Posted by Post Authored by Kasim Carbide
While it began its journey as an obscure financial technology, in a little over a decade, Bitcoin has revolutionized financial technology and security, while capturing global headlines.[i] Although the price of Bitcoin is extremely volatile day-to-day, the virtual currency has held onto most of the value it has gained over the years. As Bitcoin becomes more widely adopted by customers and businesses, it has already begun to make its way into the legal profession prompting an important inquiry: can lawyers accept Bitcoin as payment for legal fees?
This article will cover a brief history of Bitcoin, the technology and main concepts underlying Bitcoin, and the ethics and logistics of accepting it as payment for legal fees. Before diving into how Bitcoin works, it is important to understand where Bitcoin comes from.
History & Concept
The idea of Bitcoin was published in a 2008 white paper describing a currency that was both public and anonymous, which could not be manipulated (or printed) by people.[ii] In short, Bitcoin is the combination of a virtual currency and a public ledger with enhanced security features, known as “Blockchain.”
Blockchain is a database consisting of a distributed network of computer (“nodes”) that each work to verify updates to the database. The network operates as a hive-mind, so that if one node fails, the other nodes continue without interruption. This provides a certain degree of security, and ensures that one person or entity cannot control the network.
Additionally, the integrity of the information stored on the network is secured by public and private cryptography (“keys”). Robert A. Musiala, Baker Hostetler’s Blockchain Counsel, analogizes this concept to an ancient Roman technique created by Julius Caesar: during war, Caesar was able to send public, but encrypted, messages to his Generals.[iii] This was accomplished by using an alphabetic shift in letters, so that the number “2” meant that the letter “a” would shift two letters to the letter “c,” and so on. The key would be known only to the General receiving the message, and thus, even if the message was captured, its contents would be undecipherable. Virtual currency operates in much the same way.
Every transaction occurring on the network is stored in “blocks,” which cannot be altered or changed once created. In other words, this means that once a transaction occurs, it is added onto the previous transaction, and then remains on the network forever.
Ethics
One of the biggest risks to accepting virtual currency is as it relates to Model Rule 1.15 – Safeguarding Client Property. That is, if the attorney is in possession of virtual currency, and the price drops significantly, what can an attorney do? Generally speaking, due to the inherent volatility, it is not a good idea to accept virtual currency as trust funds, or to hold the virtual currency in escrow.[iv]
On the other hand, accepting virtual currency as a flat fee, or as an hourly rate, may be the new norm. While several jurisdictions have provided best practices for accepting virtual currency, there are no rules governing a national standard for accepting virtual currency. For example, Nebraska’s Supreme Court opined that attorneys may accept Bitcoin, but should generally convert same into United States Dollars at first opportunity to avoid fluctuations in price.[v] New York went even further, opining that lawyers must comply with Rule 1.8(a) when accepting virtual currency as payment.[vi]
Conversely, last month, the District of Columbia opined that attorneys may accept virtual currency as long as (1) the client receives a clear explanation of how they are billed, (2) whether a fluctuation in virtual currency triggers an obligation from either party, and (3) whether the lawyer or the client will be responsible for virtual currency transfer fees.[vii] Notably, fairness and reasonableness heavily factor into accepting virtual currency, and so long as every measure to maintain the value agreed upon by both parties during the transaction is taken, accepting Bitcoin does not pose serious risks.[viii]
While there is no universal rule for accepting virtual currency, adhering to fairness and reasonableness, and following the basic guidelines provided by states should allow lawyers to accept virtual currency with little to no risk.
How to Buy/Sell Bitcoin
Many reputable cryptocurrency exchanges offer websites to purchase and sell Bitcoin and various other virtual currencies. Domestic exchanges like Chicago-based operator, Digital Mint, and Maryland-based operator, GetCoins, offer Bitcoin ATMs and a website to purchase and sell virtual currency. International companies like Kraken and CoinBase offer a website to purchase virtual currencies, with more advanced features for the seasoned virtual currency enthusiast.
[i] Darryn Pollock, The Future of Banking: Is it All Bitcoin and Blockchain?, Forbes (2019). Available at: https://www.forbes.com/sites/darrynpollock/2019/07/25/the-future-of-banking-is-it-all-bitcoin-and-blockchain/#66ff3b0831eb.
[ii] Gareth Jenkinson, A Brief History of Bitcoin: 10 Years of Highs and Lows, CoinTelegraph (2018). Available at: https://cointelegraph.com/news/a-brief-history-of-bitcoin-10-years-of-highs-and-lows.
[iii] Robert A. Musiala, Blockchain 101: Technical Concepts, Legal and Business Issues, Illinois State Bar Association CLE (2019).
[iv] Melissa Heelan Stanzione, Client Cryptocurrency Payments May Pose Ethical Risks for Lawyers, Bloomberg Law (2019). Available at https://news.bloomberglaw.com/business-and-practice/client-cryptocurrency-payments-may-pose-ethical-risks-for-lawyers.
[v] Nathaniel Miller, Billable Bitcoins: Why it Pays for Lawyers to Accept Cryptocurrency, The National Law Review (2017). Available at https://www.natlawreview.com/article/billable-bitcoins-why-it-pays-lawyers-to-accept-cryptocurrency.
[vi] Nika Gigashvili, The Ethics of Accepting Cryptocurrency as a Payment, American Bar Association (2019). Available at: https://www.americanbar.org/groups/litigation/committees/jiop/articles/2019/fall2019-ethics-of-accepting-cryptocurrency-as-payment/.
[vii] District of Columbia Bar Legal Ethics Commission, Opinion 378 (July 2020). See also, Melissa Heelan Stanzione, Washington D.C. Lawyers Can Accept Cryptocurrency as Payments, Bloomberg Law (2020). Available at: https://news.bloomberglaw.com/us-law-week/washington-d-c-lawyers-can-accept-cryptocurrency-as-payment.
[viii] LexisNexis, Accepting Cryptocurrency for Legal Services Presents Risks and Rewards, LexisNexis Legal Advantage (2019). Available at: https://www.lexisnexis.com/community/lexis-legal-advantage/b/trends/posts/accepting-cryptocurrency-for-legal-services-presents-risks-and-rewards.
About the Author:
Kasim Carbide concentrates his practice in Corporate Law, Bank Secrecy Act/Anti-Money Laundering Compliance, and counseling FinTech startups. When he is not reading or billing, Kasim enjoys cooking, watching the Office, and playing Catan with family and friends.