By Ali Dhanani and Wes Edwards
Cryptocurrency and the Future of Law Firm Payments
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oni Ghose, Global Head of Banks Research for Citigroup Inc., once said, “Money is entering a format war.”1 But when Mr. Ghose stated this, he did not realize that money—the lifeblood of the global economy—has always been in a format war. From bartering, metals to coins and paper to credit cards, money has facilitated trade for millennia. There is now, however, a new “combatant” in the currency war: cryptocurrency. Since its introduction earlier this century, cryptocurrency (or “crypto”) has become a global phenomenon and an often-misunderstood buzzword heard in the news. Every day, crypto grows more accepted as a form of payment; is it time for law firms to embrace this new frontier and adopt cryptocurrency as payment for its services? Though the legal profession has been built on history and tradition, law firms should prepare to embrace the transformative changes that cryptocurrency (and other forms of blockchain technology) have similarly brought to other industries.
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It is significant to note that law firms have various practical, ethical, and risk management obligations to clients they serve that are well beyond a traditional seller and buyer of goods. Such pragmatic difficulties and current regulatory climate therefore suggest that law firms must conduct serious evaluation before adopting cryptocurrency as a form of payment. This article will explore how to overcome some of these challenges, as well as provide a model for accepting such payments. History of Currency With the dawn of the new millennium came the greatest change in the history of money: the transition from physical to digital. Due to advances in computer technology and the internet, most of the world’s currencies are exchanged and exist as digital currency.2 It is estimated that only 8% of the world’s current currency is physical.3 Digital currencies were revolutionized in 2008 when an individual using the pseudonym “Satoshi Nakamoto,” released a white paper detailing the first cryptocurrency—a
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decentralized, digital currency—called “Bitcoin”.4 Bitcoins—or BTC—provide an avenue for peer-to-peer transactions utilizing a public ledger, known as a blockchain. Because Bitcoins are transacted on the blockchain, there is no need for a single administrator or intermediaries; instead, Bitcoins are “mined” by solving complex equations or verifying the accuracy of previous transactions.5 The first cryptocurrency transactions were simply between miners trading coins back and forth, but the first real economic transaction took place on May 22, 2010 when a man paid for two pizzas ($25 value) with 10,000 Bitcoins.6 Since becoming synonymous with the first official BTC transaction, May 22nd has been nationally recognized as Bitcoin Pizza Day. BTC’s introduction inspired people around the world to modify and adapt the blockchain code to fit their own uses and develop many new forms of blockchains with their own associated coins, like Ethereum, Litecoin, and Dogecoin.7 Issues with Accepting Virtual Currency Adoption of cryptocurrency does not appear to be at the forefront of law firm stakeholders for good reason. Regulatory issues surrounding the use of cryptocurrency continue to be refined by various governments across the globe. Moreover, for large law firms that typically work on a global basis, practical issues such as client due diligence, know your customer, source of funds, and particularly the fluctuating nature of virtual currency counsels against accepting virtual currency as a form of payment at this time. Indeed, Rule 1.8 of the Model Rules of Professional Responsibility states that a “lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client” but for the listed exceptions.8 Texas has a similar, but less stringent rule.9 However, given that most large law firms operate in multiple states, law firms would typically impose more stringent considerations on their interactions and follow the Model Rules of Professional Conduct as promulgated by the American Bar Associa-