Psychology: This is why so many people bought bitcoin

7 min readMar 20, 2018

Bitcoin seemingly took the world by storm, few know exactly what it is or how it works, but many bought without understanding what they were buying, or even why they wanted to buy it or how they could use it. They just wanted it. Why?

I will try to use my very limited knowledge of psychology picked up from random books to try and explain why bitcoin became such a big deal and why everyone and their dog were talking about it.

Bitcoin, and cryptocurrencies in general, either accidentally, or very cleverly, used techniques normally used by professional salesmen. I will list all the techniques and phenomenons in order, and how they applied to bitcoin.

Step 1) Social proof

The principle of social proof states that one means we use to determine what is correct is to find out what other people think is correct.

And

The greater the number of people who find
any idea correct, the more the idea will be correct.

People don’t do what they want to. People do what their friends/community does, or what people they view as an authority do.

If neither of these is available, people will look around and do what the majority is doing.

Everyone was talking about bitcoin, it was impossible to escape it. It was on reddit, facebook, newspapers, radio, personal friend circles, absolutely everywhere.

So, this is a very good first step to get a sale that is widely used by pretty much everyone, for example, fitbit has testimonials listed on their site by authority figures in the health & app industries.

By seeing these reviews by companies high up on the health & apps foodchain, one immediately trusts their opinion, and thus, fitbit is good, and you now also trust fitbit.

Social proof works best when people are confused, which is perfect for bitcoin, most people don’t understand how it works or what it is.

Step 2) Authority

Bitcoin and general cryptocurrency talk was everywhere. It was talked about in all financial channels, from radio to print. And big names that people trust said good things about it.

Bill gates

Co-founder of Microsoft, investor and philanthropist

[Source: Bloomberg]

Richard Branson

Founder of Virgin Galactic, and 400+ businesses

“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.” [Source: Bitcoin.com]

John McAfee

Founder of the software and anti-virus company McAfee Associates

“In the long term Bitcoin moves above $500,000 within three years. Bets?”McAfee tweeted on 17 July 2017. In his reply he added that if it doesn’t: “I will eat my d*ck on national television.” [Source: RT.com]

Peter Thiel

Co-Founder of PayPal

“PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency, but the payment system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the Bitcoin side.” [Source: Cryptocoinnews]

Being relatively new to the masses, and being technically too complicated for most non-technical people to understand, it became very easy to become an authority on bitcoin. I’m in software development, and naturally I spoke a lot about bitcoin to my friends. I accidentally became an authority in a small group of people, if I would have told them to invest their life savings, a few would have done.

Many used this to their advantage by creating their own cryptocurrencies after establishing their authority, but that’s another story for another day.

Step 3) Scarcity

Scarcity principle — that opportunities seem more valuable to us when their availability is limited

This is quoted directly from Influence: The Psychology of Persuasion by Robert B. Cialdini.

Participants in a consumer-preference study were given a chocolate-chip cookie from a jar, and asked to taste and rate its quality. For half of the raters, the jar contained ten cookies; for the other half, it contained just two. As we might expect from the scarcity principle, when the cookie was one of only two available, it was rated more favorably than when it was one of ten. The cookie in short supply was rated as more desirable to eat in the future, more attractive as a consumer item, and more costly than the identical cookie in abundant supply.

But it gets even better!

A second experiment was conducted, with slightly different conditions. This time, rather than the cookies being at a constant scarcity, some participants were first given a jar of ten cookies that was then replaced by a jar of two cookies. Thus, before taking a bite, some of the participants saw their abundant supply of cookies reduced to a scarce supply. Other participants, however, knew only scarcity of supply from the beginning, since they were never shown the jar with ten cookies, only the one with two.

These were the results:

The drop from abundance to scarcity produced a decidedly more positive reaction to the cookies than did the constant scarcity.

Now, going back to bitcoin.

After being influenced by social proof and authority, scarcity plays a huge role in getting people to bring out their credit cards. The more people buying bitcoin, the more expensive it gets. So I must buy NOW.

And since they were unaware of the apparent scarcity of bitcoin, hearing about this scarcity after expecting lots of abundance made everyone very eager to get their credit card out of their wallets.

Step 4) Commitment and consistency

It’s easier to resist at the beginning than at the end — Leonardo Da Vinci

At race tracks, people are much more confident in their horse’s chances after placing a bet, than just before placing that bet. You’re more confident of your choice after you make it, than just seconds before you make it.

Nothing changes, it’s the same horse, the same track. The only thing that shifts is the mind of the bettor.

The reason for this is simple, us people have a nearly obsessive desire to be and appear consistent with what we do.

Once we make a commitment, we will be pressured by ourselves to push through, and when that commitment is public, the force is even stronger. If you show yourself to be inconsistent, well, everyone will think you’re unstable and insane, of course!

So, as soon as I buy bitcoin, all the uncertainty I had disappears, and I justify that decision to myself with tremendous force. Even after bitcoin dropping from nearly 17,000€ to just over 6000€, people are still sure they did the right decision, just for the sake of appearing consistent to themselves and others. Funny, huh?

Final words

Like I said above, becoming an accidental authority.

This happened on many circles of friends, family and maybe even in the office, and it spreads like wild fire. Which further drives the price up, which in turn make it more scarce, and repeat until the market starts being tampered with.

And since few people actually understand the tech behind it, all of these principles are magnified by the fact that people are confused because they don’t understand the technology. Confused people are in a state that makes it easier to influence them into whatever the influencer wants them to do, or buy.

This state was taken advantage of by many, many people. Paid for shills on social media influencing decisions was no myth.

The following screenshot is a thread on a forum offering people $15 per hour to browse reddit on multiple accounts and talk well about Ripple(XRP) and bad about other crypto currencies.

These accounts established themselves as authorities in their communities, and people trust them.