When your mailman starts talking about buying cryptocurrency, you know it’s gone mainstream. These days pretty much everyone has at least thought about sinking some money into Bitcoin, Ethereum, Ripple’s XRP, or other popular digital currencies. Entrepreneurs are raising capital by launching ICO’s, or initial coin offerings, big banks are dipping their toes in the pool, and a growing number of freelancers, even dog-walkers, are clamoring to be paid in crypto.
More and more lawyers are accepting cryptocurrency as payment for services, both because of its ease of use and also to grow their practices. But while there are a lot of benefits to accepting digital currency, there are serious risks to keep in mind. Here are the big ways it could help or hurt you.
Values could soar….or plummet...or both. You don’t know.
Cryptocurrency isn’t legal tender anywhere, and it has no underlying value. Volatility is almost limitless, and prices can swing massively on a daily basis. Although values reached astounding heights in January 2018, prompting virtually every financial media outlet to devote hours and hours of airtime to crypto, things aren’t looking so hot now.
“People are starting to realize that they drove this stuff up in a feeding frenzy, and they’re starting to realize just how dangerous it is,” said Mark Grant, chief global strategist and managing director at B. Riley FBR Inc., told the Wall Street Journal in August.
Last year, boosters were predicting the value of all digital currencies in circulation (there are something like 1,300 of them) could reach $1 trillion in 2018. So much for that. The total value has dropped by about 70 percent overall and now stands at about $200 billion, according to the Journal.
Crypto fortunes have been made and lost in a matter of months, or even less. Remember when the Winklevoss twins were Bitcoin billionaires? That lasted about five weeks.
But there are more places than ever to spend it
Although it’s not really “currency” per se, a growing number of businesses have started taking some of the most popular cryptocurrencies as payment. Coindesk.com compiles a list of “what can you buy with bitcoins,” and there are some surprises. Overstock.com was one of the first retailers to start accepting bitcoin in 2014, but the possibilities have expanded to gift cards, flights, hotels, higher education, music, movies, video games, and even space travel via Virgin Galactic.
Back in the days of the Silk Road, the dark web digital trading platform shut down by the FBI in 2013, one could also pay for drugs, hit men and a number of other illicit goods and services with crypto. But it is probably for the best that’s no longer an option.
You can build loyalty with your clients
If you’ve ever spent time talking with a serious cryptocurrency enthusiast, you know nothing would probably make them happier than to support their vision of a blockchain-technology-based future. Taking money in cryptocurrency is likely to make them happy and solidify the professional relationship. It’s also great for marketing.
“It’s a symbol for the client about how vested you are in the area,” said Washington D.C. lawyer Carol Van Cleef.
More or less giving the green light to lawyers for accepting such payments, a Nebraska ethics committee concluded in September 2017, that attorneys “may receive and accept digital currencies such as bitcoin as payment for legal services.” However, the committee acknowledged volatility could be an issue, especially if it leaves the lawyer with a gigantic windfall.
The committee told lawyers to mitigate the risk of volatility by converting the payment into dollars immediately upon receipt.
In some instances, lawyers find it difficult to grow their practices without accepting cryptocurrency, especially if they want to represent business people in the space who have accumulated a lot of it.
“I’ve known for a long time that my opportunity to expand in certain areas has been affected by not taking it, Van Cleef said.
But also maybe go to jail with your clients...
Well, hopefully, that’s an overstatement. While crypto boosters will argue there’s nothing intrinsically illegal about digital currencies, the anonymous cash-like nature does attract some bad actors (see above reference to the Silk Road). Law enforcement agencies are nosing around the space for issues like fraud and money laundering, making it a good idea for lawyers to ensure that any payment in crypto from their clients isn’t proceeds of a crime.
The IRS is also taking a hard look at the use of digital currency for tax evasion. The agency won a court order last year requiring Coinbase, a San Francisco-based digital currency platform, to hand over data on 20 million customers as part of a probe into whether Bitcoin investors were hiding assets from Uncle Sam.
The agency issued a notice in 2014 that it views cryptocurrencies as property, similar to stock or real estate, and sales are subject to either long-term capital gains taxes or in short-term sales, like ordinary income. Using cryptocurrency to purchase goods or services could also trigger a tax liability even if the seller continues to hold it. Payments in cryptocurrency also qualify as taxable income.
“Digital currency holders shouldn’t think they can hide from the IRS,” lawyer Bryan Skarlatos told the WSJ.
Still, faster processing, fewer fees...and no take backsies!
Massive risks aside, there are some benefits that make crypto payments worth considering. Although there are more steps involved in exchanging digital currency for dollars, payment transactions process quickly, sometimes in real time, and you can avoid forking over big fees to banks.
As a bonus, a client can’t “bounce” a bitcoin payment, nor can they take back their money or back out of the transaction after deciding to pay. Like with cash, transactions are final.
“Cryptocurrency is comparable to cash in that you either have the funds available or you don't,” according to website Business.com. “This system verifies funds and makes it next to impossible to spend more than you own. When paying with cryptocurrencies, both parties have to approve each transaction. As a result, there are no disputes to worry about and chargebacks will no longer happen.”