The Future of Cryptocurrency and The Meaning of Money
By Scott Merrill
What is wealth? And how is it that some things with seemingly no inherent value become the currency with which other things—like food, clothing, legal services, and shelter— can be bought?
And does cryptocurrency shed any light on the excesses of Western society?
These were a few of the questions that came to mind during interviews with Attorney Lisa Braganca (pronounced Bra-gan-za) former Branch Chief in the Division of Enforcement of the Chicago Office of the Securities & Exchange Commission, and Michael Lucia, CEO of Westford Free Federal Credit Union, about their experiences with cryptocurrencies. Working for the SEC, Braganca says, “[W]as a baptism by fire. They taught me a ton. It was great to be right there learning from people who knew everything about what was going on.”
The roots of Braganca’s interest in uncovering and investigating fraud at the SEC stems from her business school days before law school. She recalls being curious—and impressed—by the many ways people in the business world were trying to beat the system.
“Whatever the system, there was an emphasis on trying to figure out ‘how to get around it,’” she says. “[This] was a different mindset than what I had, which was ‘those are the rules.’ I found myself better suited to law school. That said, I have some insight as to how my brethren in the business community think.”
Since leaving the SEC, Braganca has done a mix of investor advocacy work and defended people being investigated by her former employer. She became acquainted with cryptocurrency—which she likens to the railroads of the early 19th century—after someone who ran a crypto exchange received a subpoena from the SEC.
“Railroad technology was fabulous, but that didn’t mean that if you invested in a particular railroad stock you weren’t going to lose your shirt,” she says. “[T]hat is the world we are in right now. There are a whole lot of people experimenting out there creating companies and issuing tokens. Most of them are not going to go anywhere, but there will be a couple that manage to get it right.”
As of January 2022, there were thousands of cryptocurrencies, such as Bitcoin, Ethereum, Tether, BNB, and Shiba Inu in existence. Major banks, such as J.P. Morgan Chase, and companies such as Meta, formerly Facebook, Inc., have entered the world of blockchain technology as well.
“Jamie Dimon was, for the longest time, saying, ‘you know, Bitcoin, it’s a blip, it’s a scam.’ And now Chase is piling onto the blockchain,” Braganca says. “We now have PayPal saying they’re going to issue a coin as well.”
The reason we’re talking about cryptocurrency today, and the reason it caught on, goes back to the financial collapse of 2008 and the resulting lack of confidence for some people in the federal government’s ability to manage the financial system, Braganca says.
“There were libertarian folks who were very much wanting to get away from, you know, fiat government-issued currency, but what really caused this to take off was the Great Recession.”
She finds it exciting to see the adoption of cryptocurrencies by the establishment but says several problems continue to exist.
“I get calls all the time from people who say, ‘you know, the crypto exchange won’t return my calls. I can’t get my money back,’” she says.
And in other cases, people call her after finding out the coin they invested in was a scam or they’ve lost their private key allowing them to access their account.
“[W]hen you’re dealing with these exchanges, folks get into it enthusiastically because it’s new,” she says. “The nice thing about centralization [is] that there’s actual people there.”
President and CEO of Webster First Federal Credit Union, Michael Lucia, explains cryptocurrency in terms of its evanescence.
“I ask people, ‘how much do you want to pay for it. I only have ten handfuls of air,’” he says. “By the time I sell my tenth handful of air, it’s worth twice as much as the first one and everyone else has some that’s worth twice as much, as well. And everyone keeps passing it around until you see who’s going to stop paying more for it.”
The issue, Lucia says, is whether someone is willing to take the hypothetical ‘handful of air’ as payment for something. Added to this is the issue of taxation and the way cryptocurrency is being handled amongst traders.
“[W]hat I’ve found out, as a registered tax preparer, is that the institutions handling these transactions—Robinhood, Coinbase, et cetera—are not tracking everything the way they thought it needed to be tracked,” he says, explaining that this can create a major disincentive for using cryptocurrency as a payment option. “[E]ach transaction is a trade. A sale and purchase.”
Lucia described a hypothetical situation where a Robinhood account was started with four dollars of money the company gave to an individual to entice them to begin trading— a practice the company uses. As soon as that original four dollars—which was a gift— is traded or sold and then more crypto is bought, potentially increasing its value, a cycle of incremental tax liability begins.
“Every single transaction when you go to buy is the sale of a stock. It’s a sellable, taxable gain,” Lucia says. “The original four dollars might now be worth $1,000, and you owe taxes on $960. You pay the $1,000 to someone, you owe taxes on that. It’s a nightmare. There’s no regulation on this.”
Lucia encourages people to record all their transactions.
“There are some people flipping this stuff every day,” he says. “No one is recording it. By law, you receive those thousand dollars but at the end of the year it’s only worth forty. How does that get returned on your taxes? Loss of income or capital gains loss?”
Lucia says he has bought multiple shares of crypto but that he puts every one of them on his tax returns. When I asked him about the inherent value of cryptocurrency, how, for instance, it has any value, he says it has to do with what people are willing to pay.
“I guess you can say the American dollar is just a piece of paper, kind of like a handful of air, but at least you have something,” he says. “It’s a piece of paper with a serial number on it. These crypto share values are fluctuating every day in price. It’s made-up money.”
I thought the metaphor of crypto being a handful of air was pretty good and people are, after all, buying things with those handfuls of air. At some point during these conversations in my attempt to understand the utility of cryptocurrency, I was reminded of those tribes in the Pacific Northwest whose economic systems were based on acts of reciprocal exchange.
In the 19th century, the Kwakiutl, one of the indigenous peoples of the Pacific Northwest, practiced a form of exchange called potlatch, which means “to give” or “a gift,” and which often involved lavish ceremonies that included feasts, dancing, the generous giving of gifts, and in some cases the destruction of one’s own property as a sign of status.
Economically, what was going on is referred to as a redistributive exchange. For the Kwakiutl, potlatches were important social gatherings used to assert or transfer ownership of economic and ceremonial privileges.
In 1884, the Canadian government commissioned agents to survey the indigenous people living on Vancouver Island. One of the agents commissioned to investigate the indigenous people of this area was Gilbert M. Sproat, who wrote about the potlatch in a letter to the prime minister at the time, referring to it as, “the parent of numerous vices which eat out the heart of the [native] people… It is not possible that the Indians can acquire property, or can become industrious with any good result, while under the influence of … [the potlatch].”1
By 1885, the Canadian government had made engaging in potlatch ceremonies a crime. Penalties included jail time for participants, and the law, contained in the Indian Act of 1884, stayed in effect until 1951 when it was repealed.
One might be able to witness a certain form of potlatch in our culture today when companies burn enormous sums of money for Superbowl ads, Braganca says, and those ads have value because they signal success.
“[T]here is no way that you could sell enough [Pepsi] to make it worth it to pay for the Superbowl ad, right? But it’s signaling. You’re signaling that ‘we are doing so well that we can just ignite a vast sum of money right in front of this giant audience and show them how very successful we are,’” she says. “And it works, because everyone knows, Pepsi was able to do that.”
This way of thinking, Braganca says, is also associated with the ways people like to be associated with successful companies and with successful people. There seems to be an aura, if you will, or a quasi-religious charisma that emanates from the person or the company or even the object that a society values. And this, one could argue, is part of what’s happening with cryptocurrency at the moment.
But is it money?
“People think Bitcoin isn’t money but what is money?” Braganca asks. “It’s a construct.”
Money as we know it, those paper bills with serial numbers on them issued by the Federal Treasury, were not issued until the 19th century.
“We did just fine with banknotes until then,” Braganca says. “We all agreed that those notes would be used as a means of transferring value.”
Braganca gave the example of the Island of Yap in the South Pacific, where large stones are used as currency. In one case in this culture’s history, a ship transporting a stone intended for transfer to another party sunk during its journey. Yet even this stone—which now rests at the bottom of the ocean—maintains its value.
“[T]hat stone did not disappear off the ledger, everyone knows where it is,” Braganca says. “And so, it continues to be used as money.”
Money, she says, is like a contract.
“I need some way to be able to go to Walgreens and get toothpaste. I don’t want to have to take my legal services there and say to the pharmacist or the guy who owns my local Walgreens, ‘yeah, can I trade you some legal services for some toothpaste?’”
Braganca sees the potential for blockchain technology to help societies around the world in a number of ways, but she also agrees with Lucia that its current volubility doesn’t always make it a practical form of currency.
Some of the benefits include increasing the speed of getting produce to market and validating whether a product—like diamonds, for instance—are a fair-trade product.
“[T]he nice thing about blockchain is that you know it’s distributed. You have copies of these records all over the world and they’re backed up in a bunch of places,” she says, adding that while she is a crypto advocate and would like to see currency become less centralized, she still doesn’t own any.
“There are too many ways for it to get stolen and that’s something that I’m looking forward to talking with people about, because there are law firms that accept Bitcoin as payment or other forms of crypto currency,” she says.
In an upcoming talk at the New Hampshire Bar Association’s Midyear Meeting, Braganca says she will be discussing what lawyers need to know if they’re considering accepting cryptocurrency as payment and the reasons why simply “taking a pass” on dealing with this form of currency is unrealistic in a world where more and more people are holding it.
She illustrated her point by describing a client she represented in a divorce that involved the suicide of one of the parties who held large amounts of cryptocurrency that were extremely difficult to find.
But when it comes to lawyers accepting payment in cryptocurrency, Braganca believes there’s a lot to be worked out.
“I’ve been asked, ‘how can I pay you in Bitcoin? Do you accept it?’’” she says. “I’m not going to take Bitcoin in large part because of the myriad ways it can be stolen, but also, let’s say the client wants to pay me a retainer in Bitcoin. Oh my God. That’s like being paid a retainer in Euros. I have to deal with an entirely different currency. And it needs to be converted.”
And then there’s the question of fluctuation in price.
“Okay, I can accept Bitcoin, but what happens when the price moves?” she asks. “I would presume that it’s my loss. And what if you don’t pay me now? Often my clients don’t pay me for an additional 30 to 60 days. That’s fine because I’m dealing with one currency. But sixty days later, who knows what the Bitcoin exchange rate would be.”
Braganca’s railroad metaphor regarding the volatility of cryptocurrency today seems apt. While the buying and selling of crypto is already happening, and it may one day become demystified and normalized, investing in something with as many unknowns is risky for now. People are waiting, as she points out, on those who control the wealth (corporations and governments) to work out a lot of kinks to make it a safer investment for those who’d like to use it.
And therein lies the irony regarding the original intent of this decentralized form of currency. The major players ultimately controlling its success—and its current prices— already control much of the wealth; they’re free to burn their offerings without thinking twice. And this is the same behavior, after all, that the Canadian government banned in the Pacific Northwest for nearly 70 years.
To register for NHBA’s Midyear Meeting on Feb. 18 go to nhbar.org.
1. Douglas Cole and Ira Chaikin, An Iron Hand Upon the People: The Law Against the Potlatch on the Northwest Coast. (Vancouver/Toronto: Douglas & McIntyre, 1990), 15.