Here is a recent Daily Record column. My past Daily Record articles can be accessed here.
North Carolina on Whether Lawyers Can Accept Bitcoin as Payment
You may have noticed that you’re hearing more about bitcoin as of late. Its use as a form of payment is becoming increasingly commonplace and as a result, you’re more likely to encounter it “in the wild.” In other words, it’s entirely possible that one of your clients may soon request to pay legal bills using cryptocurrency like bitcoin.
When that happens, are you ready? Do you have a process in place that will allow your firm to ethically accept bitcoin as a form of payment? If you don’t and aren’t sure where to start, you’re in luck, since a number of jurisdictions have already addressed this issue.
First, in 2017 Nebraska handed down Ethics Advisory Opinion for Lawyers No. 17-03, concluding that accepting bitcoin as payment for legal services is permissible, with some limitations. Specifically, the Committee concluded that when accepting bitcoin as payment, lawyers must protect their clients’ rights and reign in any potential volatility of the cryptocurrency by “1) Notifying the client that the attorney will not retain the digital currency units but instead will convert them into U.S. dollars immediately upon receipt; (2) Converting the digital currencies into U.S. dollars at objective market rates immediately upon receipt through the use of a payment processor; and (3) crediting the client’s account accordingly at the time of payment.”
The New York City Bar Associations’s Professional Ethics Committee also addressed this issue in July 2019 in Formal Opinion 2019-5, and determined that accepting bitcoin was permissible, but only in situations where the firm agrees to provide legal services at a set hourly rate in U.S. dollars, and the client is given the option of paying for legal services rendered using cryptocurrency in an amount equivalent to U.S. dollars at the time of payment. In those cases, the Committee concluded that payment via bitcoin did not constitute a “business transaction,” and thus the requirements of Rule 1.8(a) were inapplicable.
North Carolina also considered this issue in July and issued Proposed 2019 Formal Ethics Opinion 5, and is now seeking commentary regarding their preliminary conclusions. In this proposed opinion, the Ethics Committee determined that lawyers may accept bitcoin and other cryptocurrencies as payment for legal services under certain circumstances, but that doing so constituted a “business transaction” and thus triggered the requirements of Rule 1.8(a).
Specifically, the Committee concluded that when lawyers agree to accept cryptocurrency as payment from a client, they may only do so when: 1) the payment is a flat fee for legal services 2) the fee is not excessive, and 3) the law firm complies with the requirements of Rule 1.8(a).
The Committee explained that because the value of cryptocurrency fluctuates significantly, transactions that involve cryptocurrency necessarily involve risk, thus implicating Rule 1.8(c). Thus lawyers must ensure that the transaction is fair and reasonable by fully disclosing to the client in writing the risks and the desirability of seeking independent legal counsel, while also obtaining written consent from the client.
Notably, the Committee’s determination that all cryptocurrency payments constitute a “business transaction” was a departure from the conclusions reached by the Nebraska and New York City Committees.
The Committee also concluded that lawyers are ethically precluded from accepting cryptocurrency in all other circumstances where “entrusted funds (are) billed against or…held for the benefit of the lawyer, the client, or any third party.” The Committee explained that “as of the date of this opinion, and with the primary interest of the State Bar being the protection of the public, the methods in which virtual currency are held and exchanged are not yet suitable places of safekeeping as required by Rule 1.15-2(d) for the proper safeguarding of virtual currency as entrusted client property. Accordingly, a lawyer may not receive, maintain, or disburse entrusted virtual currency.”
For now there is no clear cut consensus on the issue of whether it is ethical for lawyers to accept cryptocurrency as payment, and under what circumstances. Perhaps over time, as this practice becomes more commonplace, more jurisdictions will weigh in and there will be a more standardized approach to cryptocurrency’s use as payment for legal services. But for now, I would suggest that you tread lightly and ensure that you fully understand, and comply with, all of your jurisdiction’s guidelines on this issue.
Nicole Black is a Rochester, New York attorney, author, journalist, and the Legal Technology Evangelist at MyCase law practice management software for small law firms. She is the author of the ABA book Cloud Computing for Lawyers, co-authors the ABA book Social Media for Lawyers: the Next Frontier, and co-authors Criminal Law in New York, a Thomson Reuters treatise. She writes legal technology columns for Above the Law and ABA Journal and speaks regularly at conferences regarding the intersection of law and technology. You can follow her on Twitter at @nikiblack or email her at firstname.lastname@example.org.