0 Comments Published on April 24th, 2014 by Patrick McElroy
In the last 12 months Bitcoin has received quite a bit of buzz in the media. Bitcoin has also experienced a price increase of about 800%, its trading volume per day has increase dramatically, and Venture Capitalists from all over the world are investing millions of dollars in Bitcoin development companies. For both positive and infamous news stories Bitcoin has graced the covers of the New York Times, USA Today, Time, Bloomberg Businessweek and countless others. Economists have called it everything from “evil” to “ingenious and elegant“. But one thing is for sure, Bitcoin is here to stay.
One of the first questions when considering whether law firms should accept Bitcoin as a payment method is whether or not it is even legal. The short answer to this question is: yes. It is just as legal to accept Bitcoin in exchange for legal services as it is to accept gold or flowers or anything else. The Model Rules allow it, as long as the fee for legal services is “reasonable”.
Bitcoin has an exchange rate with the US Dollar that can be found on many different Bitcoin/Dollar exchanges online. If you look at the history of the exchange rate you will immediately notice that the price of Bitcoins is highly volatile. It is not uncommon for the price to swing 15-20% in a single day. This volatility can be attributed to many things but is to be expected from any new technology. While still volatile now, the volatility of Bitcoin is decreasing as this new online currency grows in popularity and usage. Despite the wide swings in price there are ways to protect yourself from them and remove this risk completely, which I will discuss below.
An additional risk that may cause a law firm to be hesitant in accepting Bitcoin is its perceived reputation as a medium of exchange for illicit activities. While Bitcoin has been used for its pseudo-anonymous properties to purchase illegal drugs on websites such as the Silk Road, the vast majority of Bitcoin transactions are for legal purchases. In fact, it is estimated that drug purchases account for 1% of world GDP when measured in national currencies, whereas the total purchases of drugs online as a percentage of total bitcoin transactions was only .5%. Despite these numbers the reputation of Bitcoin is still based on the perception but the perception is improving as usage grows.
So with these risks, WHAT ARE THE BENEFITS of accepting Bitcoin?
Lower transaction fees
This is probably the single biggest reason law firms should accept Bitcoin. Bitcoins can be exchanged between two people with ZERO(or negligible) transaction fees over any distance. This can be especially beneficial for international clients where exchange fees and international banking fees for local currencies can add around 5% onto all transactions. Additionally, credit card companies, whether for international or local transactions, typically charge about 3% per transaction. Bitcoin fees are a little strange to people who have never used Bitcoin. All fees are optional but all transactions must be confirmed by the Bitcoin network which will prioritize the confirmations based on the fees included by the user. I don't want to bore anyone, so if you're really a tech nerd that wants to understand how bitcoin works under the hood, here's a great place to start: www.bitcoin.org.
So how do you protect your firm from the volatility of Bitcoin? Let’s assume that as a law firm considering accepting Bitcoin, you are experts in law but not exactly experts in Bitcoin. Maybe you are interested in accepting Bitcoin to lower costs or draw in more clients, but not interested in holding Bitcoins yourself. Well you’re in luck. There are several companies in the US (Coinbase, BitPay, et al.) that specialize in setting up businesses to accept Bitcoin and most offer a service that allows you to immediately convert all (or a percentage of your) transactions to US Dollars. These companies assume all the risk surrounding Bitcoin’s current volatility. So if you receive a payment for law services rendered in Bitcoin the only thing you will see is US Dollars hitting your bank account. They typically use the average exchange rate on several exchanges and guarantee that rate at the time you receive the Bitcoins. (Sounds a lot like what credit card companies do when they set up a business to accept credit cards, only they charge much much lower fees.) So your firm gets the benefits of lower transaction cost and a wider client base without dealing with the volatility or the hassle of dealing with exchanges directly.
After talking with three attorneys whose firms have recently started accepting Bitcoin as a payment option I found two other benefits to accepting Bitcoin that may not be as obvious and quantifiable as the lower transaction fees.
The next reason law firms should accept Bitcoin is the amount of free advertisement they received as a result of accepting Bitcoin. Due to the novelty of the new technology and the headlines in major media outlets about Bitcoin, all three firms were featured in local news for accepting Bitcoin. These firms were all small and put a priority on staying on the cutting edge of technology and innovation. Accepting Bitcoin is an easy way for a firm to be an “early adopter” of technology and remain competitive with larger and less nimble firms. The free advertisement was also directly linked to gaining new customers in one of the three firms.
Another benefit and reason law firms should accept Bitcoin is that two of the firms noted an increase in business. Two firms stated they had clients choose their firm over others simply because they had heard that the firm accepted Bitcoin. Additionally, I have personally met clients who only use attorneys that accept Bitcoin. However, in all these instances the increase in business has been small.
Where to beginThe first thing you should do is learn as much as you can about Bitcoin. Bitcoin has no central authority that issues or controls the value of Bitcoins and there is no company to contact for chargebacks so it is very much a caveat emptor environment. As I stated above, the best way to start accepting Bitcoin is to contact one of the many companies that help businesses start to accept Bitcoin. These companies can both advise you and take some of the risks off your shoulders. Interested in law and technology? Attend one of our FREE webinars to learn more!