” he says. And the more we can show off our unique digital assets in virtual spaces, the more we value them — one reason why Twitter introduced profile picture NFT verification.

The community plays a key role

Science suggests that the main motivating factor 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 engagement are at the heart of many NFT projects. Through exclusive communities, holders 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 long-lasting. NFTs do not represent a simple one-way transaction between a business and a customer, where the exchange ends once a good is exchanged for cash. Usually, they tend to have well-thought-out roadmaps peppered with incentives for interaction with rewards and ranking systems.

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

We want to live unique experiences

Ownership involves abilities, and as owners we can do something that others cannot. Whether it’s a party at Decentraland or a chat with Tom Brady, NFTs lure us in with unique utilities and experiences we couldn’t get elsewhere.

A prime 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 elephant sanctuary supported by the project, with most costs covered.

It should also be noted that who we are is intrinsically formed by the experiences we go through. 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, stay involved for long periods of time, and even get 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 early fans, we’re going to give away 20% of the 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. . That way we could listen to Smells Like Teen Spirit, retired and happy to have backed a band we loved, even “before it was cool.”

Purpose feeds our sense of self-importance, making us feel that what we do matters. It’s a perfect match for many social impact and sustainability projects. Since NFTs live on the blockchain forever, 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 could 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 cords that will be the most successful and that will not die out with their ephemeral hype.

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NFTs explained: Why do people spend millions on JPEGs?

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