The Psychology of Money and Cryptocurrencies

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The Psychology of Money and Cryptocurrencies

One of the keywords in the cryptocurrency space is “destruction”. We constantly hear about how bitcoin and other cryptocurrencies will ruin the work of governments. How they will undermine the work of the financial system. How they will change it, and also 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 subject of finance, as a rule, becomes a taboo, with the exception of the mantra – ‘earn, spend, set aside.’ Few of us have participated in real financial discussions and can boast of financial insight. Most have not been told what money is and what role they play.

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 the clarification of 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 a perception of the value of something for the purpose of accounting. This is a measure of value universally accepted. 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 that they do not understand the quantum mechanics of Richard Feynman. Similarly, representatives of the field of the monetary economy are experts who, in fact, do not understand what money is. Thus, money is a kind of paradox. They have value only as long as people value them.

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

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

 Psychology of money

When we talk about money that affects a person’s 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 relate to an absolutely different kind.

Current research shows that paper money makes people more rude and less sensitive, attentive to those who suffer. Researcher Paul Piff of the University of California, Berkeley conducted a study on the issue of ‘Money Empathy.’

In the study, the Piff team recorded the behavior of two experimental participants playing the “Monopoly”. One of the participants was “destitute”, and one was “prosperous”. Wealthy players were given more money to start the game. They even received higher rewards for completing the Start and had access to two dice. Thanks to this, they traveled around the playing field much more than the other player.

Participants with a favorable position behaved arrogantly and unpleasantly. They taunted their opponents, their faces were full of neglect and arrogance. When they moved their pieces on the board, they knocked loudly when they placed them, mocking their opponents. They even giggled and gestured like alpha males in a monkey tribe.

Researchers also set a bowl of cookies on the table. They found that “prosperous” players ate more cookies, and ate them fast, as if demonstrating their superiority and mocking their opponent.

Researchers Findings

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

 “When we feel rich, we feel less need for other people in society. In the real world, when people have less money, they rely more on their social connections. Therefore, interpersonal relationships are priority. The rich, by contrast, can buy themselves peace, tranquility and space, as well as the solution to most problems. There is nothing better than a fat wallet to cheer you up during periods 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 with the rich in society, although he did not want to make any political assumptions based on the results of his research.

How cryptocurrency can affect our psychology

The study seems to be promoting quite liberal ideas. Suppose the rich are less responsive and not as sympathetic as the disadvantaged. Suppose they look down on those who are unlucky, and the connection between money and low sympathy is real.

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

Conversely, cryptocurrencies and bitcoin can change people’s perceptions of money. Perhaps they will create the prerequisites for a change in the psychology of money and increase compassion and empathy for 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 cryptanarchists with the goal of changing the social order – undermining the system that was built by the sweat and blood of many people. When someone creates technology to change public 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 lack a component whose failure can lead to a failure of the entire system. In decentralization, the whole point of this technology. This means that cryptographic systems are distributed over an extensive network of computers interacting with each other. Thus, if one computer or node in the network fails, the network will continue to work anyway.
  • P2P. Another important characteristic of cryptocurrencies based on blockchains is P2P networks. This means that all transactions occur between user A and B. There is no intermediary who acts on behalf of one of the users. They exchange among themselves and go on about their business. This is a simple enough idea, but it is revolutionary for the existing financial system. Most credit transactions and electronic transactions taking place in the traditional financial system are carried out with the participation of intermediaries. Usually these are companies or institutions that profit from all operations in the system. This is an intermediary who receives part of the money essentially for nothing.
  • Lack of borders and restrictions. This means that transactions can go beyond artificial restrictions, such as national boundaries, and usually at very low costs. This is one of the factors that inspire people with 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 them or change them. They do not need the permission of the authorities or managers to change or update. Anyone can write a code and create new money at their discretion.

Psychological differences between crypto and fiat currencies

It is the above characteristics that can affect but the basics of human thinking. Since traditional currencies are controlled by bank 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 actions in relation to money, which, as a rule, comes down to a master-subordinate scheme. It provokes the emergence of such a scenario in the behavior of people that people who possess money consciously or unconsciously associate them with power and control. In other words, money simply affects our neural networks and makes people be evil and indifferent. They destroy the innate tendency of people to empathize, as the experiment described previously demonstrates.

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

Man to man friend

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

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

Nature versus parenting

Some argue that all money makes people evil and greedy, saying that ‘money is the root of all misfortunes.’ But it is not money that makes people become angry and greedy. Rather, the existing monetary system, its structure and institutions, which exacerbate the decline in responsiveness in people, are to blame. When the whole system is built in such a way that it has 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 environment. By nature, people are not inclined to be at enmity with each other or to be inhuman. Human behavior varies depending on the environment. In other words, the battle of nature and upbringing often determines our behavior, especially in the 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, it is likely that the economic and psychological behavior of people will change with it. This would lead to a different lifestyle, where people would be more responsive, sensitive and caring. It was this process that started the cryptocurrency.

 Beginning of cryptopsychology

Despite the fact that bitcoin and cryptocurrencies foreshadow the spread of a new paradigm of compassion and responsiveness, their true nature and ability to change human psychology is something we still have to explore. Until now, there has been virtually 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, since human behavior is formed on the basis of the environment.

Studies of such influences should take place within the framework of a new field of science – cryptopsychology. This area will study how blockchain technology, cryptocurrencies and other innovative technologies change our thoughts and perceptions. Perhaps this will open Pandora’s box, which contains completely new ideas about how much new technologies can affect human behavior.

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