In the legal industry, the introduction of cryptocurrency has been fairly slow. Currently, only 2% of providers use this technology, though it is predicted that there will be an increase in the number of solicitors using cryptocurrency. The reason for this is that it enhances the speed of transactions, and ultimately reduces costs to firms.
A recent trial involving blockchain completed by HM Land Registry suggested that it will most likely become a common place for firms and legal professionals as they realise its potential.
What is cryptocurrency?
Cryptocurrency is a digital currency that makes use of cryptography to ensure transactions remain secure. In simpler terms, it operates as a medium of exchange between users. The cryptocurrency markets are now considered an investment with many people making purchases to facilitate the trade in digital assets.
The term crypto asset tends to describe any form of digital assets that exists solely within the internet.
The transactions among this currency are strengthened by blockchain technology, which creates a permanent and unalterable online record of every transaction made. There are many examples but the most widely used is Bitcoin.
Risks of using cryptocurrency
As transactions and accounts are not easily connected to real-world identities with cryptocurrencies, it can often be used for illegal activities such as money laundering and tax evasion. This means it is naturally vulnerable to the dark web, a network of hidden websites where prohibited goods and services can be bought.
The most well known of these websites was the Silk Road, which was shut down in 2013 because they facilitated an estimated £131 million worth of illegal drug sales.
Benefits of solicitors using cryptocurrency
Although there are risks, particularly with legal issues, there are many benefits to it. Coadjute are a company seeking to become a top contender in the property market. Their aim is to trial a type of cryptocurrency to replace the traditional transfer of money between banks and conveyancers.
By releasing funds in ‘stablecoins’, it would essentially speed up property transactions, which would make them resistant to fraud because solicitors would not have to handle client’s money directly.
A stablecoin is another type of cryptocurrency, however, the value this time is linked to a stable asset such as a mortgage. This would allow a safer transfer of mortgage money without having to pass through solicitor’s client accounts.
This new approach amounts to over £240 billion each year nationally and it was set in place to vastly improve the movement of mortgage funds.
The company calls itself “a real time network connecting the property market” and “the first in the world expressly designed to speed up the completion of mortgages.”
Coadjute added that the approach “provides a ‘single source of truth’ simultaneously to all parties involved, removes the need for continuous manual reconciliation, and significantly cuts the risk of fraud.”
The company also made the claim that lowering the risk of transactions may lower the cost of professional indemnity insurance by more than 15% for conveyancers.
In Bristol, a law firm are hoping to auction two and half hours of chargeable time in the form of three unique cryptocurrency tokens.
Associate Director and Head of Blockchain at Stephenson Law, Will Foulkes, suggested that the sale of non-fungible tokens (NFTs) was the first proposed by a law firm in the UK. If these sales go well, the idea may be “rolled out more widely.”
Mr Foulkes had revealed that the key intention of the auction was to show that the law was “engaging with the blockchain and not just sitting there”. He also thought it had understood the technology clients were using.
He added that the main uses of NFTs were only now “really being discovered” following their development to create unique representations of digital art.
NFTs are used to exchange various collectable items such as the following: sports cards, token advertisers so that people can buy airtime on a popular website, and even tickets to special events.
Mr Foulkes keeps in regular contact with the Law Commission’s digital assets team, and he believes that it is hard to advise on cryptocurrencies now as there is no written law yet, so essentially there is virtually no case law.
Although he does not think there is anything “ethically wrong” with permitting high bids for the firm’s NFTs, the money could be given to charity if bids were particularly extreme.
There would, however, be limitations on how the tokens are operated. Customers would be refused the right to say when they accessed the lawyer, and it should be at “a time that works for everyone.”
He added that the firm’s extensive knowledge with blockchain and cryptocurrencies was bringing in both film studios and substantial clients.
In terms of images and artwork, studios had “huge catalogues of intellectual property” which could be captured and sold as collectable items through NFTs.
“Clients are aware they are operating in a space where regulation and the law have not been firmed up, but the situation can be managed.”
The future of cryptocurrency in law firms
As the changing needs of professionals who operate within the legal industry is adapting, so does the methods of transactions. As time progresses, we may see more and more solicitors using cryptocurrency. Evidently, this sector is continuing to evolve as technology develops.
Cryptocurrency is a form of digital transformation. As a whole, it is becoming an increasingly important focus which is helping to support more flexible working practises, improve productivity, and reduce costs.