The Power of Perspectives

The Canadian Bar Association

Stuart Hoegner

Bitcoin & lawyers

July 3 2014 3 July 2014

While the price of bitcoin is highly volatile (1 BTC is C$640 at the time of writing), more and more people and entities are starting to take notice of it and even embrace it. The federal government is in the process of drafting rules to include “dealing in virtual currency” within the parameters of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In the business world, travel bookings website Expedia has jumped on the bandwagon, announcing that it will start to take bitcoins from customers to book hotel rooms. If this goes well, it may consider expanding acceptance to airline and cruise tickets. Expedia’s entry could have an immense impact on the bitcoin economy.

By now, there is a seemingly limitless supply of online information about what bitcoin is and can do, so I won’t cover that ground here. We have even seen discussions in Canada about what bitcoin means for the future of law and for lawyers. But maybe we should go back even further and consider what bitcoin can do for lawyers—and their clients—in its most basic form: as a currency. Can attorneys in Canada even accept bitcoin as payment for services? And what risks are they assuming if they do?

Payments for services

Some lawyers have intimated lately that Canadian attorneys cannot accept bitcoin as payment for services. This is said to be because bitcoin is susceptible to money laundering and terrorist financing risks. Whatever the reason, the statement as a general proposition is false.

Speaking as an Ontario lawyer, bitcoins can be accepted as payment for legal services and disbursements in a lawyer’s invoice. There is nothing in the Law Society of Upper Canada’s by-laws prohibiting the practice. I spoke with the Law Society about this more than a year ago. They analogized the acceptance of bitcoin to the acceptance of barter and confirmed that bitcoin is an acceptable unit of exchange for licensees in Ontario provided that her record-keeping responsibilities are met. The LSUC’s spot audit department also appears to believe that bitcoin transactions in general pose no problem for the profession in Ontario.

To be sure, there are issues around acceptance of bitcoin. A lawyer should not become an unwitting party to a Criminal Code offence involving proceeds of crime. Furthermore, there is a live and important issue around being an innocent ‘holder’ of bitcoins that are stolen. These are matters of first impression, but a bitcoin seems unlikely to be a bill of exchange, which means that an innocent party receiving bitcoin cannot be a holder in due course.

Still, there is no general rule, at least in Ontario, prohibiting counsel from accepting bitcoins if they so choose.

Risks—real & imagined

In an article in the Spring 2014 Just., James Morton addressed some of these same issues. He started off with the allusion to barter and he rightly pointed out that fees earned by counsel in bitcoins are includable in income for tax purposes.

At least one of the risks identified in that piece, i.e., volatility, may not be such a large concern. Services exist (BitPay is one of them, Coinapult is another) that will facilitate payments made in bitcoin and allow one either to keep funds in bitcoins or convert to fiat money. Of course, such services may come with restrictions: minimum settlement amounts or fees, for example.

In future, the volatility risk might be mitigated even further by the introduction of fiat tokens: picture bitcoins that are tagged with fiat values that are tethered to the Bitcoin payment network. These would have all of the advantages of upper-case B Bitcoin—immediacy and low-cost—while eliminating the tie to lower-case b bitcoin that people fret is volatile. (I’m not so sure the dollar is a good long-term store of value, given its historic decline in purchasing power, but that’s for another post.) One could accept a token worth $500 with confidence that its value will be $500 in a month or a year, and not whatever (say) 0.77 BTC is worth a month or a year from now.

Wherever future innovations go, cryptocurrency is undoubtedly here to stay in some form, but likely in many forms. Lawyers, like other consumers and merchants, will gradually adopt it as it becomes more familiar and simpler to use. Those in the bitcoin space that can build in truly innovative features will be well-placed to drive acceptance in the coming years.

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Stuart Hoegner is an international gaming and cryptocurrency attorney and accountant. He's the managing director at Gaming Counsel P.C. in Toronto.

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