Bitcoins, Digital Currency, International Affairs & Lawyering

Michael Sean Quinn, Ph.D, J.D., Etc.

Quinn and Quinn

1300 West Lynn #208

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-0503

mquinn@msqlaw.com

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.)

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.