Michael Sean Quinn, Ph.D, J.D., Etc.
Quinn and Quinn
1300 West Lynn #208
Should law firms take bitcoins as fees? Can they do this without difficulty? Can established insurers do it? Should they? What about specialty insurers, e.g., those servings the the cyber world? Some might think there is no reason why bitcoins could not be used to make charitable contributions or offerings to God on, say, Sunday morning. I wonder. I’ll come back to this later.
Some of these questions are legal and some of them are public policy. Others of them are about company prudence. Some others are comical. Imagine an organized group of “ladies of the evening” discussing how to use bitcoins as fees. No doubt they would begin, as all sound business decisions do, by examining analogies to see if they have been successful. In this case, the beginning analogue is credit cards. (“OK,” said the pimp, “Master Card has worked for us. But clients prefer AmExp. They say it is easier to keep different and secret cards. But it hasn’t worked for us because its transaction fees are larger, and it takes longer for them to pay.)
Bitcoins are not coins, at all. Instead, a bitcoin is a fundamental unit of a currently popular “digital” or “virtual” currency,” What it is and how to get and use looks simple. How it works in so called “cyber-space” is really not; it is an entirely different matter. How to get it simple, but sometimes a little difficult to figure out how to spend it. Spending is also relatively simple and not nearly as difficult as understanding how the system works. (Here the idea of “how to spend it” is not about what it should be spent on or with whom there should or should not be expenditures.) The difficulty can be the “mechanics” of getting the spending done. In principle, buying is always on the easy side, but this is a theoretical matter and the novice may have difficulties at first, even though there are now a few ATMs. (It must be kept in mind that “virtual” does not imply “virtuous,” although the two ideas are not inconsistent.)
Currently, and during its short history, the “bitcoin system” has been unregulated, much to the joy of those who are devoted to the idea of a “Free [or, “Common”] Internet,” to those who desire maximal freedom of all sorts, e.g., those who want no speed laws, those who want absolutely as little government as possible (such as those who want to go back on the gold standard), those who want no licenses, the Koch brothers and those who want to launder money or–at least–to be able to conduct commercial transactions across boarders with without customs, custom fees, excise taxes, and various other sorts of inspections, etc.
Bitcoins can currently be used to buy products and services, to speculate, and pay bills, to name a few, in the so-called “real world.,” if relevant entities will take them. They can be used for the same purchases in, inside, and/or restricted the so-called “cyber-world.” (There is no difference between “cyber-space” and the “cyber-world.”) The matter is being objectively studied, one unreliable self-proclaimed artist of punditry has claimed, and another has conjectured that the matter is being studied and some high prestige B-school.
There is no reason why a bitcoin cannot be divided into sub-parts or sub-sub-parts, and those level of parts are to be thought of as fractions of bitcoins. By analogy, for every dollar there are 4 quarters or 10 dimes “within” it, as well as 100 pennies; 4 quarters is divisible into two dimes and a nickel or two dimes and five pennies, and so forth.This fact is extremely important since bitcoins themselves can have a very high dollar value and since the number of bitcoins there are (that exist and will exist) is fixed. (Of course, bitcoins are measurable against the dollar and other so-called real-world currency.
Completely internal to cyber space, bitcoins can be used for many sorts of financial activities: buying, betting, speculating, (obviously not whoring–too physical), and paying debts (for example those generated in video games) to name only a few.
Contrary to the first paragraph, it is not easy to see how offerings in the cyber analogue of a collection plate, where the offering stays in the cyber-world, would work. That’s not because it is conceptually difficult to think about this. It’s because it may be unlikely for there to be a church in a chat room. There is no, and will be no, “Church of the Living Chat. Maybe, I’m wrong. Then again, try conceiving St. Paul in a chat room, later writing a “Letter to the Chat Room Mates.” The same goes for Isaiah.
The key to bitcoinage and Sunday collections is that to do it on-line before actually going to the House of Worship, or after. But that tends to make actual collection less probably. Maybe there is an alternative. Many churches no accept contributions by automatic deductions from bank accounts or credit card accounts. They don’t say much about it and don’t love it, but never mind. Surely the same sort of thing could be done with bitcoins, so long as the church has devised a method for turning bits into bucks.
Back to whoring. Why could a prostitute no accept fees paid in bitcoins. Of course, she will have no solid object as pay she can put in her, say, purse. Nevertheless, could risk taking that money, if she had equipment and knowledge to store it. Of course, she should insist on being paid in advance, and she should keep her passwords and key related information to herself.
The use of various digital currencies is likely to become more regulated fairly quickly. The IRS recently ruled that Bitcoins are property and not just “mere” money for example; as a result, some bitcoin sales will trigger capital gains taxes. This tax rule will permit (indeed, require) that the IRS reach inside the finances of the cyber-space found in the cyber-world and check to see changes in the value of bitcoins when they are sold. In addition, many investors want more regulation, not less. They want to do this to protect themselves.
The coming of regulation and predicting its later history is interesting, but not the point of this blog. The topic here is what does the coming of bitcoin, and other digital currencies (if currency is what they really are), mean for lawyering? There will be so many dimensions to this general questions and so many answers they this blog can only be a tiny beginning.
For the purposes of this discussion, and for correct English usage, in contexts like this one, “may” means “permitted,” while “can” means “able.”) Thus, when an insurance company says, “The FoxHunt Insurance Corporation” cannot pay your claim.” what the company has said is false. It certainly could pay the claim; it was able to do so. It may not be permitted to do so for a variety of reasons: state regulations, established company rules or policy, demands of shareholders, and so forth. (Remember: the “may” here is not the “may” of “maybe will” but “might not.”)
1. Can a lawyer represent such entities as the “International Bitcoin Promotion Association. The answer is obviously “Yes,” depending on what activities the lawyer performs. Obviously, lawyers cannot be part of entities like “Silk Road”: its a criminal enterprise. Lawyers might even be able to represent “Silk Road” with respect to some things. This topic will come up again.
2. May lawyers accept bitcoins as payment for legal fees? (Of course they may. Lawyers can accept bees, keys, eels or combinations of them for fees, if they wish, and a client want to pay that way. (This is is true even though lawyers may not be able to accept what might be called “illegal certificates” as fees. Examples of this include coupons for cocaine, chips for illegal gambling establishments, charge cards usable only at Lawyer probably cannot demand this, any more than a n American lawyer in Detroit can out-of-no-where demand to be paid in rubles. Demanding payment in eels is a different matter that accepting eels as payment. A more interesting is whether a lawyer can accept rubles from men but refuse them from women, accept rubles from clients at or over 5’6″ but not under, refuse to take from African-Americans but not Native-Americans, and so forth.
3. May lawyers require/insist on being paid in bitcoins? This is is a contract matter, so the answer is “Yes.” To be on the safe side, the lawyer should make sure that the client has clearly consented to the arrangement. Initialization on the contract document at relevant points is a good idea. It would be safer for the lawyer, if the client entered into this agreement only if the client very clearly had informed consent.
(Notice the consent required is informed consent and not merely consent, or even having clearly consented. Informed consent is not the same as having been clearly been told; “informed” in contexts like this one requires “having understood.” Is it the lawyer’s responsibility to make sure the client’s consent is actually informed. Technically, the answer is “No,” since the party contracting is doing so to become a client and is not yet one. Unless the informee is a client at the relevant point in time, the lawyer does not owe fiduciary duties to the about-to-become-client. Depending on technicalities in this context is a very bad idea. Is a lawyer responsible for making sure that his client knows what real “informed” consent is? Is a cursory explanation sufficient?)
4. May lawyers keep client money in IOLTA accounts in bitcoins? (With informed client consent, “Yes.” Otherwise “No.” (Again, notice the consent required is informed consent and not merely consent. It is the lawyer’s responsibility that the client is informed. An IOLTA accounts is really a trust, so the money in them belongs to the client. Keeping the money in Nigerian currency for an American client without the client’s informed consent may not be done legally or ethically, and digital money is even more shaky.
5. May lawyers settle cases in bitcoins (or other digital currency)? (“Yes,” but informed consent is again a key for one’s own client. The nature of the consent of the opposing person is not the problem of opposing counsel.)
6. Do the answers to these questions get reversed if two or more different digital currencies are being mixed together in doing a deal in the real world? (The answer is ” Probably Not,” since the needed explanations to clients are much more complex. Relating bitcoin to the dollar can be complicated enough, but what if a bitcoin and another type of digital currency have to be fit together with a system of real-world currencies for a single deal. Imagine that the real-world currency involves not only them but also involves yens, rubles, and dollars? That still does not change any principle of the law of lawyering. It only makes matters more complicated again.
7. What if a client asks the lawyer to explain how bitcoins works? Certainly the lawyer may proceed if that lawyer can do it correctly and.or does in fact give a satisfactory explanation. If she fails to give a correct explanation, the lawyer may be liable. It is permissible, and sometimes demanded, for a lawyer to way, “I don’t know,” and suggest that the client go down the street to local office of Bitcoin Service Corp., Austin Division.
Notice I have not formulated this problem sharply into two categories: (L speaking to C as C’s lawyer rendering legal advice versus L speaking to X about becoming C or L to C about how to handling billing and paying, i.e., as a service provider to a customer about how to pay fees) The problem, however, weaves in and out of the following discussion.
But suppose the lawyer sets out to explain the system and get it wrong? Is the lawyer liable for the client’s losses, where those losses derive from the lawyer’s defective explanation? “Yes.” Is it a defense if the lawyer correctly says this: “I didn’t know what I was talking about, but wasn’t functioning as a lawyer. It is not a lawyer’s job to explain currency systems.” This defense fails. With clients, if lawyers discourse upon and therefore advise clients on all sorts of things which are not within the “Lawyer Bailiwick,” yet are the sorts of matters with respect to which the clients need expert advice based on economic, business and social principles, the discourse of the lawyer will be understood to be lawyerly. As will ducks, if sounds like, . . . . context and purpose matter.
What if the lawyer said, “I’ll try to tell you, but I’m not sure I understand the matter, so if you listen to me, you are taking a hell of a chance,” but the client says go on, relies on what his lawyer told him, and then loses big. Does the lawyer have a defense? Technically, “Yes”; for real-world decision-making? “No.” (Note carefully: The phrase “real-world” used in the last sentence does not have the same meaning it has had elsewhere in this blog.)
Now for a paradox. The client question is : “Are bitcoins really currency?” (As a theoretical matter, and as a practical matter, is the IRS right? The first question the lawyer must ask him/her-self is whether this is a legal question–a lawyerly question? It is obviously Yes,” even though the the lawyer will have to know not only about tax law, but also something about sophisticated money theories, for example, something normally attributed to high-powered economists–the Krugmans of the world–and not to the “ordinary” lawyer.
In any case, the lawyer champing at the bit needs to know about things other than the law. So what one could correctly say; the same is true for patent law, anti-trust law, and so forth. Still, not all lawyers should take on this task; indeed, most should not. Remember what I said about the internal cyber-workings of “crypto-currency,” to employ an very nearly completely false phrase? I suspect that if one doesn’t know about these matters, working on the above question should not be attempted.
8. One lawyer recently became the full-time, non-volunteer general counsel for the Bitcoin Association. Virtually the first thing he did was testify “briefly” before a congressional committee. Much of his time has been and now is spent running around seeking investors and calming those who were slapped around by the recent Mr. Gos “incident.” Historically speaking, he was one of the original founders of Bitcoin. Is all this what a lawyer should be doing? Answer: It’s “OK,” so long as the lawyer is not doing anything illegal. On the other hand, the activity has a little bit of a sleazy feel to it. Then again, maybe that’s wrong; the business if innovative and high risk, but not intrinsically crooked.
Technically, again, is a lawyer raising investment money for a client acting as a lawyer when doing this? The answer is–as is often usual–(1) Sometimes yes and sometimes no, plus (2) It depends on the context.
9. Can a lawyer that represented Bitcoin also represent a prominent support of it in the process that ended in his pleading guilty to one count of a federal charge, to wit: “aiding and abetting the unlicensed operation of [a] money transmitting business”? Charles Shrem did this as a result of his frequent and loud support of Bitcoin and Silk Road, usually thought of as a dope distribution biz. At least he avoided having to plead to to more serious money laundering charges. NYT 8/31/14. The charge based on Chem, and a co-conspirator selling $1M in bitcoins to Silk Road criminals, to use the phrasing of the prosecutor. Shrem and the conspirator will have to forfeit that to the government and the sentencing guideline are such that he could get as much as 5 years and a fine as large as $250K. Joon Ian Wong, DAILY BITCOIN NEWS (9/5/14) Shrem admitted in his plea that he knew that he was doing was wrong. Now, for the question. Assuming that there was no waiver, a lawyer for Bitcoin could not represent Shrem. This is not even a close question.
10. Now for a last question really more about this blog that about the topic: Are lawyers permitted to bore one another. The answer is “Yes,” of course, though it is not essential to even the modern version of the profession.
The magazine yBITCOIN
was to be found in Volume I No. 4 in November of 2014. I found my copy on a free news stand at Whole Foods in Austin, Texas. (The letter “y” is colored something like orange, though not that of UT.) It is a “glossy mag” with more advertising than you can fine in issues of GQ, VF, and Wired, all combined, but calculated as a percentage of the number of pages. Still the advertisers are mostly know and some respectable companies with recognizable names and capable ad agencies, given the pics. The cover has a very mod drawing of a convention bearing the title ‘THE WORLD’S LARGEST BITCOIN CONVENTION (done is colorful different sized type) and up with the mag name there is the title “Introducing the Future of Money.” Kind of wild looking scene with a blimp up in the top-left exhibiting a sign in italics, to wit: bitpay.
Nevertheless, inside it has lots of interesting articles for the novitiate. The articles are diverse and all elementary, though not in the “Sherlockian” sense. Four pages present a chronology 2008-2014.
On October 28, 2014, WSJ carried a story that Arthur Levitt, who headed the Securities and Exchange Commission from 1993 to 2001 had become an adviser to two “bit currency” establishments. One of them is PitPay, a digital currency payment processing company, and Vaurum–and no, it’s not a rum bar–an investing firm for those interested in the world of digital currency. Mr. Levitt has indicated that digital currency has a huge future, that those in involved in its design and early days are a brilliant bunch, and that regulation is needed. Obviously, increasing regulation is lawyer-work, lobbying, help draft regulations, designing forms, expressing opinions about forms, help/leading the filing of forms, handling disputes informally, before administrative tribunals, and then before a variety of different courts.
On December 1, 2014, WSJ carried an article on pp. C1+ about “Boost,” a company founded in 2012, to put on training sessions, or “boot camps” for prospective bitcoin entrepreneurs. Many apply but few are chosen, apparently. WSJ’s p. C1 displays a nice colorful diagram. There is no explicit reference to lawyers or to law firms there to use the instruction or to drum up biz. Why do my law business market knowledge and intuitions tell me that there are lawyers present as “students” or are there drumming up clients? (Or maybe they are not coming across as really interested, so then were on the application list but not on the acceptance list.)
The Saturday/Sunday, January 24-25. 2015 Review section of the Weekend Edition of the WALL STREET JOURNAL, C-1-2, carried an article entitled The Revolutionary Power of Digital Currency. Michael J. Casey and Paul Vigna wrote the piece, it is a summary of a new book they also wrote entitled THE AGE OF CRYPTOCURRENCY: How Bitcoin and Digital Money Are Challenging the Global Economic Order. Was published on Tuesday the 27th.
One thesis is that Bitcoin is doing pretty well, and several thousand volunteers are working at trying to preserve its relative immunity to hack attacks. Indeed, they say that these efforts are making it more and more insurable.
A more significant contention is that the world financial order is in bad shape and needs reformation or replacement. The authors argue that digital currency is “THE WAY” out and forward. They claim that major financial institutions and governmental agencies, such as the Federal Reserve recognize this and are setting to work getting ready. The end result of all this is a more efficient currency system and that this will mean more money for all sorts of people, including those of us who are not already wealthy. Obviously, just as other features of Bitcoin history illustrate, this means lots more work for lawyers who have studied up.
“Bitcoin Continues to Make Strides Toward Acceptance” says the Business Section of AUSTIN AMERICAN STATESMAN on Sunday February 4, 2015. The story makes two local significant points. First, there was a “convention”–the “Texas Bitcoin Conference–of some sort in Austin recently and 800 people showed up. Second, Dell is now accepting bitcoin currency to pay tabs, though only in a pilot program, and Bitcoin CEO is meeting with lots more, over 100 more, he says.
In the winter of 2015 it was announced that Republican Party presidential candidate Rand Paul would be accepting campaign contributions by bitcoin. In addition, it turns out that Dr. Paul has very liberal (“OK with me.”) or libertarian views about the use of bitcoins but is skeptical about generalizing their use, i.e., treating them across he board as currency, since he would be more comfortable if they were backed by some salable commodity–think, Hayek’s “basket of commodities,” he says, and he would include some securities as well as thing like cauliflower. Dr. Paul does not like fiat currency, like the dollar, I guess. You might also think “Gold Standard, i.e., adding gold to his basket of securities.
During the Sunday evening PBS half hour News show, there was a story on hacking, extortion, digital-piracy as used against ordinary citizens. At least some of the hackers are demanding that ransom be paid by bitcoin.
In the New York times Magazine for Sunday May 3, 2015 there is a very interesting article regarding the use of bitcoins in international financial dealings. It makes obvious that bit coinage is a good way for someone in X country to get paid quickly, going around the government for work he does and ships off, usually electronically, to someone in Y country. There is now a new trade, as it were, on the street, changing “bit money” into the money of this or that other country. This is an enormous potential practice for lawyers sophisticated in the right sorts of ways. Nathaniel Popper’s, “Quick Change,” is found on p. 48ff. The article is taken from a new book he has written DIGITAL GOLD: BITCOIN AND THE INSIDE STORY OF THE MISFITS AND MILLIONAIRES TRYING TO REINVENT MONEY. Harpers will publish the book in May 2015. Popper is using Argentina as an illustrative–not to say paradigm–case in his article.
: BITCOIN AND THE INSIDE STORY OF THE MISFITS AND MILLIONAIRES TRYING TO REINVENT MONEY (2015), the book, is a breezy, shallow narrative of bitcoin history. Very little is said abut Silk Stuff. But there are discussions of criminal litigation, particularly that involving Mr. Gox, a hero or villain of the new order. (See p 218 ff and pp. 234-37).) Learning the new vocabulary is fun, I guess; who would have realized that there was bit gold mining. And the book at least implies there is nearly a rush to the mines. It is not for the elite only anymore. There is a little discussion of lawyer activities here and there but not much. But there is “BitInstant,” “CoinLab and “Coinbase,” and “Blockchain.info,” Who could ask for anything more interesting. Some of these companies are beginning to sue each other, so the game of transforming international speculative finance is afoot.
The word “Gyff” is the name of a cyber company that sells and distributes digital cards of various sorts — Christmas, business, Thanksgiving, Hanuka–and digital gift cards. Indeed, according to “Lord” Krebs himself, Gyff has been an account holder for some time, though Gryff is now owned by First Data.
Apparently Gyff has recently had an encounter or at least brush with the crooked world of identity theft by hacking, so there is danger for those who use Gyff. Surnames are in danger, as are passwords. In addition, one can imagine Theodora Hackeria getting a name and a password from elsewhere, then buy some sort of bitcoin gift card, and “Poof,” the entity named has just bought several bitcoin accounts for Guess Who?
It seems to me that law firms might have some special exposures. Every year I get Christmas from dozens of law firms for or with which/whom I have worked over the last couple of decades. Some of them even send me foods and trinkets. Now imagine that a Cyber Crook, a malevolent demon, if ever there was one, gets the client list of a firm that buys “Gyff Cards” from Gyff. If you can get a firm’s client list, you can likely to be able to get more information about a client from the firm’s virtual world.
Crime if afoot. On December 17, 2015, for example, the ABA JOURNAL reported that a small law firm coughed up a small sum of money to criminal who introduced total encryption into his file system. At least in some cases, if it can be done to the law firm, it can be done to the client. Now remember what may be at the beginning of the causal chain: Gyff.
There has been other criminal defense work connected to the invention and use of bitcoinage. A Texan, Trendon T. Shavers, pled guilty in September 2015 to securities fraud in federal court in New York. It seem he founded and operated a virtual bank that was not virtuous, in other words, a cyber (or digital) bank with vices. Shavers was shaving $4.5M in profits off the moneys of others by means of a bitcoin-related Ponzi scheme. It worked through online exchanges.
February 17-18 is became public knowledge that Hollywood Presbyterian Medical Center had to cough over $17,000.00 to be able to get to its records. The ransom demand and payment were in bit coins. This has now even been done to lawfirms, such as one in Jacksonville Fla. last December.
On June 21, 2016, the Wall Street Journal reported what may be bad news for Bitcoin. The headline reads, “Bitcoin Rival Gains Steam,” and the sub-headline reads “Ether’s Value Has Rocketed, But a Hack Shows the Currency Faces Familiar Pitfalls[.]” C1 On the Friday before the date of publication a startup with the named “DAO,” the function of which was to back up Ethereum the producer of the new crypto-currency, ether, indicated that it had suffered a loss of $55M worth of the “virtual currency when a hacker re-wrote some of the startup’s code and funneled the money into a private account. The price of ether has dropped about 43% since the hack was disclosed. This is what happens, WSJ implies, is what happens when near juveniles start sophisticated companies.
It was reported in LEXOLOGY on January 16, 2017 that bitcoin investments are maturing. Apparently this is being handled by “Global Advisors (Jersey) Limited, which is the investment manager of the Global Advisors Bitcoin Investment Fund PLC. Apparently Channel Islands Securities Exchange deals with new and presumably important related securities.* Jonathan Lawrence of the K&L Gates firm is listed as the author, and the articles is entitled “The World’s First Listed Regulated Bitcoin,” and is said to come from the the “Post FinTech Las Watch.” There is reference to a couple of other companies dealing in digital assets, including Glint, Gradbase and Aventus Systems–marvelous names, one and all. Apparently, some of these entities are regulated by the Jersey Financial Services Commission.
For a discussion of the instability and unreliability of “bitcoinage,” see Paul Krugman, ARGUING WITH ZOMBIES 411-14 (2020).
Michael Sean Quinn, Ph.D., J.D.
The Law Firm of Michael Sean Quinn
1300 West Lynn Street, Suite 208
Originally posted on 03/28/2014 @ 9:04 pm