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COLuMN BarJournal

JULY/AUGUST 2015

CrYPTO-CUrrenCY And YOU

Deborah A . Coleman eTHICS PerSPeCTIve

o you own any Bitcoins? coin. The process of solving the problem insured means to hold digital currencies.
Would you accept a fee and proving the work simultaneously Further, the IRS regards crypto-currency
in bitcoins? How will you updates and strengthens the blockchain. as property, not currency.
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advise your business client It might seem that accepting digital
Dthat wants to accept digital May a Lawyer Accept It? currency in payment for past services is
currency from customers? Your divorce Knowing little about digital currency, straightforward. If the lawyer chose to
client who is convinced her spouse is and aware that any technique for retain the digital currency, the lawyer
hiding money? transferring value anonymously outside would bear the risk of fluctuations in
Digital currency is no longer just a banks attracts criminal enterprises, many value and the risk of loss. The risk of
techno-novelty: it is ever more likely that lawyers are reluctant to accept it. Some charging an excessive fee would be avoided
a lawyer, no matter her practice focus, will authorities have convincingly argued provided that the fair market value of the
have to tackle a question arising from the that lawyers should never accept their digital currency at the time of the transfer
growing use of digital currency, also known fees in crypto-currency. Yet small firms bears a reasonable relationship to the
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as “crypto-currency.” Here is what I’ve in the technology sector have accepted value of the legal services. Although the
learned so far about digital currency, and digital currency for years. More recently, late and respected legal ethics professor
some of the ethical issues that it presents. firms like Frost, Brown in Cincinnati, Ron Rotunda adopted this view, the
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and Steptoe & Johnson in Washington, only advisory opinion yet to be issued
What is it? D.C. have announced their willingness to in the U.S. on the subject counsels
Digital currency is a method of accept payment in this form. 2 differently. Nebraska Ethics Opinion No.
transferring funds without reliance on When a prospective new client proposes 27-03 advises lawyers who accept digital
a central bank. Bitcoin is the most well- to pay in digital currency, or proposes a currency as a fee to convert it into U.S.
known digital currency, but not the only transaction that will involve digital currency, dollars immediately on receipt, at objective
one. Digital currency exists only as entries the first question is the old one — do you market rates, through the use of a payment
in a digital ledger, called a blockchain. want to accept this person as a client, and do processor and crediting the client’s account
Blockchain technology permits data to the work proposed? A firm that is considering accordingly at the time of payment. The
be held in a secure, encrypted way that is accepting digital currency or advising clients Nebraska opinion also advises that a lawyer
both publicly distributed and not subject that engage in transactions involving digital should notify the client in advance of how
to alteration. A blockchain records all of currency must have “Know Your Client” the lawyer will handle digital currency,
the transfers of ownership of every digital protocols appropriate to its work, as well to avoid the client’s assuming that any
coin of that type. Each owner of a “coin” as ongoing diligence, to avoid a situation increase in value would benefit the client.
or part of a “coin” is identified on the of counseling or assisting in a fraudulent If a client proposes to pay digital
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ledger by the owner’s unique private key or criminal transaction. Similar practices currency to fund a flat fee or advance
number. Each coin owner also has a digital are required in response to a proposal that retainer, immediate conversion to U.S.
“wallet” with records of the particular someone other than the would-be client will dollars avoids the myriad issues that would
owner’s transactions. A “wallet” can be pay the lawyer’s fees. 4 attend holding the digital currency until
created using a pseudonym, permitting the Accepting digital currency as fees, as the work is performed. It is impossible
owner to engage in effectively anonymous a retainer, or as an asset held in escrow to hold unearned digital currency in an
transactions using the digital currency. presents somewhat different ethical IOLTA account. Further, because of the
Digital currency is created by a process issues than receiving U.S. dollars or other volatility of the value of digital currencies,
known as “mining”. A “miner” deploys government-backed currency. At present, it would be challenging to refund unearned
massive computing power to solve a the value of digital currencies are volatile, fees to a client if work is not performed
complex cryptographic problem, and upon digital currencies cannot be deposited or not completed or avoid charging an
“proof of work”, is rewarded with a digital in a bank, and there are no reliable or unreasonable or excessive fee. 7
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