Get those cold storage crypto wallets ready, Ohio lawyers! The Ohio Board of Professional Conduct issued an advisory opinion allowing lawyers to accept and hold cryptocurrency in escrow when related to the representation of a client or for a third party through a law-related business. The advisory opinion is notable for a number of reasons in addition to being one of the first advisory opinions from a state legal professional conduct board concerning a lawyer's ability to hold digital assets in escrow for their clients. See Neb. Ethics Adv. Op. 17-03 (2017), D.C. Bar Ethics Op. 378 (2020).
First, the Advisory Opinion recognizes that many “international clients prefer to use cryptocurrency for business transactions and desire for the lawyer to hold the cryptocurrency in escrow.” For crypto enthusiasts, the Advisory Opinion reflects what they have been saying for quite some time -- there are real world uses for cryptocurrencies, particularly in cross-border transactions. While the Ohio Advisory Opinion is obviously not an endorsement of cryptocurrencies as the future of money, it does stand as another example of the mainstream acknowledging and accepting cryptocurrency.
An issue that should jump out to any lawyer considering holding cryptocurrency for a client are the issues of storage and security. “Just like other client property, a lawyer storing cryptocurrency in escrow must use reasonable care to minimize the risk of loss to client’s or third parties’ property.” But unlike other forms of client property, sending, receiving, and storing cryptocurrency can be difficult and, quite frankly, terrifying. For those who have never sent or received cryptocurrency, transmitting the correct wallet address, hitting “send,” and then waiting for the transaction to be validated on the blockchain can make anyone anxious. Just one wrong digit or letter in the recipient's address and that crypto could be lost forever.
How are Ohio lawyers who are new to cryptocurrency transactions supposed to store their clients’ cryptocurrency? The Ohio Advisory Opinion recommends a few methods to safeguard crypto held in escrow, including holding the crypto in a cold storage hardware wallet. Cold storage hardware wallets often look like USB drives and provide safer storage because the crypto associated with those wallets can only be sent when that wallet is connected to the internet. This means that a hacker generally can’t gain access to the crypto in that cold storage wallet without it being connected to the internet.
Beyond safe storage of client crypto, lawyers must also inform their clients about the risks of holding and transferring crypto and explain the steps the lawyer will undertake to safeguard the client’s crypto. This means that lawyers who want to provide this service to their clients will have to not only learn how to securely transact and store crypto, but also create a policy explaining these security protocols. The opinion does not provide guidance on how a lawyer should store the actual cold storage hardware wallet or how the passwords to access that cold storage hardware wallet should be maintained or who should maintain them.
Lastly, the Advisory Opinion cautions lawyers about the potential that crypto escrow services could be used by individuals seeking to engage in money laundering or fraud. “In order to prevent unknowingly assisting in illegal activity, a lawyer should require a detailed written escrow agreement that identifies the parties to the transaction (possibly using know-your-customer identity verification methods) as well as the underlying transaction for which the escrow account will be used. See Prof.Cond.R. 1.2(d)(1).”
Although it is unclear how many lawyers will be holding their clients’ crypto in escrow over the next few years, as anyone who has ever misplaced a password or wallet seed phrase and lost crypto in that wallet can attest, a lawyer should be well-practiced in crypto transactions and their policies and procedures for holding client crypto will need to be well-thought-out and absolutely air-tight before holding any client crypto in escrow.