Lisa Miller, was the guest speaker at our regular meeting recently. Her topic of discussion was on Cryptocurrency. She has given us permission to post her article/paper on our website.
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Lisa Miller and Raul Castillo after the presentation of her article at our meetingA Ripple in Time: Early Cryptocurrency Adopters Earn Advantages
By Lisa Miller, Esq. (C) 2019 Lisa Miller, Esq.
Up to $6 billion by 2020, and up to $20 billion by 2030, are the widely expected revenues for blockchain technology companies.[1] The expected expansion of blockchain technology, and the cryptocurrencies that rely on it (for example, Ripple, Bitcoin, Ethereum), could transform how lawyers accomplish basic tasks. The long-term influence could be similar to the Internet.
Cryptocurrencies, as widely vetted digital stores of value, are considered almost-invulnerable. And they offer attractive efficiencies and economic advantages. Together, these makes digital currency competitive with recognized fiat currencies[1] (“fiat” money is currency that lacks intrinsic value, but which is declared “legal tender” by a government; the US dollar is fiat currency) as a medium of exchange.
Despite the fact that it offers protocols that allow anonymous, direct peer-to-peer transactions via the Internet, blockchain technology minimizes the need for relationships of trust among parties to transactions.[1] No third party (bank, escrow company) is necessarily in the mix when individuals engage via blockchain’s system. Cryptocurrency can eliminate notaries, brokers, and other layers of administration that are designed to enhance trust. This saves money on common law firm expenses.
When parties digitally transfer value among accounts on the blockchain, they place their trust in the underlying technology, but not in any individuals or businesses, to enable the transfer, ensure sender authenticity, and ensure currency validity. This direct, peer-to-peer interaction, without transactional friction resulting from third-party participation, nurtures the revolution around cryptocurrency. Cryptocurrency is a high-tech fiscal work-around.
[1] 2030 Projection of Blockchain Technology Market, published online at Autonomous Next on February 24, 2017; found online at: https://next.autonomous.com/insights/2030-projection-of-blockchain-technology-market
[1] “Fiat money” is currency that lacks intrinsic value, but which is declared legal tender by a government. It is considered valid currency solely by government declaration: fiat money is not backed by any commodity (for example, gold or silver). Fiat currency is paper money and coins backed only by the faith of the holder of the currency. The US dollar is fiat money (found on-line at Investing Answers at: https://investinganswers.com/financial-dictionary/economics/fiat-money-1790).
[1] According to blockchain engineer Preethi Kasireddy, describing blockchain as “trustless” is inaccurate. Rather, blockchains minimize the amount of trust required from users by distributing responsibility among numerous participants (published Feb 3, 2018 on Medium.com, found online at: https://medium.com/@preethikasireddy/eli5-what-do-we-mean-by-blockchains-are-trustless-aa420635d5f6).
As blockchain technology gains more stability, new business methods for smaller law firms will evolve. These new approaches will incorporate cryptocurrency as a way to offer greater value to clients and harden competitive advantage in a crowded market. But blockchain is a raw technology; existing infrastructure is struggling to support it.
Cryptocurrencies Explained
Cryptocurrency, also called “digital currency”, is a decentralized, peer-to-peer payment network that eliminates involvement by banks and governments in financial transactions. It is intangible; unlike fiat currency, users cannot touch or hold it.
Digital currencies exist in a decentralized environment: they are not regulated or recognized by any nation as that republic’s money. Users essentially function as their own banks. Holders of cryptocurrency bank through digital wallets that contain sets of cryptographic hash addresses. Wallets can be stored on flash drives, in computers, on cell phones, or on paper.
Benefits of Cryptocurrency for Small Business
Cryptocurrency is generally considered secure: customer data transferred to and through businesses via cryptocurrency could be safer than data transferred via credit card. Because blockchain is a peer-to-peer, decentralized (distributed among servers, called “nodes”) system, to gain unauthorized access, a bad actor intruding on a law firm’s blockchain-based activities would need to breach a majority of these nodes simultaneously. For this reason, successful DDoS attacks are difficult to perpetrate (“distributed denial of service” attacks overwhelm businesses’ computer networks to discredit or damage the business’ reputation and ability to serve customers. Some attacks hold the company’s computer infrastructures hostage and demand ransom payments).
As well, cryptocurrency records are public, but pseudonymous. Although accounts are visible on-line, their owners are not readily identifiable. Online visitors can see how much money is in a wallet, but not who owns that wallet.
[1] These are digital currencies; they are not virtual currencies. The difference between the two is that digital currencies are value embodied in digital form. Virtual currency usually exists in online games, allowing players to purchase tokens with fiat money and use those tokens to make purchases within the game.
[1] DDoS (“distributed denial of service”) attacks overwhelm a business’ computer network, including its website, by submitting repeated requests from numerous computers, sufficient to shut down the network’s functionality (“denial of service”). Some attacks originate with business competitors.
As more consumers seek payment options involving cryptocurrency, companies that handle this digital currency can attract these clients. Millennials for example, who numbered 75 million in 2016, are more receptive to owning cryptocurrency than owning stock. Businesses that seek to expand services as Millennials age could attract potential clients via cryptocurrency payment options.
Direct Benefits for Businesses
Users of cryptocurrency have more control over their funds than clients paying via traditional credit cards or writing checks. Without involving credit card companies, banks, or other third parties, users of cryptocurrency directly transfer funds from their own wallets to the law firm wallet. In cases of disputes regarding refunds, no third party can freeze the business’ account, unlike traditional payment processing companies (PayPal has the legal right to freeze funds on its platform, for example).
These same third-party payment processing companies generally charge businesses from 2.9 percent to as much as 9 percent of the total charge. In contrast, when businesses accept cryptocurrency, customers pay the transaction fees, which are a fraction of a penny. And cryptocurrency wallets do not currently include chargeback functions.
Businesses that accept digital currency streamline the payment experience for customers. Customers need only have smart-phones in order to pay the company’s charges.
Customers paying the company’s invoice via cryptocurrency use the smart-phone app for their cryptocurrency wallet to scan the QR code (“quick-response code” images store data, readable by smartphones) established by the business. Businesses set up specific customer QR codes; the smartphone scan triggers transfer of the correct value from the customer’s digital wallet to the business’ digital wallet. And cryptocurrency eliminates international transfer or conversion fees.
Businesses that accept cryptocurrency need not wait days for banks or other payment processors to transfer funds. And when funds appear in a business’ crypto-wallet, the business can
[1] According to Pew Research, Millennials were born between 1981 and 1996 (found on-line at: http://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-and-generation-z-begins/).
[2] Found online at: http://www.pewresearch.org/fact-tank/2018/03/01/millennials-overtake-baby-boomers/.
[3] “Millennials are 5 times as likely as older adults to say bitcoin is the best way to save for the future” by Emmie Martin; found online at: https://www.cnbc.com/2018/07/30/more-millennials-than-older-adults-say-bitcoin-is-the-best-way-to-save.html
Conclusion
As Millennials and international clients push for cryptocurrency payment options, nimble businesses can secure a competitive advantage by exploring ways to integrate this option into their business models. Just as the Internet fundamentally changed the way businesses operate, cryptocurrency has the potential to do the same. Successful businesses will thoroughly evaluate their cryptocurrency options and adapt accordingly. Please note this article/paper was reduced for lack of space.
Ms. Miller can be reached by phone at (747) 389-4207; via email at LM@LexLawCorp.com; or through the Lex Law Corp. website www.LexLawCorp.com. She welcomes your inquiries.