Imaginary Money

Over the past few months, I have been following various stories about crypto currencies with a mix of incomprehension, incredulity and interest. What will be the next crypto exchange to fail? Will another crypto titan mysteriously disappear or die in suspicious circumstances? But with the collapse of FTX, and the stunning fall from grace of the once much-admired Sam Bankman-Fried, I am starting to wonder whether the whole business of crypto currencies is not a heady mix of investment bubble, Ponzi scheme and ideology, which draws on an equally heady mix of wishful thinking, greed and speculation.

Sam Bankman-Fried

Sam Bankman-Fried

I admit that there have been times in the last few years when I wondered whether I had missed out on making money by investing in crypto currencies. Indeed, I may still be missing out by not owning any—one investment expert I read about recently is predicting that one Bitcoin will be worth USD$250,000 by the end of 2023. Moreover, some of my friends are what I now think of as “true believers”: not only do they think investing in crypto currencies is the best way to make (real) money, they also believe crypto currencies will pave the way to a new world, one in which those holding them will be freed from the tyranny of government regulations, the bite of inflation, the theft of taxes, and the limitations of international borders to enjoy genuine freedom and prosperity.

These true believers are especially keen on Bitcoin, and some imagine a future in which the financially savvy and truly progressive will live in beautiful enclaves in New Zealand and parts of South America with like-minded crypto enthusiasts who share their concerns about collapsing social, economic and political structures in most (if not all) of the world’s developed democracies, and who have found a way to circumvent the financial systems which prop up these failing institutions. In short, these true believers see crypto currencies not simply as a monetary investment or another form of money, nor as a mechanism for improving what already exists but, rather, as tools which will allow them to carve out safe spaces for themselves as the world collapses around everyone else.

Photo of Ethereum founder Vitalik Buterin

True Believer: Ethereum crypto currency founder Vitalik Buterin

These seem more akin to religious beliefs than financial truths to me. Those who share them not only take the promises of the crypto messiahs on faith, but cling to eschatological beliefs which hold that we are living through the end times, and those who are sufficiently enlightened will have a bright future, while those who are not will be destined to live in a post-apocalyptic hell-on-earth. Like many religious believers, they tend to socialize with people who think as they do, which reinforces their beliefs, and to dismiss those who ask hard questions as too foolish or unenlightened to understand the way things really are.

At times, these true believers have made me doubt myself and my understanding of how the world works. But my inability to understand how crypto currencies work—what, precisely, is a blockchain? How can I buy real things with currencies held in my crypto wallet?—has always held me back. (Actually, a lack of funds to invest has held me back even more, but that’s a whole other story).

I really started to doubt myself when Bitcoin surged to over USD$60,000 but now that it seems to be hovering around USD$20,000, I am grateful for both my ignorance and my lack of funds because crypto currencies now seem to me to be entirely imaginary—and I will continue to believe this, even if one Bitcoin does turn out to be worth USD$250,000 by the end of this year.


I have to confess that I don’t really fully understand how “real” money (or fiat currencies) work either. I used to hold up a five dollar bill when I was teaching my students about the power of ideas, and I would tell them that it was astonishing that I could take this piece of paper (now plastic) to the coffee shop, and exchange it for a muffin and a cup of tea. The bill has value only because we all believe that it does. It exists as much in the realm of ideas—a realm where we can do miraculous things like exchange a piece of metal or plastic for real things, or use a credit card or an app to pay for goods and services—as it does in the physical world.

And yet, money governs our lives in almost every respect and can even, to an important degree, influence how happy we are and how fulfilling and successful our lives feel. Most of us, I venture to say, would rather have a bank account with a healthy, positive balance, than one in overdraft because while money might not be able to buy happiness, it can, at least, keep some of our worries at bay.

Photo of pile of Canadian bills (money)

Close-up of assorted Canadian paper currency

“Real” money, then, has its own imaginary dimension: it simultaneously exists everywhere and nowhere, and the tokens we use to represent it—coins and bills, credit and debit cards—are both valuable and valueless. They are valuable because of what they stand for and what they allow us to do and they are valueless, because they are just worthless pieces of metal or plastic. Their worth, that is to say, lies in what they represent and in the things they make possible, not in what they, themselves, are.

But “real” imaginary money has something that “imaginary” imaginary money (e.g., crypto currencies) does not: it is backed by central banks and by the complex economic apparatus of the modern nation-state. Of course, sometimes things go badly wrong and money loses value or the economy goes into a recession despite these things, as was graphically illustrated by the British pound’s rapid loss of value during Liz Truss’s brief, but disastrous, reign. But, by and large, with real money, we can know that there are laws and regulations which govern financial institutions, central banks, chartered banks and credit unions, and that governments have a role in protecting their currencies, so they actually have some real value—which is to say, can actually be used to buy real things in the world.

These support mechanisms seem to be entirely or almost entirely lacking in the world of crypto. The great strength of crypto currencies touted by the true believers—that they are not tied to any particular place or economy, that they can be used anonymously, that they can, if you know what you’re doing, be hidden from governments and tax collectors—now appear to be structural weaknesses which have allowed scam artists to prey on the greedy and the gullible.

Photo of a stage production of Rumpelstiltskin

Rumpelstiltskin (Source: Standford Advocate)

The true believers of my acquaintance, who distrust governments so much, seem surprisingly willing to put their faith in computer algorithms and the people who create them and surprisingly willing, as well, to spend “real” money to buy “imaginary” tokens. Moreover, while they claim it will become easier and easier to use crypto currencies like Bitcoin to buy real things, their ability to use crypto currencies seems to depend on the crypto world finding ways to duplicate the institutions, regulations and all the checks and balances governing “real” money.

In short, crypto true believers seem to be caught on the horns of a dilemma: on one hand, to leave crypto currencies free from government controls and inaccessible to the tax man requires them to trust strangers who, more often than not, seem to be running classic Ponzi schemes; on the other hand, to make crypto currencies secure, the industry must duplicate the various financial mechanisms that already exist, and are exactly what these true believers want to escape. For the moment, at least, crypto currencies seem to be performing a kind of reverse Rumpelstiltskin act of alchemy: taking real money, and turning it into imaginary bits of digital straw.


But there is an even deeper contradiction at the heart of the crypto industry, one that can’t be fixed by ensuring that crypto managers are honest, and crypto currencies regulated: if crypto currencies are an investment, people would actually be foolish to use them as money. As Ranjan Roy points out on his Margins substack, monetary units should have two things going for them: they should be both a medium of exchange (you should be able to use them to buy things), and a store of value (you want your money to hold its value over time). The problem with crypto currencies, however, is that our incentive to buy them lies in our belief that they are investments that will increase in value over time. That being the case, anyone who owns Bitcoin right now would be foolish to use it as currency, because they would simply be depleting the value of their investment.

As Roy puts it:

…as [crypto] prices keep going to the moon, you’d actually have to be out of your mind to ever actually use any digital currency.

So what are we really getting when we buy crypto with our “real” money? Are we buying an investment, the value of which we hope will increase over time? Or are we doing something that’s more like a currency exchange, as when, for instance, we exchange Canadian dollars for US dollars, or euros or pounds? If they are the former (investments), then it is difficult for them to function as money that can be used to buy things.

What’s surprising about all the crypto enthusiasts I know is that they don’t seem to recognize this inherent tension— or even contradiction—when they speak about why they have crypto currencies. They tell me to buy crypto as an investment while at the same time telling me that, someday very soon, crypto currencies will replace all government-backed ones.

Photo of the Bank of Canada.

Bank of Canada.

As I was thinking about this column, I was trying to articulate to myself precisely what it is that might be troubling about crypto currencies—or, at least, about our embrace of them. After all, if some people want to risk their money buying them, how is this different than playing the stock markets? And what more is there to say about Ponzi schemes and other con games, except that they are bad? But I have come to realize, as I talk with my true believer friends, that there is something uniquely ethically troubling about the crypto religion, and it is this: instead of working to make the world a better place for everyone, crypto true believers seem to want to use crypto currencies as a means of opting out of the struggle.

We all ought to be troubled by our collapsing healthcare system, our fraying social safety net, by rising inflation which makes food and housing less affordable, and by the fact that people working full-time at minimum wages can’t afford to pay their bills while CEOs are paid vast fortunes; but this means that we ought to challenge our politicians and other decision-makers to do their jobs both better and differently, not opt out of the fight entirely. If crypto currencies offer real solutions to any of these problems, I have yet to see what they are.

Rachel Haliburton

Wolfville native
Rachel Haliburton teaches philosophy at the University of Sudbury. Her latest book, The Ethical Detective: Moral Philosophy and Detective Fiction, was published in February by Lexington Books.