Lawyers and accountants don’t seem to like the word Bitcoin very much. Whenever I bring it up in a conversation, I usually get either a scowl or an eye roll. The scowl because many people associate it with fraud, scams and an undefined gray area in the law, and an eye roll because the rest think it is a fad to be short lived. After having practiced in the area for some time, having advised on investment structuring of cryptocurrencies, been actively involved in initial coin offerings and setting up crypto mining operations, I can tell you with great certainty that the technology upon which Bitcoin is based, Blockchain and distributed ledger technology, is not going anywhere.
I won’t get into the technology too much, but in a nutshell: Blockchain technology is based on the concept that monolithic, centralized institutions and databases are untrustworthy and not secure (ie vulnerable to attack). The solution to this is to distribute information among thousands of computers which they all update on one shared ledger which is incorruptible. The ledger is updated when transactions are verified multiple times by an anonymous network of computers. This makes it impossible to hack, 100% trustworthy and extremely efficient. Coupled with smart contract technology, it also removes the need for lawyers, banks and credit facilities as intermediaries that effect commercial transactions and convey, store and transfer wealth.
The value that is transferred is in the form of a coin or token which is a unit of value on the network. The hacking and fraud occur when the people store their coins and tokens in places that are not secure (like on an exchange or a “hot” wallet that is connected to the internet).
There are some good free videos online that illustrate how this works.
Here is why lawyers should be scared: As use cases for the technology proliferate, smart contracts and proofs/verifications will eliminate the need for commercial lawyers and will substantially reduce the number of disputes. This will hit our profession hard.
The question I often get from new lawyers is “what is the best way to get ahead of this before it eliminates my job opportunities”?
The short answer is: adapt. Even though the invention of the internal combustion engine created thousands of new jobs for mechanics, parts manufacturers and car companies with extensive supply chains, the blacksmith who made all the horseshoes fell by the wayside. Even though these new technologies are creating better and more efficient means of effecting commercial transactions and resolving disputes, they are also causing us to reinterpret ages-old tax rules such as barter transactions and extensive securities jurisprudence. Trading coins for goods is no different than when the first chicken was traded for a goat, and the barter transaction rules in Canadian tax jurisprudence are well established.
Issues do arise when we try to apply rules from cases that could not have contemplated the technology we have today. One of the most commonly cited ambiguities is whether an Initial Coin Offering is to be treated and regulated like an Initial Public Offering of securities. The Ontario Case upon which we base that interpretation, Pacific Coast Coin Exchange ( 2 SCR 112), was from a time long before the internet existed. Regardless of its antiquated references, it still provides guidance on how that interpretation is to be made. Becoming familiar with the new landscape and analogies to our modern world will help new lawyers entering this area advise clients on ways to mitigate their risk and explain to judges the minutia which distinguish cryptographic coins from securities.
As a new lawyer entering a world of developing technology there are a few things you can do to ensure there is a place for your services in the market:
1) Upgrade your knowledge and skills. Increasingly this is becoming a market of specialization. Focusing your practice on more specific expertise will make you more marketable, particularly in areas which facilitate the interpretation and creation of innovation and technology.
2) Think hybrid. Combining skills to form multi-disciplinary practices will appeal more to dynamic firms and companies which require pragmatic thinking. For example, being an intellectual property lawyer with a computer programming or engineering background makes you far more marketable than if you were just an IP lawyer.
3) Create your own niche. Keep your eyes open for problems, and then solve them. This is the primary basis upon which every good Blockchain based solution is formulated (and frankly every invention in history).
4) Feed your curiosity. I started out as an enthusiast and investor because the technology was so fascinating. It led me down a rabbit hole that I am thankful for having discovered. Also, since the root was something in which I was interested, I thoroughly enjoy what I do. Thankfully having a law degree gives you the opportunity to explore your own interests and pivot when the opportunity presents itself. Get out and meet people, explore networking events in the field of your interest and go out for coffee with those you find interesting. You never know where or when that next opportunity will present itself in this dynamic and changing market.
5) Do not fear change. Embrace it and you will be a leader until the others (eventually) catch up.
With every change comes crisis and opportunity. Luckily as lawyers we benefit from both. Just like Bitcoin is just one use case for Blockchain technology, being a lawyer is more than just choosing a practice area and relegating ourselves to that persona. Our law school training and other life experiences are what allow us to seek our own paths and allow us to pursue opportunities that are outside the box.
About the author
Aaron Grinhaus (LL.B., J.D., LL.M. (Tax)) is a business and tax lawyer who has developed a niche expertise in Blockchain based businesses, including ICO/ITOs and tax structuring for crypto holdings. He can be contacted at firstname.lastname@example.org.