Bitcoin is a virtual, digital currency that is a collection of digital keys and codes. Some have referred to it as virtual gold. Its value is basically derived from individuals who are willing to accept them as payment. Bitcoin is not the only digital currency, but it is currently the most popular. Other digital currencies include Litecoin, Ethereum, ZCash.
Bitcoin can be traded between users and can be purchased for, or exchanged into other real or virtual currencies. U.S. government agencies consider Bitcoin to be property and subject to capital gains taxes. Federal and state regulations require money transmitters to be registered and implement know-your-client and anti-money laundering procedures.
As Bitcoin’s popularity grows, more and more law firms are accepting it for payment for legal services. A recent ethics opinion out of Nebraska appears to be the first to address the ethics of such payments.
Lawyers May Accept Bitcoin for Payment
- 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;
- converting the digital currencies into U.S. dollars at objective market rates immediately upon receipt through the use of a payment processor; and
- crediting the client’s account accordingly at the time of payment.
Lawyers May Accept Bitcoin Payment from Third-Party Payors
Lawyers May Hold Bitcoins in Trust for Clients
- the lawyer holds the units of such currencies separate from the lawyer’s property, kept with commercially reasonable safeguards; and
- records are kept by the lawyer of the property so held for five (5) years after termination of the relationship.
- encryption of the private key required to send the bitcoins;
- utilization of more than one private key (known as a “multi-signature account” or “multi-sig”) for access to the bitcoins;
- maintenance of the wallet in a computer or other storage device that is disconnected from the Internet (also known as “cold storage”), which would also allow for off-line storage of one or more private keys.