Cryptocurrency is quickly rising in popularity but should lawyers accept it as payment? In this episode of The Florida Bar Podcast from the 2018 Annual Florida Bar Convention, host Jonathon Israel talks to Drew Hinkes and David Silver about how lawyers can and should interact with cryptocurrency. They discuss the volatile aspects of the technology, how attorneys go about accepting cryptocurrency as payment, and the potential for a legal community coin in the future.
Drew Hinkes is the general counsel, chief legal officer, and co-founder of Athena Blockchain, a financial services advisory firm focused on the tokenization of investments.
David Silver is a founding partner of Silver Miller and is focused exclusively on representing aggrieved investors and cryptocurrency users worldwide who seek to recover their financial losses.
Your Opinion Matters
Help us make your favorite shows better by completing the 2022 Listener Survey.
The Florida Bar Podcast
2018 Annual Florida Bar Convention: Cryptocurrencies in the Legal Industry
Intro: Welcome to The Florida Bar Podcast, where we highlight the latest trends in law office and law practice management to help you run your law firm, brought to you by The Florida Bar’s Practice Resource Institute. You are listening to Legal Talk Network.
Jonathon Israel: Hello and welcome to The Florida Bar Podcast, brought to you by the Practice Resource Institute on Legal Talk Network. This is Jonathon Israel and I am the Director of The Florida Bar’s Practice Research Institute and we are recording today from the 2018 Annual Florida Bar Convention in Orlando, Florida. Thank you for joining us.
Today we have David Silver and Drew Hinkes joining us to talk about the dark scary world of cryptocurrencies and how they can impact the practice of law.
Drew, if you don’t mind telling our audience a little bit about yourself and what it is you do and how you came to be involved in cryptocurrency?
Drew Hinkes: Hi Jonathon. Thanks for having me. So my name is Andrew Hinkes and I am a lawyer, currently General Counsel of a company called Athena Blockchain, which is based out of Miami, Chicago and Santa Monica. We are an investment advisory firm focused on tokenized investment products. Recently I left partnership at Berger Singerman to join the company and it has been very exciting.
Jonathon Israel: Great. And David.
David Silver: My name is David Silver. I am just a lawyer who likes to sue people. I have got the largest class actions in crypto. I got into crypto accidentally. I was on a philanthropic mission somewhere in 2014, we were sitting in a bar and someone was talking about bitcoins, took my cell phone and gave me five bitcoin, which at the time was worth $1,000 and we were all amazed that this guy just randomly was handing out $1,000 to people he barely knew.
In January of 2018, those five bitcoin were about $130,000 and that evening changed my life. I am now known as a cryptocurrency advocate and I have got maybe 10 class actions, with the present valuation over $1.2 billion.
Jonathon Israel: Wow, that’s great. That’s interesting.
Drew Hinkes: Can I borrow some bitcoin?
Jonathon Israel: He is going to be handing them out at the bar later today.
So David, one of the interesting things you talked about there was how quickly the value of those bitcoins changed. So I am an attorney in Florida and somebody walks in my door and says hey, are you going to accept bitcoin as a form of payment, what do I need to do? What do I need to be concerned about if I want my answer to be yes?
David Silver: So to be fair, Drew is more of the regulatory expert than I am. I can only give you practical advice. We do accept bitcoin. There are two different issues of accepting bitcoin; there is fees that are earned as is upon receipt and fees that are going to be billed against that you have to — in theory, if you use US dollar, that money can go into two different accounts. One can go into your operating account if you already have earned the fee, but the second chunk of change would have to go into your IOTA account, and obviously, there is no such things for bitcoin.
What we have done, first of all, we only accept bitcoin as earned, so technically we would never have to put into an IOTA account anyway, but in order for — to be safe, conservative, to make sure that the rules change, because there is no real clarity in the rules, we set up individual accounts on a large US-based exchange that protects us and the clients just in case something happens. So for every bitcoin we have ever accepted, I believe we still hold that bitcoin even though most of the cases are over.
Jonathon Israel: And Drew, anything you want to add being the regulatory person wearing the tie today?
Drew Hinkes: So I am wearing a tie and as David was nice enough to mention, I am sort of the academic here. I teach a class at New York University in the Law School called Blockchains, Digital Currency and the Future of the Financial Services Industry. What David described to you was actually him being sort of brave and a trendsetter.
Nebraska has an ethics opinion that talks about what lawyers are supposed to do when their clients want to pay them with crypto assets, like bitcoin, but Florida has yet to come out with any sort of ethics opinion. So what David described, it sounds like a pretty solid and prudent practice, but for the Florida lawyers out there, if this is something that you think is important, you should ask for some further clarity.
Jonathon Israel: David, you talked about how you have to go and set up these separate accounts when you start looking into accepting cryptocurrency as a form of payment. Where do I start and what do I do to actually form these accounts? Where do I go?
David Silver: So there are four basic US exchanges for cryptocurrency. I am only going to talk about two of them because I know those two best. There is coin-based and Gemini, where, let’s just say those are the only two I know from establishing accounts for people. You would basically walk in and you can establish a business account, you can establish a personal account. Those accounts would then be linked to your law firm account.
You would then, assuming you were going to accept cryptocurrency and you were going to accept it on coin-based, for instance, you would be able to accept bitcoin, bitcoin cash, Ether, Litecoin, and eventually Ethereum Classic.
What ends up happening is you would then deposit it in your account. If you are doing it for a fee that has not yet been earned, I think it would be the opinion Drew was talking about and we looked into this, your best bet is to actually liquidate and because of the markets, you could basically liquidate instantaneously on the large exchanges, is to liquidate instantaneously so you have the cash value in your account that day, and at that point it’s no different than transacting regular business.
Drew Hinkes: Right. And that’s important because one of the concerns is that the value provided to you by the client in terms of a crypto asset may be volatile against the US dollar. So the mandate that you change it to US dollars immediately is intended to vitiate any exposure to that volatility.
David Silver: And the reason that’s important, and Drew brings up a good point, that’s the difference between someone like me who, any crypto I take, I take as an as earned fee that’s been earned upon signing the contract versus someone who is going to bill hourly against the crypto. So I have already agreed to the value of what I am accepting and I have earned that fee upon acceptance. A lawyer who is billing hourly, if they had accepted a bitcoin in December 2017 at $20,000, that’s now only worth $6,000. You would have a tremendous problem because who would be punished by that law should need a contract and I don’t think the Bar wants to get into those types of issues.
Jonathon Israel: They definitely don’t. We keep talking about the volatility and it seems like everyday when you turn on the news there is a new coin that’s coming out and another cryptocurrency. What are things that attorneys should be looking out for, are the ones you definitely want to avoid, are the ones that you think are safe to get into?
Drew Hinkes: I don’t think it’s appropriate for either of us to give anything that might be understood as investment advice, but some basic things to think about are as follows. How is the coin making it out to consumers? Is it being sold? If it’s being sold in exchange for dollars or other cryptos, then it’s possible that the offering is something that the market has started calling an ICO, which is a clumsy phrase for Initial Coin Offering or a what others would call a token sale.
So the questions that should be on the minds of potential buyers is whether this is being offered as a security or not? If it’s being offered as a security, they should very assiduously review the placement documents or the offering memorandum and they should probably consult with their own investment advisors or their own private counsel with respect to their financial decision making.
If it’s not being offered as a security, given the current regulatory climate, that might be a significant area of concern.
David Silver: I am going to listen to my attorney who told me I shouldn’t answer the question from an investment’s advice point and I agree with him completely. I tell everybody, I mean Drew and I are probably two lawyers that have been in this space longer than anybody and you can tell that neither one of us drives a Lamborghini. Neither one of us invested in 2010 or 2014 to have appreciated that this gigantic leap of valuation was going to happen.
So what ends up happening is that as someone asked me all the time, you can take any cryptocurrency, and currently there are about 1,600 of them, I always tell people put them on a spin wheel, spin the wheel and throw a dart and whatever happens and where they land is, which one is going to survive in the next 20 years, none of us know and I don’t know.
Jonathon Israel: Staying away from an advisor investment standpoint, do you guys see maybe coming down the road a coin that’s specific to the legal market or legal industry?
David Silver: So I speak at a lot of the conferences, whether they be legal conferences, cryptocurrency or investment conferences, I tend to speak at a lot of investment conferences about red flags and what to watch for. But I will tell you what the advocates at those conferences would tell you. So these are what those people would say, not what David Silver would say.
Those people would say that the world is going to tokenize in the next decade, that everyone is going to have their own blockchain and a token that you can use on that blockchain. So if it’s good for everybody else, my answer would be it’s good for the lawyers.
So if the regulatory structure over the next decade allows for the tokenization of going to seeing doctors, investment advice, you name it, everyone believes that if you are there you shouldn’t get pitched for everything, then there would be no different for legal services. If your law firm is Dewey, Cheatem & Howe, you will be able to sell a token for services to Dewey, Cheatem & Howe and they will be able to say we are going to sell each token for $10 and that token guarantees you legal services.
Now, would I personally want to retain my attorney using a token where my services are at a certain rate and everyone was getting the same valuation? I am not sure that’s a good idea. I am not sure that’s how I would want to do it. But I do believe that in the future there are going to be some law firms who try and do that.
Drew Hinkes: So you bring up an interesting point David and that is the use of crypto assets to stand in as a payment marker where you would essentially be purchasing a gift card or a prepayment instruments and a lot of the tokens that have been sold have looked and smelled a lot like securities, which is what’s caused the SEC to take such a prominent place in the regulation of these assets, but that model that you just described is one that’s sort of interesting in that it looks less like a security and more like a prepaid instrument and that’s a different conversation for another time.
However, your point is a good one and that is there are folks that think that there are going to be tokens issued for everything under the sun. My business that I am a partner in and a cofounder of and a General Counsel of called Athena Blockchain looks at the idea of tokenization in the capital markets and looks at the benefits of tokenization for those that want to issue and offer investment products to the market.
So while I don’t know that there is ever going to be a Florida lawyer coin that would take off or a US lawyer coin that would become sort of this niche payment instrument, there are some areas where I can see some of the benefits of tokenization supplanting existing models and I think that the capital markets may be one.
David Silver: And just to be clear, I mean there is currently Jesus Coin, you can prepay for your sins right now just by buying a Jesus Coin. Again, I was advocating not what I believe, but what other people within the tokenization industry who believe everything is going to be tokenized would do.
I don’t know where the government is going to come down. I tell everybody, I am not a regulatory expert, how the SEC, how the different — how Congress, how the Executive Branch decides to deal with this in the next 10 years, I think it’s going to be fascinating. It’s always darkest before dawn.
Drew and I spent a lot of time talking about some of the bad stuff that happened in the early years when we were talking before. I think the light is coming. I think that there is a lot of positive that’s coming. I am a big believer in the underlying technology. I just don’t know what’s going to end up happening from the government’s side in the next 10 years.
Drew Hinkes: One of the big ironies in the space is that these technologies are an outgrowth of some pioneering work by folks like David Chaum in the 1980s and Nick Szabo in the 2000s intending to try to find ways of conducting commerce that didn’t involve coordination with government authorities, trying to find stateless currencies.
And if you look at the bitcoin whitepaper you will see that it actually says peer-to-peer decentralized cash, it is supposed to be cash. And this particular product, bitcoin is being used more like an investment product now. But the entire ethos underlying these products was to do something that’s independent of regulation, to do something that does not rely upon the state to support or to control your commerce.
And what we are starting to see now is that regulators in the United States are co-opting a lot of this and that it may come to bear that its highest utility is for working within regulation to create efficiencies, whether these efficiencies get passed down to consumers or are continued to be consumed by intermediaries is anybody’s guess. We will see how that shakes out. But it’s sort of an ironic twist of fate as to the progress of these products and systems.
David Silver: It’s an interesting point Drew is making. The ethos of what Drew just said is just because something is created with one purpose doesn’t mean it’s going to be actually used for that. And a lot of the original anarchist, libertarians — when bitcoin itself was created was during the banking downturn in 2008, to get away from government control and centralization. Ironically, if someone asked me where this is moving I would say well, we are moving back to centralization even within crypto.
People who refute that will talk about the Utopian view that this is all designed on decentralization. Unfortunately, most people that control the computing power, the cryptos themselves have all become centralized and whether that’s good or bad, only the future can tell.
Drew Hinkes: Right. So this might become the Cool Whip of technology. You know why I said Cool Whip, David?
David Silver: I do not.
Drew Hinkes: So an interesting factoid because I am the kind of guy that collects interesting factoids, Cool Whip was developed by NASA in trying to come up with lightweight foams that could be used to make their space faring vessels later. So they came up with this organic foam and then somebody said let’s put some sugar and vanilla in it and now you have got dessert.
David Silver: There you go.
Drew Hinkes: Not intended to be used as dessert, but hey, here we are.
David Silver: So it would be ironic if governments come in and take over crypto, I think is what Drew is saying, because it’s certainly not what it was designed for.
Jonathon Israel: That’s a lot of great information. I appreciate you guys trying to help shine the light on this dark scary world of cryptocurrency for our audience.
Before we wrap up today, I wanted to give you guys a chance to let our listeners know if they have any questions, how would they reach out to you and follow-up with those questions?
Drew Hinkes: Thanks Jonathon. If you want to reach Drew, you can email me at HYPERLINK “[email protected]%20” [email protected] and you can follow me on Twitter, @propelforward.
David Silver: So I am David Silver. I am the Founder of Silver Miller. My email address is HYPERLINK “mailto:[email protected]” [email protected]. My Twitter handle is @dcsilver. My office number is (954) 516-6000.
Jonathon Israel: That’s great. Thank you both.
This has been another edition of The Florida Bar Podcast, brought to you by The Practice Resource Institute on Legal Talk Network. I want to thank our guests for joining us.
If you liked what you heard today, please find and rate us in iTunes. I am Jonathon Israel. Until next time, thank you for listening.
Outro: Thanks for listening to The Florida Bar Podcast, brought to you by The Florida Bar’s Practice Resource Institute and produced by the broadcast professionals at Legal Talk Network.
If you would like more information about today’s show, please visit HYPERLINK “http://www.legaltalknetwork.com/”legaltalknetwork.com. Subscribe via iTunes and RSS. Find The Florida Bar, The Florida Bar Practice Resource Institute and Legal Talk Network on Twitter, Facebook and LinkedIn, or download the free app from Legal Talk Network in Google Play and iTunes.
The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders, and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.