Get those cold storage crypto wallets ready, Ohio lawyers! The Ohio Board of Professional Conduct issued an advisory opinion allowing attorneys to accept and hold cryptocurrency in custody when related to the representation of a client or for a third party through a law-related activity. 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 on a lawyer’s ability to hold digital assets in custody for their clients. See Neb. Ethics Adv. Op. 17-03 (2017), D.C. Bar Ethics Op. 378 (2020).
First, the advisory opinion acknowledges that many “international clients prefer to use cryptocurrency for business transactions and want the lawyer to hold the cryptocurrency in custody.” For crypto enthusiasts, the advisory reflects what they have been saying for quite some time – there are real uses for cryptocurrencies, especially in cross-border transactions. While the Ohio Advisory Opinion is obviously not an endorsement of cryptocurrencies as the future of money, it stands as another example of the mainstream recognizing and accepting cryptocurrency.
One issue that should jump out at any attorney considering holding cryptocurrency for a client is the issues of storage and security. “Just like other client property, a lawyer who stores cryptocurrency in escrow must exercise reasonable care to minimize the risk of loss of the client’s or third party’s property.” But unlike other forms of client property, sending, receiving, and storing cryptocurrency can be difficult and, frankly, intimidating. For those who have never sent or received cryptocurrency, sending the correct wallet address, pressing “send” and then waiting for the transaction to be validated on the blockchain can make some anxious. Just one wrong digit or letter in the recipient’s address and that crypto could be lost forever.
How Should Ohio Attorneys New to Cryptocurrency Transactions Store Their Clients’ Cryptocurrency? The Ohio Advisory Opinion recommends a few methods to protect crypto held in custody, including keeping the crypto in a cold storage hardware wallet. Cold storage hardware wallets often look like USB drives and provide more secure storage because the crypto associated with these wallets can only be sent when that wallet is connected to the internet. This means that a hacker generally cannot access the crypto in the cold storage wallet without it being connected to the internet.
Beyond securely storing client crypto, lawyers must also inform their clients of the risks of holding and transferring crypto and explain the steps the lawyer will take to protect the client’s crypto. This means that lawyers who want to offer this service to their clients must not only learn how to safely execute and store crypto, but also create a policy that explains these security protocols. The statement does not provide guidance on how an attorney should store the cold storage hardware wallet itself or how the passwords to access the cold storage hardware wallet should be maintained or who should maintain them.
Finally, the advisory opinion warns attorneys about the potential for crypto escrow services to be used by individuals seeking to engage in money laundering or fraud. “To prevent unwittingly assisting in illegal activity, an attorney 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).”
While it’s unclear how many lawyers will be holding their clients’ crypto in escrow over the next few years, as anyone who’s 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 must be well thought out and absolutely airtight before holding any client crypto in escrow.
The content of this article is intended to provide a general guide to the subject. You should seek specialist advice about your specific circumstances.
