By Michael S. Milano

Long before the Blockchain Era, a landmark Scottish lawsuit posed a question that still echoes today: Can money carry memory—or must it forget? In 1748, Hew Crawfurd—a lawyer in Edinburgh—signed and recorded the serial numbers of two £20 notes before mailing them to a merchant in Glasgow. When the letter failed to arrive, Crawfurd notified the bank and publicized the theft. Months later, one note resurfaced at the Royal Bank’s office. In Crawfurd v. The Royal Bank, the Court ruled that if Crawfurd could vindicate the banknote, commerce would cease, since the entire history of every note involved in a transaction would need to be disclosed.

Throughout history, money has taken various forms—from livestock to cowrie shells to precious metals. As Carl Mengerexplained, in barter systems, certain commodities became media of exchange due to their salability. The quality of money depends on certain characteristics: portability, durability, divisibility, recognizability, scarcity, and the often-overlooked fungibility, which has grown in importance in the digital age.

Fungibility—the property making units of a good interchangeable and indistinguishable—exists on a spectrum. At one end, unique assets such as real estate or paintings are inherently non-fungible. At the other end, gold and silver exhibit perfect fungibility, as they can always be melted, refined, and recast. Fiat currencies fall in the middle: fungible under the law but not objectively, as demonstrated by the ruling in Crawfurd v. The Royal Bank.

In evaluating monetary qualities, there’s no doubt that cryptocurrencies excel in terms of portability, durability, divisibility, and recognizability. Satoshi Nakamoto set the standard for scarcity with Bitcoin’s decentralized protocol and verifiable supply cap of 21 million BTC. But what about fungibility?

As in the case of Crawfurd v. The Royal Bank, a lack of fungibility threatens the usability of a medium of exchange. The Bitcoin blockchain is permissionless, but also transparent. The base unit of Bitcoin—known as Satoshis or Sats—equals one-hundred-millionth of a BTC. Following protocol upgrades (Segregated Witness and Taproot), Sats became identifiable. Using the Ordinals protocol, photos and videos can be inscribed onto individual Sats, forming non-fungible tokens (NFTs). Similarly, rare Sats—such as those used in the transaction that birthed Bitcoin Pizza Day—command a premium among collectors.

While NFTs may enhance value, tainted coins are devalued due to compromised liquidity. Depending on the identity of previous owners or the specifics of past transactions, acceptability may be impacted, thereby muddling economic calculations.

In 2018, the Office of Foreign Assets Control (OFAC) 

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