Doge Money: Should lawyers accept crypto as payment for legal services?
Lately I’ve been thinking about how to expand my business, and one idea that occurred to me was accepting cryptocurrency (think Bitcoin, Ethereum, Doge, USDC, Litecoin, or maybe even an altcoin like Ravencoin). There are plenty of opinions and articles out there, but I don’t know if anyone has thought aloud about this topic–e.g. cryptocurrency as payment for legal services.
As of now (October 2023), an advisory opinion (NEBRASKA ETHICS ADVISORY OPINION FOR LAWYERS NO. 17-03) provides the latest guidance on the ethics of accepting Bitcoin. It seems fair to say that any cryptocurrency that trades the way Bitcoin does–e.g. Ethereum, Litecoin, Bitcoin Cash–will fall into the coverage of the Nebraska opinion. At any rate, using the aforementioned opinion as a guide, let’s dive into this question. Note, nothing I say here is financial or legal advice.
Let’s start with some general thoughts. With respect to Bitcoin: I admire Satoshi’s whitepaper because it proposes a peer-to-peer payment system that solves the double-spend problem, which could one day pave the way for a ubiquitous payments network. In essence, Satoshi laid out a protocol for avoiding dishonest acts of double spending coins without the need for a trusted middleman, such as a bank. The solution calls for a “proof of work” mechanism, which is a topic best described by the aforementioned white paper. It is important to note that Bitcoin resulted from the banking collapse at the end of the first decade of this century.
On the other hand, there is much about the Bitcoin space that I do not admire. Mostly I am concerned about how it has become subject to wild speculation, scams and schemes. People have lost their life savings in ventures like Celsius, Terra, and FTX.
After Bitcoin there are a few theme variations (Litecoin, Bitcoin Cash, Doge, Ravencoin) which seek to address various limitations (blocksize, settlement time are a few) but do not really deviate too far from Bitcoin. Ravencoin, for instance, is an NFT chain. Then there’s Ethereum, which has moved from a proof-of-work to proof-of-stake method of validating transactions. There are plenty of pluses and minuses here, which you can read about elsewhere. The key difference from Bitcoin is that Ethereum is a more robust blockchain, allowing for NFTs and other features, although this is starting to change (consider Ordinals, Stacks protocol, Alex Finance). As a payment system, though, Ethereum suffers from the critical problem of transaction (i.e. validator) fees: in order to record your transaction to the Ethereum blockchain, you have to pay validators. Though the same is true of Bitcoin (where miners add new blocks), the difference is that Ethereum is much more expensive. This difference has to do with the physical size of the transactions and the presence of MEV bots. NFTs, for instance, have a larger file size than a simple entry of who paid whom; though this is mitigated by the adoption of IPFS storage.
Another concern is the misapprehension that some have as to the purpose of Bitcoin. There are some who view it as a private (or government-avoiding) means of transacting. But if this were true, the blockchain would not be public. The public nature of the blockchain actually makes it easier for governments to track and analyze Bitcoin transactions, though this comes at the expense of not being able to control them. On that point, the government doesn’t necessarily need to control the transaction–after all, it can hardly stop cash transactions–so long as it can exert jurisdiction over the transacting parties.
Now that we’ve talked about Bitcoin and blockchain cryptocurrencies generally, let’s dive into the topic du jour.
What is the benefit to lawyers and clients of using Bitcoin, Ethereum, or some other cryptocurrency to transact business?
Settlement times. Bitcoin settles in about twenty minutes (even faster using the Lightning network). Settlement times are even faster using the Polygon network. The Arbitrum network is similarly fast, albeit slightly more expensive to use. The Ethereum network is also fast, but significantly more expensive to use than Polygon or Arbitirum.
Cross-border transactions. If an immigration client living in Namibia wants to pay their U.S.-based lawyer, it can be difficult if that Namibian client is unbanked (or worse, unable to access digital U.S. dollars). Maybe they’re being persecuted? This is something Bitcoin solves, because Bitcoin does not discriminate on any basis. Like physical cash and coin, if you can buy Bitcoin, you can use it to pay anyone else who uses Bitcoin. To that end, and on a more general level, suppose you’re a dual-citizen who has bank accounts in two countries, and you want to quickly send yourself money for expenses. Ordinarily, it takes several days and at least USD $40 to wire money from a U.S. bank to a Canadian bank. This truly sucks if you’re stuck with an emergent need to pay for groceries. With Bitcoin, the process takes minutes and, as of this post, is far cheaper than the wire fee. To that end, you can even use Bitrefill to buy gift cards (e.g. Uber, AirBnb, Instacart, Amazon, Apple etc) if your needs are of a more practical nature. [Note, the Bitrefill link is an affiliate link].
What are the risks to lawyers and clients of using the blockchain technologies mentioned above?
All transactions are public. That’s right, anyone who knows how to use a block explorer like https://polygonscan.com/ can find and analyze transaction. Even though the transacting parties are identified only numerically, governments and private parties can investigate and potentially doxx the owners/controllers of these numeric addresses. This risk is mitigated by simply using a new wallet for each transaction. Fortunately, wallets are free. At any rate, since blockchains are public ledgers, wouldn’t this make payments from clients to attorneys a matter of public record? Although some people think of Bitcoin as private, this is not the case. Wallets can be, and often are, traced to their owners.
Mistakes are forever. While the infamous Ethereum dao hack saw the undoing of a nefarious transaction, the notion of undoing transactions is the third rail of crypto. In other words, if one party sends payment to the wrong address, that money should be considered lost. This makes sense given how settlement times are so quick.
Price volatility. Venture Capital speculation. The crypto space is dominated by speculators who are acquiring (and thus driving up the price of) tokens on the theory that one day people will use cryptocurrencies in their everyday activities. What’s more is that crypto remains a “cage in search of a bird” (credit Franz Kafka). Beyond mitigating the risk of middleman issues (i.e. banks), crypto does not solve too many problems. Therefore, there is the risk that you will lose dollar value if you transact using any cryptocurrency–this includes algorithmic stablecoins, which can also lose value. Note, USDC is not an algorithmic stablecoin, though it remains an asset that has risk.
What if the price of the cryptocurrency rises significantly after a payment to a lawyer is made?
Doesn’t this provide an incentive for the client to try to clawback the transaction somehow? What about crypto held as a retainer? Escrow? [Tbh, I think we can set aside unjust enrichment concerns if the transaction is made using a stablecoin. To that end, we’re starting to see stablecoins appear in the Bitcoin ecosystem, particularly on the Stacks protocol.] To resolve these questions requires that the lawyer understand their client on an intuitive level, but also an understanding of how unjust enrichment works, and how the Nebraska opinion referenced above operates. In other words, by structuring your payment agreement appropriately. (such that Bitcoin is merely the conveyance mechanism for a U.S. dollar payment, and that your transaction is a U.S. dollar agreement) and by then converting the received Bitcoin to U.S. dollars, you’re less likely to face a malicious (or legitimate) ethics complaint. Never-the-less, the Nebraska opinion is just that, the opinion of the Nebraska Supreme Court. Your state’s bar might take an entirely different approach, so it’s best to consult the bar for guidance on this issue. In any case, the client’s informed consent in writing—as to what’s happening in the transaction—is essential.
How can you be 100% sure that a third party isn’t paying the fee? This particular concern is interesting because concerns about third party payments for legal services touch the realm of the lawyer’s independent judgment. The ABA has a pretty good article by Massachusetts attorney Paula M. Bagger called “When a Third Party Pays the Legal Fees,” which dives into the ethics of third party payments made to lawyers.
Additionally, the on-point MPC is printed out here:
ABA Model Rule of Professional Responsibility (MPR) 1.8(f) provides:
A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) the client gives informed consent;
(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and
(3) information relating to representation of a client is protected as required by Rule 1.6 [confidentiality].
5 (a). Let’s go ahead and agree that the lawyer is going to know who is paying their bill, or at least who claims they’re paying their bill. Yet, if the payment comes from a numeric payer (as is the case with Bitcoin transfers) it does create the possibility of the lawyer unwittingly accepting payment from a third party, or that the lawyer will need to establish to the challenging authority that the client owns the numeric wallet address in question.
There’s a potential issue here, with respect to the third element listed above, but it’s probably tangential to the overall point of this blog post. If you’re uncertain how to proceed here, do not proceed.
Can a situation like this interfere with the lawyer’s independent judgment? It’s doubtful. The reason I’m making this point is because the Nebraska opinion (referenced above) advises lawyers to implement KYC procedures. Thus, if you go this route, you’re satisfying the ethical concern, and have no independent judgement concern.
So, should lawyers use Bitcoin or any of the other cryptocurrencies to transact business?
No, for the most part. Cryptocurrency is risky. There’s not much point unless the client has no access to traditional payments networks, or unless the transaction is a cross-border transaction. In those instances, it could make sense to use a cryptocurrency to transact. On the other hand, if both parties are enthusiastic about using Bitcoin to do business, I don’t see a problem so long as the transaction is (1) conducted ethically (especially with respect to their state bar’s opinions in the matter, if any), and (2) with an understanding of the overall risks.
In any case, lawyers should obtain the client’s informed consent in a signed writing before transacting using Bitcoin or any other cryptocurrency.
As for me, I’m willing to accept Bitcoin or USDC (via Polygon Network) [note: for ethical reasons, U.S. Tether does not interest me]. I am by no means a “crypto bro,” and am in fact skeptical of most of the actors in this space. I believe, however, that blockchain technologies do provide a framework for how finance might look in the future, once the transaction throughput rivals traditional networks like Visa and legitimate custodial options emerge for everyday consumers. Right now, though, it’s still the wild early days. But with the emergence of AI, no-code programming tools, subnets, sidechains, and (eventually) quantum computing, it may be only a matter of time before business is transacted primarily through public and private blockchains.
