Why it’s easier to spend cryptocurrency than regular money
Psychological aspects behind the growing NFT sales volume
The non-fungible tokens (NFTs) market is becoming increasingly mainstream and doing mind-boggling numbers such as Beeple’s $69 million auction with Christies, Pak’s $17 million auction with Sotheby’s, or even a pet rock selling for ~$2.8 million. The list continues to grow and in late August, trade volumes totalled over $1 billion.
From the outside looking in, this can seem baffling. Jaime, co-host of an NFT podcast Two Bored Apes, has an excellent primer on what makes NFTs valuable. It boils down to public authenticity and the technical possibilities that NFT allows for, which in all honestly, is incredibly exciting.
If you want to dive deeper into either of these topics, have a read of the articles below:
Status Monkeys: an in-depth essay on authenticity at scale by Packy McCormick.
Letter 13 — Utility NFTs: discusses current examples of different utilities that NFTs provide by Zenecca_33.
Another key driver of the large trade volumes that I haven’t seen discussed is the psychological aspects of spending cryptocurrency. In one of my previous posts, I wrote about the psychological appeal of Buy Now Pay Later services. The key takeaway is that different means of payments elicit different levels of discomfort. The further you abstract away from physical cash, the less discomfort you feel.
One interesting study on playing poker showed that people gambled significantly more with chips than with real cash. It’s also been shown that abstract representations of money can weaken impulse control and lead to increased spending. This is one of the reasons why casinos use chips or tokens instead of cash.
Translating this to crypto, it’s likely that the tokenization of fiat is also a contributor to the large trading volumes. Keep in mind how early we are in the NFT space. Because of how early we are, there is a lot of existing mental friction during decision making due to technical limitations.
For crypto newcomers, getting onboarded isn’t exactly the easiest process. And for those within the space, gas wars (absurdly high gas fees) during transactions may make you think twice before payment. One recent example is the Time Magazine drop, where someone paid ~$69,000 as a transaction fee.
Once these issues get sorted, and the next billion users are onboarded, I’m extremely bullish that these trends will continue. In fact, Solana has already solved for the gas fee problem, and Ethereum isn’t too far off either.