As we move into the third decade of the 21st century, law firms must find new ways to stay current with the needs of clients. From text message marketing to digital services, there are new platforms to master and new privacy and security concerns to keep in mind.
A particularly sensitive ethical concern for lawyers is financial transactions. For this reason, lawyers should be paying attention to Bitcoin and its implications for best law firm practices.
What is Bitcoin?
Even if you’ve heard about bitcoin, you may not understand how it all works. Bitcoin and cryptocurrency, as a concept, sounds pretty sci-fi at the outset. However, the technology behind it has important implications for how law firms conduct financial transactions.
So what is Bitcoin? The standard definition of Bitcoin is that it is a type of cryptocurrency, which is a digital currency that is secured by cryptography and doesn’t rely on a central bank for transferring funds.
Bitcoin balances are stored in “keys,” which are encrypted alphanumeric strings. There are two types of keys – public and private. The public key acts like a bank account number whereas the private key acts like an ATM PIN. The public key is used to transmit Bitcoin and the private key is used to authorize transmissions.
Records of transactions are kept by something called a “blockchain.” A blockchain acts as a digital ledger for all transactions involving a given Bitcoin by using public keys.
Each Bitcoin is assigned a particular owner and that owner keeps track of their Bitcoin balances and transactions through a digital “wallet” that they create. Much like a great deal of the digital profiles, your wallet can be created anonymously.
Ethics of Bitcoin
Because Bitcoin is a new(er) form of payment, providers of professional services should carefully examine whether or not there are ethical concerns to integrating this technology into their practices. This goes doubly so for lawyers, whose work is heavily affected by confidentiality and security issues.
There is no uniformly accepted judgment as to the ethics of using Bitcoins. The American Bar Association hasn’t taken a stance on Bitcoin as a form of payment yet, though ABA groups have engaged in discussion on the topic for several years. The only legal professional organization to outright approve Bitcoin as a form of payment has been the Nebraska Ethics Advisory Board. However, this approval came with strict guidelines on how and when they could be used.
One widely discussed ethical concern is its often rapidly changing value. If you’re paid in Bitcoin on Tuesday for services rendered and the value skyrockets on Thursday, this raises the question of unreasonable fees.
Bitcoins held in trust or escrow for others poses a similar problem. The Nebraska Committee in its ruling required for Bitcoin to be converted to US dollars immediately on receipt. Of course, the value of all currencies fluctuates over time, as others have pointed out, making accepting Bitcoin a business decision rather than an ethical quandary.
Yet another ethical concern is the anonymity of Bitcoin. While blockchains do allow for precise records of transfers, a Bitcoin wallet can be created anonymously. To some, this gives pause as to who is behind the currency and the potential for use by criminal groups.
This concern is more of a matter of perception. A study conducted by the European Union showed that most criminal groups, especially drug cartels and terrorist cells, prefer operating with cash rather than cryptocurrency. The only group preferring cryptocurrency are hackers, which is of little surprise. Nonetheless, public perception is an important consideration for law firms and shouldn’t be disregarded.
Risks and Benefits
Despite the overwhelmingly cautious attitude of the legal profession toward Bitcoin payments, some law firms have been accepting Bitcoin or other cryptocurrencies as payment. For example, lawyers specializing in the technology sector are well versed in this form of payment. Interestingly, the State of Ohio announced in 2018 that they would accept Bitcoin as a form of payment for business taxes.
There are a number of risks and benefits of incorporating Bitcoin into your firm’s strategy. Here are a few of the most notable ones to consider.
- Bitcoin is not backed or insured by any federal body
- Value of Bitcoin and other cryptocurrency fluctuates
- Perception of Bitcoin as an illicit method of payment
- No transfer fees, which can provide significant savings
- No bank required to act as a middleman
- Blockchain technology tracks all transfers, which helps prevent counterfeiting
- Opportunity to position your practice as a leader
- Widen the pool of potential clients by expanding methods of payment
Before making a decision about whether to accept Bitcoin, it’s imperative that you learn as much as possible about it.
Because there is no central authority for the currency, you’re operating in an unregulated environment. Read widely on the subject and connect with other legal professionals who have well-established practices of accepting Bitcoin payment. This will provide valuable insight and help you make the most informed decision possible.