Bitcoin is a decentralized digital currency based on a mathematical algorithm. Users can easily buy or sell Bitcoin online and use it to pay for goods and services. Its value comes from the same place as those rocks you call gold and silver: Because the people say Bitcoin has value, it has value. Vendors accept Bitcoin because they can turn Bitcoin into real-world currency or use it to purchase other goods and services. Recently, brick-and-mortar retailers have begun to accept Bitcoin as payment for items. Its value fluctuates like other currencies, and was recently (as of July 1, 2013) valued at $90 USD per Bitcoin.
Are law firms actually accepting Bitcoin?
Yes. A few firms are. This April, Law 4 Small Business, a small business law firm serving clients all over the country, announced that it would accept Bitcoin, becoming one of the first law firms in the country to do so. Larry Donahue of Law 4 Small Business, discussed how he decided that his firm should start accepting Bitcoin. Mr. Donahue had two clients accepting Bitcoin, he said, which sparked his interest. As a law firm representing high-tech companies and small businesses, he was intrigued by the online-based currency. “I thought . . . I’ll be a responsible Internet citizen and accept Bitcoin.”
Bitcoin and international transactions
Mr. Donahue noted that accepting Bitcoin is a smart decision for dealing with international clients and transactions, not only for law firms, but for small businesses as well. “Internationally, financial transfers are a huge pain. Wire transfers are expensive. If you have a lot of low-dollar, high-volume wire transfers it does not make sense,” Mr. Donahue said. “There is a lot of need for which Bitcoin will fill the gap.”
As the Wall Street Journal recently noted, a boon to Bitcoin is that it doesn’t have the high transaction fees normally associated with credit card processing, which can often be as high as 3-5% for small businesses and law firms. Bitcoin services can be less than 1%.
What about ethical issues of accepting Bitcoin?
Since Bitcoin has a dollar-value (as you can buy and sell Bitcoin in an online exchange for U.S. Dollars), you can have an idea what your services are worth in Bitcoin. Mr. Donahue illustrated how attorneys can accept Bitcoin from clients and then turn it into dollars to comply with the jurisdiction’s rules on professional responsibility. “If you are paying me in Bitcoin today and it’s worth $1,000, I can take your Bitcoin and convert it into $1,000 today. That Bitcoin value goes away. Whether [Bitcoin] drops or increases, $1,000 has been credited into my account. And that would be compatible with the Rules.”
An attorney can accept Bitcoin like they could accept bars of gold or flowers in exchange for legal services. The Model Rules allow it. You may want to check with your specific jurisdiction’s rules for further reading on the subject. The Model Rules notes that a fee for legal services must be “reasonable.” So, when accepting Bitcoin, you should make sure to use the current exchange rate of Bitcoin to USD as a guide. You could make it easy and charge clients, for example, “$1,000 USD or its present Bitcoin equivalent.”
What other issues are there for Bitcoin?
Mr. Donahue noted that upon accepting sums in Bitcoin, he transfers them into dollars to be able to account for them with his accounting software and pay taxes. “I try to get CPAs involved,” he said, “but they don’t know about Bitcoins. Right now there’s a practical void of how to treat Bitcoins for tax purposes, let alone tax software.” But, Mr. Donahue noted, with more people using Bitcoin, it will “legitimize the marketplace and answer these fundamental business questions that are a barrier in the first place.”