Why Do We Value the Intangible? The Psychology of Digital Value

Billions of dollars fly through digital economies every day. Some of us are buying “skins” or “finishes” for our weapons in Counter-Strike. Some of us are investing in cryptocurrencies. You might have wondered why anyone would pay actual dollars for something that doesn’t physically exist. But is buying a virtual item for a game any different from paying for an experience, like attending a music concert? And isn’t the traditional dollar just a token anyway? Here’s what goes on in our minds when we assign value to intangible assets.

Physical vs virtual items

Researchers Ozgun Atasoy and Carey K. Morewedge found that “Despite the many advantages conferred by digital goods, comparable versions of physical goods are valued more. When a physical good such as a paper book, a printed photograph, or a DVD is digitized, it loses some of its value to buyers (…) We find that the key difference is that digital goods do not facilitate the same feeling of ownership that physical goods do.”

When something is digitalized, the researchers write, we feel an “impaired” sense of ownership over it. However, when we don’t feel particularly emotional about an object, the difference between physical and digital ownership disappears. Asatoy and Morewedge wrote about students who were Star Wars fans valuing the physical copy of a film more than a digital copy, but participants who didn’t care for Star Wars valued the copies similarly.

Money has always digital

Most of our “real” money exists as numbers in a database. As of 2023, there was $5.4 trillion in the worldwide money supply. But only a fraction of the world’s currency is physical cash – about 8%. The rest is all digital.

When someone buys an item for their Xbox, PlayStation, or PC game, they’re participating in the same kind of symbolic value exchange that happens when we use our card or phone at a store.

More investors have turned to digital currencies in the 2020s. After initial concern over Ethereum’s emissions under the proof-of-work mechanism, its transition to proof-of-stake has meant there are no longer such energy-intensive devices required. Ethereum is the second biggest cryptocurrency behind Bitcoin; the Ethereum to USD price is 1,843 at the time of writing.

Digital art

A few years ago, non-fungible tokens (NFTs) became mainstream. NFTs can’t be replicated, so have a comparable role in the art world to a unique, traditional painting. Andrey Sergeenkov explains for Forbes, “Artists mint NFTs by creating a unique token on a blockchain, typically Ethereum or Solana, linked to their digital artwork. The process involves uploading the art to decentralized storage and generating metadata. The NFT contains a unique identifier and a link to the stored digital asset.”

One advantage of art tied to a blockchain is that smart contracts (a feature of Ethereum) can ensure artists receive royalties on secondary sales. NFT transactions are transparently recorded, unlike some traditional art dealings.

The idea of paying for digital art would seem to contradict the researchers’ point about emotional attachment. After all, isn’t art supposed to mean something? But in 2021, NFTs really exploded. An NFT of the collage named Everydays: the First 5000 Days sold for $69 million at auction house Christie’s.

However, the buyer was a stakeholder in the Metapurse NFT project, leading to some labeling the purchase a marketing stunt. The buyer himself, Vignesh Sundaresan, said, “The point was to show Indians and people of color that they too could be patrons, that crypto was an equalizing power between the West and the Rest, and that the global south was rising”.

In March of that year, Time reported that collectors and “speculators” had spent over $200 million on NFT art in the previous month alone. That article noted that some collectors argued the movement aimed to “economically legitimize” a new art form. It also linked the trend to life during the pandemic: “If nearly your whole world is virtual, it makes sense to spend money on virtual stuff.”

Identity in digital

Just as concert-goers might identify themselves by the types of music they listen to, digital item owners shape their identities around their virtual items. Gaming skins, digital art collections, and cryptocurrency holdings have become forms of self-expression.

One difference may be the permanence. A concert ends after a few hours, while digital items can become permanent parts of an online identity. The concert may lead to more memories, however.

In an article about virtual item collecting, Jamie Madigan wrote about how game developers deal with the issue of virtual items lacking “an essence or history”. Physical objects are often “imbued with a special meaning” based on who gave them to you, where they’re from, etc. To get around this issue, game developers imbue digital items with history and data of their own. For example, Pokemon Go shows players where each Pokemon was collected.

Forbes’ Jason Fernando has written, “One way of understanding the popularity of virtual goods is by viewing them not as a product, but as a service.”

There are considerable benefits of digitization: Asatoy and Morwedge write that it “frees us – and the environment – from the burden of accumulating material objects for our information and entertainment.”

Digital items improve the experience of a game or community. In this way, paying for a game item is not too different from paying for a concert ticket.