What follows is an excerpt of the questions attorney Benjamin Yablon has answered routinely since making the transition to a law practice focused on Bitcoin and digital currency.
How did you learn about Bitcoins and why did you decide to accept them for your legal services?
The decision to accept them was an outgrowth of the two halves of my professional life: I split my time between practicing law and writing fiction. My series of novels, www.PureLifeNovels.com, explore alternative currency aboard a floating hospital. As a lawyer that handles bankruptcy cases, I have watched thousands of clients suffer because of the interest rates that their credit card issuers were legally entitled to charge them. We pay an astounding 30% extra for the consumer purchases that we put on credit cards. In a single year, that amounts to trillions of dollars. Bitcoin offers a new way. Your example of the six million dollar transaction that was done in bitcoin which resulted in a six cent fee illustrates my desire to get involved perfectly. I’m fascinated by crypto-currency and I want to help people understand that there is a better way. Banks, not consumers, have so far reaped the benefits of the technological revolution. Online banking has allowed our banks to eliminate costs in the form of employee wages. They have been able to replace workers in every part of their business models with automated systems. But do we see lower fees as a result? Absolutely not. Don’t misunderstand me. I support a companies right to make a profit. But the same technological tools that have allowed banks to make unheard of profits are now available to the average consumer. The same encryption tools that the banks themselves use to protect online transactions are used by crypto-currencies like Bitcoin.
Where would you recommend consumer go to learn more about Bitcoins?
Bitcoin.org is the semi-official website. Also, an organization called the Bitcoin Foundation provides advocacy and information on Bitcoin. They are the closest thing the payment technology has to an official voice. A man named Gavin Andressen, who is currently the project’s lead developer, was a close associate with the anonymous developer that created the Bitcoin source code. Andressen now works under the auspices of the Bitcoin Foundation.
Why did you make the decision to practice Bitcoin Law?
Bottom line, there are many resources out there, but it is up to the individual to sift through them for reliable information. That is a big part of why I’ve moved my practice toward the Bitcoin space. I am happy to answer any consumer and or business questions about Bitcoin. There are businesses that want to accept bitcoin, and there are payment businesses that want to enter into the bitcoin and crypto-currency economy in general. I can help both.
Is wallet set up different for personal use verses business use?
Yes, the set up I recommend is different for consumer versus business sue. When you are dealing with a business that wants to accept bitcoin, you need to have added lawyers of security in terms of how the wallet is legally held.
What do you recommend for consumers to do to keep their wallet safe?
At a minimum you should store them offline. Do not leave your wallet on a computer that is attached to the internet. If you are dealing with a significant amount of coin, you should consider using a “cold storage” service, like the one I offer, which not only provides highly stable storage but also offers to insure the value of your coins.
Are there any protections for businesses or consumers? Do you see this as a hindrance to their adoption?
Once a transaction has been consummated, it cannot be undone without the consent of both parties. Bitcoin is truly a buyer beware currency. It is most akin to spending cash. You need to know what you are buying and trust the seller. Bitcoin itself is an open source platform, meaning that the software code that makes it run is completely open to the public. It can be reviewed and audited by anyone at any time. All transactions made in bitcoin are also open to the public in what is known as the Blockchain.
Should consumers be concerned about the recent arrests of the CEO’s of various Bitcoin exchanges? Will it have any affect on them? Do you feel it further legitimize or hurts the currency?
The recent arrests related to Silk Road are the best thing that could have happened to Bitcoin. While there are still illegal activities associated with crypto-currencies, the potential for legitimate business is astounding. There needs to be a framework for legal businesses to operate within. Shutting down Silk Road helped create the beginnings of certainty. Businesses thrive when there is certainty and founder when there is a perceived lack of oversight and accountability. We are on the cusp of something huge. The impact on the third world and on nations with unstable governments cannot be overstated. We’ll talk in more detail later about the esoteric macroeconomic impacts that crypt-currencies are likely to have.
Could these arrests have any affect on those who use bitcoins, whether spending or accepting?
I think that the arrests will encourage more legitimate business owners and curious consumers to take the plunge. The economic realities of next to zero transaction fees are just too enticing to pass up. Your food co-op example is perfect. But think about a small business, like an auto repair shop, that processes one million dollars a year in credit cards and pays 3% for the privilege. That’s an operating cost of thirty thousand dollars. Using bitcoins would have left that money in the business.
Should businesses worry about accepting Bitcoins?
Businesses should be as worried about bitcoins as they are about receiving counterfeit dollar bills. The possibility for fraud exists in both currencies, but it is very rare. Particularly as a business owner, you are protected. Once a transaction is processed in Bitcoin, meaning that a transfer has gone from the buyers wallet to the sellers wallet, there is no recourse for the buyer. This is both good and bad. With a credit card you can dispute a transaction if something goes wrong. With bitcoin no such protection exists. As with a cash transaction, you would need to file a law suit against the offending party. So from a legitimate business owners perspective, this is a good thing. It means that customers out to rip them off using their credit card companies fraud departments can’t do it. But consumers must be very careful. You should only use bitcoin to buy from businesses that you know and trust.
How are taxes affected by accepting or using Bitcoins?
To some degree this is still an open question. They fit the definition of taxable income, and are likely to be treated just like any other currency. This means that if you are holding them as an investment the gain or loss in their value over time should be a taxable or deductible event. I also think that the mining of Bitcoins will be treated as a taxable gain as well.
What do you see as the biggest benefit for businesses?
The biggest long term benefit is the lack of transaction fees. In the short term, it also shows that your business is on the cutting edge of the most significant changes in finance since online banking was introduced. If you sell anything online, or if you are in a tech savvy field like web design, you should be up to speed on Bitcoin. Crypto currencies are going to change finance the way online sharing changed the music and publishing industries. I’m predicting a meteoric rise in crypto currency interest akin to the rise of Facebook.
What do you see as the biggest benefit for consumers?
Again, the lack of transaction fees is a major benefit. Also, the fact that Bitcoins are nearly impossible to seize if you can’t located the physical wallet. For law abiding American’s this is not a big deal. But for people in countries with unstable or corrupt governments, this is a game changing benefit. In places like Venezuela the government seizes the bank accounts of political dissidents with impunity. With Bitcoin this is impossible unless you know where the physical wallet is stored.
Can regular consumers accept Bitcoins for payment? Example, items for sale on craigslist or at a garage sale?
Yes, they can be used just like cash. You make a payment from your wallet to the sellers wallet using a few simple steps.
How do you see Bitcoin affecting everyday people?
It gives people more payment options. It also provides a nearly transaction free payments option. The crowd-funding opportunities from places like Kickstarter (which as of yet is not taking bitcoin but will soon) are amazing. For people that need to wire money to other countries, Bitcoin is a terrific tool. The cost is the same to send Bitcoin to a person across town to buy their used car or to send it to a family member in another country. Western Union makes billions on its money transmission services for no good reason. It’s not like they are physically transferring anything anymore. They are using the same mathematical principals and algorithms that Bitcoin transfers use. It was really only a matter of time before something like Bitcoin erupted on the scene.
What is the first thing a business should do if they want to accept bitcoins? What protections would you recommend to any company wanting to set their business up to accept bitcoins?
You might think that the first thing you want to do is create a bitcoin wallet. This is partially true, but I think some real thought needs to go into how you plan to use it. You may want to create a test wallet in your own name and start using it for practice. For the actual business wallet, a more detailed process should be considered. A strategy I’m putting together for clients involves creating a new legal entity under which to register the businesses bitcoin wallet.
Can you assist businesses and consumers with setting up their bitcoin wallets?
Business and consumer clients can pick and choose from a few different services. My typical services include the set up of a bitcoin wallet on my clients laptop and smart phone, linking of bank accounts through a coin exchange, a hosted tutorial of how to use bitcoin, an explanation of bitcoin basics (what it is, how its ‘mined’), the establishment of a mining contract, and cold storage of bitcoin wallets. For business my clients I also offer advice and guidance on the specifics of corporate structure, taxation, and capitalization.
How do you see Bitcoin affecting the world economic climate?
For people in third world countries the potential benefits are staggering. Somalia has not had a central government since 1991. Without a government you can’t possibly have a stable currency. Bitcoin is poised to fill the vacuum in Somalia and other improvised nations for one simple reason: cell phones. All you need to have a bitcoin wallet is a cell phone. According to the World Bank, Africa is now home to 650 million cell phone subscribers, more than both the US and the EU. Africa essentially went from having no phones at all to having hundreds of millions of cell phones. With a currency like Bitcoin Africa could experience the same kind of massive leap forward. When viewed through the lens of the world financial picture, the adoption of Bitcoin by American consumers begins to seem like a moral imperative.