Attorneys in North Carolina can accept cryptocurrency as a flat fee for representation as long as it isn’t excessive and ethics rules about entering into a business transaction with a client are met, the state bar recently advised.
North Carolina is the second state after Nebraska to issue an advisory opinion providing guidance on accepting cryptocurrency for payment. The New York City Bar Association issued an opinion in July 2019.
Cryptocurrency is a digital currency where transactions are recorded on a public digital ledger called a blockchain and trade on exchanges that operate like stock exchanges. Popular forms of cryptocurrency include Bitcoin and Ethereum.
Despite the risk and volatility associated with crypto markets, law firms, including Big Law players, appear to be accepting cryptocurrency as payment for services more and more.
Nevertheless, cryptocurrency is classified as property not currency, the opinion said, so it’s subject to the requirements of state ethics rule 1.8(a). This requires that the rate be fair and reasonable to the client, the attorney advises the client in writing to seek the advice of an independent third party attorney, and the client gives informed, written consent to the terms of the transaction.
Because of the risk inherent in cryptocurrency—the value of virtual currencies “fluctuates significantly and unpredictably from day to day"—there should also be an agreement between the lawyer and client on when the valuation of the virtual currency is determined, the opinion advised.
An attorney can also accept payment in cryptocurrency as a flat fee from a third party on the client’s behalf, it said. But there can be no interference in the lawyer-client relationship.
Crytocurrency can’t, however, be used as a retainer payment, the opinion said. Because it’s property, it has to be placed in a “suitable place of safekeeping,” according to ethics rule 1.15(a).
But cryptocurrency can only be “held” in a digital wallet or in “cold storage,” which don’t meet this standard, it said.
Transfers of virtual currency from one account to another can’t be reversed, so if it’s accidentally sent to the wrong account it’s gone, the opinion said. And the same is true if the holder of the currency loses the “private key” that accesses the account, it added.
For the same reasons, an attorney can’t accept cryptocurrency in trust for another party, such as a payout for a settlement to be paid once the terms of the agreement have been satisfied, the opinion said.
The opinion is N.C. State Bar 2019 Formal Ethics Opinion 5, 10/25/19.