Bitcoin is a digital currency (also called cryptocurrency) used to transfer value, or “bitcoins,” anywhere in the world. It is not controlled by a bank or government and is a completely open payment network that anyone with an internet connection can use. Unlike other new forms of payment, bitcoin does not use the dollar as currency. Large companies such as Microsoft, Expedia, Subway, and Dell all accept bitcoins. Should you?
Having a basic understanding of non-traditional methods of payment, even if you choose not to implement them, will help you discharge your ethical duty to keep up with technology. The Model Rules of Professional Conduct make it clear that keeping up with new technology is part of a lawyer’s ethical duty to provide competent representation. And if you do accept bitcoins, an understanding of them will help avoid potential risks.
No credit card or bank fees! No more pesky government regulations! Instantly paying for goods and services using an app on your phone! Some of the promises of using bitcoin appear to have advantages. Making it easier for clients to pay for services is certainly appealing. If you eliminate credit card and bank fees, that’s even better, right? Everyone—from solo practitioners to large law firms—would love to eliminate roadblocks to their clients’ payments, and eliminate needless collection efforts as well. What do you need to know when deciding whether to use bitcoin?
In this new world of payment options, special focus must be given to keeping your attorney-client information protected. If you use the Venmo application, for example, all payments are broadcast to an entire social network. People transfer money to each other along with a description of what it is for. Everyone with access to your client’s network would see the payment information if security settings are not carefully monitored, and you may consequently confront an argument that the attorney-client privilege has been waived. Bitcoin raises similar concerns, although for different reasons. “Bitcoin is a target for malware and fraud,” explains Cindy C. Albracht-Crogan, cochair of the ABA Section of Litigation’s Solo & Small Firm Committee. “Security is the biggest issue in accepting digital currency.”
In the case of currency options like Venmo, PayPal, and Apple Pay, payment is ultimately still made through a traditional bank. Those banks maintain ledgers that verify that payments should be made. Bitcoin, however, is not regulated by a central entity. The ledgers—or “block chain”—that verify payments are public records available to all bitcoin users. Your clients may have concerns that records of their payments could be traced through the block chain.
Despite the public block chain, there is a belief that because bitcoin is not regulated, it is an ideal way for nefarious actors to conduct business anonymously. With a completely public network, however, the belief that the transactions are anonymous is a fallacy, even if your digital wallet does not use your real name. Nonetheless, the widespread belief that bitcoins are the currency of choice for criminal actors raises unique ethical challenges when considering the use of bitcoins as payment. The payment of your fees in bitcoins will likely not shield you from requirements of the federal money laundering statutes or the forfeiture of legal fees in certain situations.
Because the value of bitcoins is extremely volatile, attorneys accepting bitcoins will need to know their value. “Possible capital gains tax could be imposed by not properly tracking a change in bitcoin values,” notes Albracht-Crogan. Attorneys also risk charging an unreasonable fee for their services. Model Rule of Professional Conduct 1.5 states that “[a] lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”
The U.S. Senate has held hearings evaluating the use of bitcoins, and the Federal Election Commission has discussed and voted on the use of bitcoins in political campaigns. Bitcoins have been recognized by some courts as “money” or “funds” under federal statutes, and the IRS considers bitcoins to be property for taxation purposes.
Bitcoins, however, are unregulated and not backed by any government. Bitcoin’s anonymity can attract those with nefarious motives. Also, bitcoins are only as valuable as someone’s willingness to accept them, and the use of bitcoins as currency requires a more than novice technological understanding. The practical issues for attorneys are copious.
First, using an unregulated currency that is not universally accepted means that when you are paid in bitcoins, you can only use those bitcoins for certain purposes. Your electric company may not accept bitcoins, and keeping your lights on is still an important part of practicing law.
Second, accepting bitcoins would necessarily require you or your firm to understand the use of bitcoins and update your technology to accept bitcoins. Your firm would have to understand the relevant cybersecurity issues. Some industry leaders claim bitcoin is the most secure form of payment because, they claim, it is almost impossible to hack. Others are more concerned.
Third, converting bitcoins to other currency can be challenging. Converting bitcoins to cash requires knowledge of the bitcoin market and how to navigate a complex trading system. Paying your employees, who may not want bitcoins, can become cumbersome. The volatility of cryptocurrencies is illustrated by a recent flash crash involving ethereum, an alternative digital currency to bitcoin. All in the same day, on June 21, 2017, ethereum traded as high as $352 and as low as $0.10. That kind of swing in value may not be a risk you and your employees are willing to take.
Using bitcoins or other cryptocurrencies as a form of payment is another way clients may want to pay their bills. Attorneys should understand bitcoins and other cryptocurrencies, including the technology involved, to determine if it is a way they want their legal fees paid. The ethical rules and practical considerations should be considered carefully before accepting bitcoins as payment for your next case.
