Psychology of money and cryptocurrency

One of the keywords in the cryptocurrency space is “destruction”. We hear all the time about how bitcoin and other cryptocurrencies will disrupt governments. How they will undermine the functioning of the financial system. How will they change this and this. However, rarely does anyone talk about how cryptocurrencies will affect our own psychology – how they will change our perception, behavior and make us more responsive.

Many of us have not received financial education and have never thought about how money affects our personality.. The topic of finance tends to become a taboo, with the exception of the mantra – “earn, spend, save”. Few of us have been involved in real financial discussions and boast financial acumen.. Most people have not been told what money is and what role it plays.

Before diving into the psychology of money and cryptocurrencies, it is necessary to dispel misconceptions about money. It’s worth starting with the definition of “money” and clarifying its nature.

Definition and nature of money

Money is a tool, invention and technology is a medium of exchange. However, this definition does not fully explain the concept itself, it is rather vague.. In fact, money is simply the perception of the value of something for the purpose of accounting.. It is a measure of value accepted everywhere.. But it is also a collective fantasy or “collective hallucination” as Andreas Antonopoulos put it.

This makes understanding money as confusing as understanding the principles of quantum physics.. Particle physicists are experts who admit they don't understand Richard Feynman's quantum mechanics. In the same way, representatives of the field of monetary economics are experts who, in essence, do not understand what money is.. So money is a kind of paradox. They are only valuable as long as people value them.

At the same time, money has properties that make it a useful medium for the exchange of value.. Good money is usually divisible, scarce, fungible, durable, flexible and stable.. All these properties give people the idea that money has value, can store value and be exchanged for goods and services in a market environment.

However, regardless of the nature of money, it is of great importance to our psychology.. They affect us behaviorally, emotionally and cognitively.. Now that we understand what money is, we must understand how it affects the human mind.

Psychology of money

When we talk about money that affects human psychology, in this case we mean traditional money – money that was issued by governments or central banks. Now we are not talking about cryptocurrencies, which belong to an absolute different kind.

Current research demonstrates that paper money makes people more rude and less empathetic, considerate of those who are suffering.. Researcher Paul Piff of the University of California at Berkeley conducted a study on the problem of “money empathy”.

In the study, Piff's team recorded the behavior of two participants in the experiment playing Monopoly.. One of the participants was “disadvantaged” and one was “prosperous”. Prosperous players were given more money to start the game. They even received higher Start rewards and had access to two dice. Due to this, they traveled around the playing field much more than the other player.

The well-placed participants acted arrogantly and unpleasantly.. They taunted their opponents, their faces were full of disdain and arrogance.. As they moved their pieces around the board, they would thump loudly as they placed them, mocking their opponents.. They even grunted and gesticulated like alpha males in a tribe of apes.

The researchers also placed a bowl of biscuits on the table.. They found that the “prosperous” players ate more cookies, and ate them at a fast pace, as if demonstrating their superiority and mocking their opponent.

Researchers' findings

Piff and his team came to the conclusion that advantage players lost their objective perception during the game as a result of accumulating so much wealth.. They even lost a bit of their humanity. A large amount of money has affected their ability to empathize and communicate with another player. It affected their compassion. The BBC article quotes Piff as explaining how wealth divides people:

“When we feel rich, we feel less need for the company of other people.. In the real world, when people have less money, they rely more on their social connections.. Therefore, interpersonal relationships are a priority. The rich, on the other hand, can buy themselves peace, tranquility and space, as well as a solution to most problems.. There's nothing better than a fat wallet to cheer you up in times of crisis.. But he tends to isolate the rich from the experiences of others.”

Piff also suggested that this is what “economic inequality” could potentially do to the wealthy in society, although he was reluctant to make any political assumptions based on the results of his study.

How Cryptocurrency Can Affect Our Psychology

The study appears to be promoting very liberal ideas.. Assume that the rich are less responsive and not as sympathetic as the disadvantaged.. Suppose they look down on those who are unlucky, and the connection of money and reduced empathy is real.

The conclusion may not necessarily result from the fact that money is evil, or that the possession of wealth leads to evil actions.. This phenomenon may be the result of preconceived notions about money and wealth.. This may be the result of institutional training and parenting. This may be a result of the nature of the money that exists and the fact that the government controls it and promotes the money.

Conversely, cryptocurrencies and bitcoin can change the way people think about money.. Perhaps they will create the preconditions for a change in the psychology of money and increase compassion, empathy among both the rich and the poor.

Cryptocurrency: a new type of money

The very nature of cryptocurrencies suggests that they somehow had to influence human psychology.. They were created by crypto-anarchists for the purpose of changing the social order – undermining a system that was built with the sweat and blood of many people.. When someone creates technology to change the social order, he also indirectly changes human behavior.. Digital currencies are capable of this because they have characteristics that traditional currencies lack:

  • Decentralization. Cryptocurrencies are decentralized. This means that they are missing a component whose failure could lead to the failure of the entire system. Decentralization is the essence of this technology. This means that cryptographic systems are distributed over a vast network of interacting computers. Thus, if one computer or node in the network fails, the network will still continue to work.

  • P2P. Another important characteristic of blockchain-based cryptocurrencies is P2P networks. This means that all transactions take place between user A and B. There is no intermediary who acts on behalf of one of the users. They exchange with each other and go about their business. This is a simple enough idea, but it is revolutionary for the current financial system. Most credit transactions and electronic transactions that take place in the traditional financial system are carried out with the participation of intermediaries. These are usually companies or institutions that profit from all operations in the system.. This is an intermediary who receives part of the money for essentially nothing.

  • No borders and restrictions. This means that transactions can transcend artificial limits such as national borders, and usually at very little cost.. This is one of the factors that gives people the idea that the dollar or other traditional currencies are not the best type of money.. In addition, digital currencies are free from restrictions: anyone can create or modify them.. They do not require permission from the authorities or managers to change or update. Anyone can write code and create new money at will.

Psychological differences between crypto and fiat currencies

It is the above characteristics that can affect but the foundations of human thinking. Since traditional currencies are controlled by banking cartels and authorities, the whole psychology of human behavior – actions, emotions, thought processes – is influenced by money.

All this creates a certain dynamics of thinking and acting in relation to money, which, as a rule, comes down to the master-slave scheme.. It provokes the emergence of such a scenario in the behavior of people that people who have money consciously or unconsciously associate them with power and control.. In other words, money simply affects our neural networks and causes people to be angry and indifferent.. They destroy people's innate empathy, as the experiment described earlier demonstrates.

On the other hand, cryptocurrencies form a very different dynamic, which is based on the fundamental principles of communication, exchange and cooperation.

Man is man's friend

This new kind of dynamics, which can be described as “man is friend to man”, is the result of the unique characteristics of cryptocurrencies (decentralization, P2P, lack of borders and restrictions). Thanks to them, people change their attitude towards money and see each other as partners or “friends” moving together and forward towards a cooperative financial economy.

Because of this, people have more reason to be more responsive because they are no longer associated with money associated with greed and power.. They interact with a paradigm based on algorithmic justice, and we are already seeing its manifestations in society.. Members of the cryptocurrency community calmly talk about money not only online, but also in a casual setting, talking about the benefits of cryptocurrencies to their relatives and friends, infecting them with the idea of “honest” money.

Nature versus nurture

Some argue that all money makes people mean and greedy, saying that “money is the root of all evil”. But it's not money that makes people get mean and greedy. Rather, the existing monetary system, its structure and institutions are to blame, which exacerbate the decline in responsiveness in people.. When the whole system is built in such a way that there are only a few winners and many losers, people become hostile and aggressive, thus losing the ability to sympathize and empathize with each other.

This is due to the interaction of human nature with the external environment.. By nature, people are not set up to be at enmity with each other or be inhuman. Human behavior changes depending on the environment. In other words, the battle of nature and nurture often determines our behavior, especially in light of existing economic realities and the psychology of money.

In this sense, if the structure of society and its monetary system change to represent a holarchy rather than an aggressive hierarchy, the economic and psychological behavior of people is likely to change with it.. This would lead to a different way of life where people would be more responsive, empathetic and caring.. It was this process that gave rise to cryptocurrencies.

Beginnings of cryptopsychology

While bitcoin and cryptocurrencies herald the spread of a new paradigm of compassion and responsiveness, their true nature and ability to change human psychology is something we have yet to explore.. Until now, there has been practically no research on how cryptocurrencies affect psychology.. However, we can conclude that their influence is very large and has already begun to affect people, making them more responsive and loving, as human behavior is formed based on the environment.

Studies of such influences should take place within the framework of a new field of science – cryptopsychology.. This field will explore how blockchain technology, cryptocurrencies and other innovative technologies are changing the way we think and perceive. Perhaps this will open a Pandora's box that contains completely new ideas about how much new technologies can affect human behavior.