And other crypto bros too, I guess.
You may recall in the halcyon days before any of us ever spent any time thinking about pandemics and public health on a daily basis that I wrote about how Nebraska became the first U.S. jurisdiction to issue ethics guidance on whether lawyers could accept payment of fees in Bitcoin. If you missed that moment, you can read that post here.
Fast forward five years and there really haven’t been many other jurisdictions addressing lawyers and cryptocurrency. There have been pretty good reasons for that. One of them, despite the fact that people keep seeming to flood the CLE market with various “what lawyers need to know about Bitcoin” or “what lawyers need to know about NFTs to survive” programs is that . . . very few people need to really interact with or know anything about cryptocurrency.
Well, that’s not quite right. People certainly ought to know that we already have a monetary system in which people agree that something with little actual value (small pieces of metal and larger pieces of paper) has imaginary value (this piece of paper is worth $5 while this piece of paper is worth $20) and that system – while it has its flaws – is not an environmental nightmare.
Earlier this month, the Ohio Board of Professional Conduct issued an ethics opinion about whether lawyers can accept and hold forms of cryptocurrency in escrow. For anyone who still wants to know what cryptocurrency is exactly, Opinion 2022-07 does a very good job of succinctly explaining it.
Cryptocurrency is a digital, encrypted, and decentralized medium of exchange
with an equivalent value in fiat currency. Cryptocurrency relies on blockchain
technology, a type of shared peer-to-peer network that stores data in blocks and tracks of
all transactions. Cryptocurrency is stored in an electronic format commonly known as a
“wallet.” A person receiving cryptocurrency from another person uses a “public key”
that identifies where the currency is to be sent. The sender uses a “private key” that
authorizes changes in debits and credits to each party’s wallet. Cryptocurrency
transactions are largely unregulated, relatively anonymous, and irreversible. The price of
cryptocurrency is extremely volatile and subject to market fluctuation. See generally, Neb.
Ethics Adv. Op. 17-03 (2017), D.C. Bar Ethics Op. 378 (2020).
The opinion also gives the correct answer to the question it addresses. Recognizing that this stuff is regulated by the IRS as property, a lawyer can hold such items in escrow as long as they keep it separate from their own property. This outcome is governed by RPC 1.15. In this respect, cryptocurrency is little different than an AR-15 — another item of property that theoretically could serve a useful purpose but that actually does way more harm than good to society and really shouldn’t be possessed by anyone. Further, like an AR-15, cryptocurrency may well be used as part of a criminal venture and the opinion warns lawyers to try to be vigilant about making sure they are not being asked by a client to hold cryptocurrency as part of a money laundering endeavor. (That advice, of course, also can apply to a lawyer receiving real money as well.)
Unlike real money, however, financial institutions will not accept crypto for deposit so the opinion notes that a lawyer will have to come up with some other way to hold the cryptocurrency in a fashion that keeps it separate from the lawyer’s own property. Presumably this means that the lawyer will have to create a separate “wallet” (or, if you prefer, “bag of holding”).
Finally, the opinion also reminds lawyers that, because of their duty of technological competence, they will also have to make sure they know how this stuff works (see above) and that they take reasonable measures to protect against property loss while maintaining possession. Presumably, the Ohio Board means safeguarding against hacking schemes (such as this one) rather than expecting lawyers to do anything about the fact that, for example, Bitcoin has lost roughly 50% of its value during the past year for no apparent reason (other than perhaps the fact that all of its value exists for no apparent reason).