Boutique Law Firms, Small Law Firms, Solo Practitioners, Technology

Episode 12: A Bitcoin For Your Thoughts?

Should lawyers consider taking Bitcoin as a form of payment from clients?

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As awareness and use of Bitcoin increases, the question of whether our firm takes Bitcoin, or whether any lawyer should consider taking this new currency as a form of payment, is becoming ever more timely as many lawyers, particularly solos and small firms, try to keep their practices as virtual as possible…

What is It?

Venture capitalist Marc Andreessen provided a clear description of the virtual currency in an article that appeared in the New York Times this January, “Why Bitcoin Matters,” explaining how it works:

Bitcoin is an Internet-wide distributed ledger. You buy into the ledger by purchasing one of a fixed number of slots, either with cash or by selling a product and service for Bitcoin. You sell out of the ledger by trading your Bitcoin to someone else who wants to buy into the ledger. Anyone in the world can buy into or sell out of the ledger any time they want – with no approval needed, and with no or very low fees. The Bitcoin “coins” themselves are simply slots in the ledger, analogous in some ways to seats on a stock exchange, except much more broadly applicable to real world transactions.

The Bitcoin ledger is a new kind of payment system. Anyone in the world can pay anyone else in the world any amount of value of Bitcoin by simply transferring ownership of the corresponding slot in the ledger. Put value in, transfer it, the recipient gets value out, no authorization required, and in many cases, no fees.

That last part is enormously important. Bitcoin is the first Internetwide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies).

A simple piece of advice if you really do get how it works is to ensure you understand how to get it converted to dollars pretty quickly due to the nature of the currency. Your small firm still has a real need to be paid even if the currency is virtual.

Regulators.

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Bitcoin’s regulatory fate is still being determined, but the Internal Revenue Service provided some direction in guidance that it issued on the tax consequences of digital currencies on March 25, 2014. The main takeaway from the ruling was that Bitcoins will be treated as property, and not as currency, for the purpose of taxation.

From an ethics perspective, there is no guidance or reason yet to believe that Bitcoin is not an acceptable form of payment to take from clients. Caution should be used since without clear guidelines and rules on Bitcoin, you are operating with a currency that has experienced much instability in the last year of its popular use.

For further debate on the matter, this month’s California Lawyer has a piece on Bitcoin and how regulators are trying to grapple with how to classify it.

Practical Use.

The acceptance of Bitcoin may rely solely on the nature of your practice. If you are in the technology space, it may be a way to attract clients who like your forward-thinking nature in terms of taking alternative online payments. It may also make it easier for certain clients who now interact much of the time in Bitcoin to pay you.

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If bits and bytes really are not your thing, it might be best to sit on the sidelines until a truly easy-to-use commerce solution emerges.

Christina Gagnier leads the Intellectual Property, Internet & Technology practice at Gagnier Margossian LLP, with a specialization in social media, copyright and information privacy. She is also at the helm of REALPOLITECH, a digital public relations consultancy that provides a broad range of services, including crisis communications. She serves on the Board of Directors of Without My Consent, combating issues like revenge porn. If you ever need to find her, start with Twitter at @gagnier or email her at [email protected].

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