The Cryptocurrency market is growing rapidly. According to Allied Market Research, the cryptocurrency market will more than triple by 2030. Cryptocurrencies have grown considerably since Bitcoin started in 2009 as means for making peer to peer payments without the need for traditional banks following the 2008 global meltdown. Various other cryptocurrencies have followed thereafter and there are now more cryptocurrencies in existence than regular (fiat) currencies worldwide. As further evidence of cryptocurrency adoption, in June 2021 El Salvador’s government approved the adoption of Bitcoin as legal tender.
Many investors are taking a considerable interest by investing in cryptocurrencies and cryptography and are showing greater confidence in the underlying blockchain technology. As such, many of the well-established cryptocurrencies have now been purchased by institutional investors. The increasing rate of adoption and major gains experienced by early adopters (Bitcoin millionaires) has led to an opportunity for many goods and services to be purchased using cryptocurrencies.
Products and services presently available
There are a wide range of products and services that can be purchased with cryptocurrencies, including cars, food and drinks, event tickets, holidays and even a college degree. Given that such diverse services are available to cryptocurrency holders, there seems little reason to assume that professional services such as legal services could not be purchased in a similar manner.
Payment for professional services
Professional service providers (including law firms) have traditionally been reluctant to accept payment in such a manner. Two of the key reasons being i) the perceived link between cryptocurrencies and money laundering, and ii) the volatility of the value of individual cryptocurrencies.
Regarding the concerns about cryptocurrencies and money laundering, the reality is that Bitcoin (and other such currencies) is used less for money laundering than cash is. According to a report by ChainAlysis, there was actually a sharp decrease in cryptocurrency-related crime in 2020, with illicit activity making up just 0.34% of the total transaction volume. This is not to say that there is no risk involved, rather than it is a risk that can be managed by undertaking proper due diligence of clients.
Regarding volatility, this is also an area that can be managed to reduce the risk to the payee, and place the burden of any volatility on the purchaser. The simplest of these solutions is to use a cryptocurrency pegged to a fixed currency such as the US Dollar, such cryptocurrencies are known as ‘Stablecoins’. A Stablecoin is a cryptocurrency much like Bitcoin or Ethereum but is fixed to a specific currency and typically backed by assets (cash or other assets) to ensure its stability. Virtually all cryptocurrencies can be easily and quickly converted to other cryptocurrencies including Stablecoins at very low cost.
As such the timing of any such conversion to a Stablecoin can be decided by the consumer/client at a time of their choosing. This means that professional service providers can arrange payment using a Stablecoin without significant risk of volatility affecting the value of the amount paid. Examples of established Stablecoins include USD Tether (USDT), USD Coin (USDC) and DAI.
Despite many cryptocurrencies being a well-accepted store of value, most service providers will still have to pay many of their expenses in regular currencies, therefore a solution to this is also needed. There are several solutions available, such as using Crypto ATMs (now found in 72 countries worldwide) or crypto exchanges that offer crypto to fiat conversion and payment to a company bank account. Examples include Coinbase Commerce (https://commerce.coinbase.com/) or Binance (https://www.binance.com/en) .
Professional service providers can insulate themselves further from the volatility risk, the need for crypto expertise and the burden of having to convert cryptocurrency funds (which could fall foul of local regulations or banking requirements) by using one of the growing numbers of cryptocurrency brokers. In such cases, the service provider and client can agree to use a third-party broker for the crypto transaction whereby the client transfers cryptocurrency (e.g. USDT) and the broker transfers funds (e.g. USD) to the service provider. Clearly some due diligence will be required by all parties but given that transactions can be verified online in real time, this mechanism can easily be implemented with little overhead. From the client’s perspective, using a third-party broker may increase costs (typical fees are 3%) but such costs may be easily offset by the speed and convenience of the transactions and saving of bank charges for international transfers.
Proving the source and availability of funds
It is common for professional service providers to need to be able to verify the source and existence of funds for various transactions.
To prove the source of funds, clients may need to provide a schedule of what cryptos were bought and when, and explain how they are stored, e.g. Hardware Wallet, Software Wallet, Paper Wallet, Exchange etc. Similar to stocks and shares there are reliable online records showing the values of cryptocurrencies over time, therefore it is simple to show any increase in value. E.g. CoinMarketCap shows the value of Bitcoin was $116.99 in April 2013 and reached $63,109.70 in April 2021. Furthermore, the client may need explain where the funds came from to buy the cryptocurrencies in the first place, e.g. from savings, salary/dividends, inheritance, gift etc. with some documentary evidence to support.
Clients can also prove evidence of funds by placing cryptocurrencies in crypto exchanges where statements can be provided. Or alternatively, by providing wallet address details of assets with evidence that the particular wallet address relates to themselves that can be verified by independent online tools.
Benefits of using cryptocurrency for payment
For consumers, cryptocurrencies typically provide cheaper and faster payment options than those offered by traditional ‘money services’ businesses with faster settlement. Transactions can take place 24 hours a day, seven days a week, anywhere in the world – without relying on banks. Depending on the taxation laws that apply to the client, there may also be benefits to paying for services directly with cryptocurrencies rather than converting their crypto assets to cash.
For the service providers, cross border payments can be made and received more easily and there is no risk of chargebacks (the demand by a credit card provider that a retailer to refund a disputed transaction). Furthermore, the service provider can verify that payment has been made in real-time allowing services to be delivered immediately.
Summary
Payment by cryptocurrency can offer a wide range of benefits for both client and professional service providers. Given that there are various means to accept such payments, then subject to any applicable regulatory requirements, service providers should be looking to implement solutions for their clients sooner rather than later!
References:
- Crypto currency market set to triple by 2030
- The Birth of Bitcoin
- El Salvador makes Bitcoin Legal Tender
- 15 Surprising Things You Can Buy With Bitcoin
- ChainAlysis Crypto Crime Report
- Cryptocurrency Stablecoins
- Crypto ATMs found in 72 countries
- Bitcoin pricing on CoinMarketCap
- Cryptocurrency for international payments
