So, you’ve just met with a potential client and the opportunity to take a fascinating case or close a major deal is at your front door. The catch? The client wants to pay for your services in Bitcoin. Do you accept? Can you accept?
The do’s and the can’s
If you’re licensed in Nebraska the answer is yes! With some caveats, of course. Late last year, Nebraska’s Lawyer Advisory Committee became the first authority to opine on the legal ethics implications of digital currencies. Ethics Advisory Opinion 17-03 allows attorneys to receive and accept digital currency as payment for legal services. However, in order to ensure attorneys aren’t charging unreasonable fees, the Committee advised that the currency must immediately be converted to U.S. dollars upon receipt. Digital currency can also be accepted from third-party payers so long as there is no interference with the attorney’s independent relationship with the client. And, attorneys can hold digital currency in trust or escrow for clients and third parties as long as it is held separately from the attorney’s property, with reasonable safeguards.
An advantage to accepting Bitcoin (or other digital currency) as payment is that there are no transfer fees. Unlike payment by credit card, wire, or check, and foreign currency conversion for international transactions, Bitcoin is transferred from client to attorney directly, with no fee attached. Other advantages are instant transactions, no bank acting as middleman in the transaction, and the shared digital ledger book that tracks all Bitcoin transfers, which prevents counterfeiting.
How does Bitcoin work?
Bitcoin is an open-source program existing on a decentralized peer-to-peer network on the internet. Anyone can access Bitcoin, and it is stored in a digital wallet. There is a public key, consisting of numbers and letters constituting the “address” to which the Bitcoin is sent, and a private key that the sender uses to authorize the transfer of Bitcoin from one digital wallet to another. These transfers are managed and tracked in the leger book.
The value of Bitcoin fluctuates (wildly). As of July 3, one was worth $6,624, but it has been worth almost $20,000. Bitcoin can be transferred in pieces; the smallest, a Satoshi, is one hundred millionth of a Bitcoin.
Some ethical considerations
Given Bitcoin’s ever-changing value, there is a chance that a Bitcoin that was worth the fair value of the legal services you provided last week may today be worth three times as much. To the Nebraska Committee, that raises the prohibition against unreasonable fees, under its version of Model Rule 1.5(a). The Committee tried to address this concern by mandating that Bitcoin be converted to U.S. dollars upon receipt.
Not everyone agrees. The late ethics guru Ronald Rotunda, for instance, thought that there is no legal ethics issue in not immediately converting digital currency into dollars. He argued that all forms of currency can rise and fall in value against the U.S. dollar, and that deciding in light of that risk to accept a legal fee in Euros, for instance, is a business decision for the lawyer to make, not an ethics issue.
Another potential issue is that since Bitcoin is not legal tender, the IRS classifies it as property. One commentator has noted that this makes accepting a Bitcoin payment similar to bartering for legal services, “like the country lawyer accepting a bushel of apples for drafting a will.” You should check ethics opinions in your jurisdiction to determine any restrictions on bartering for legal services before agreeing to accept Bitcoin as payment. (We’ve written about bartering for your legal services here.)
A further issue is how to hold digital currency in a client trust account. The Nebraska Committee advised that if the payment is intended to be a retainer to be drawn on as fees are earned in the future, it must be converted to U.S. dollars immediately. That certainly avoids the risk that the client’s retainer will go down in value; but it also precludes any upside gain that could benefit the client. These circumstances might call for some client decision-making — and that makes them a subject that you have a duty to communicate about with your client, under Rule 1.4(b).
Payment in Bitcoin and other digital currencies can be a very cool and convenient alternative fee method that you can offer clients. Just be sure to consider all of the ethical implications before accepting this form of payment.
* Jasmine C. Taylor is a rising third-year law student at Cleveland-Marshall College of Law in Cleveland, Ohio. She is currently a Sergeant in the Ohio Army National Guard, 1-137th Aviation Regiment.