Financial safety

Why we put money into bizarre cryptocurrencies like ponzicoin and cryptokitties

Some initial coin offerings seem like scams (and some are), but behavioural research shows our emotions are part of why people buy in to cryptocurrencies for fruits and vegetables or crypto trading even if cool-headed rationality screams at us not to.

An initial coin offering is just like an initial public offering. But, instead of shares, what’s being sold are cryptocurrency “coins” or “tokens”. These are similar to virtual currencies found in computer games, enabling you to buy goods or services within an ecosystem.

Around half of the initial coin offerings launched last year have already disappeared or failed. This has potentially cost investors hundreds of millions of dollars.

The boom in initial coin offerings is a textbook example of how our emotions drive us to be overly optimistic and to become fixated on the spectacular gains made by others. Companies and designers can also appeal to our emotions and our conceptions of ourselves by appearing to adopt moral positions.

This mix of emotions lets “irrational exuberance” over getting rich quick (while doing the world a favour) overwhelm our reason and willpower.