Bench & Bar

JUL 2018

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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Page 29 of 71

itcoin Lawyers for itcoin Lawyers for By: R. Morgan Salisbury | JULY/AUGUST 2018 28 Features: POTPOURRI I n May 2017, Bitcoin reached a new all-time high at a price of over $1,800 per Bitcoin. In June, it was traded at nearly $3,000. At the same time, this "cryptocurrency" made interna- tional news when computer hackers seized control of hundreds of thousands of com- puters across the globe and demanded a ransom consisting not of cash, but of Bit- coin. Bitcoin (and cryptocurrencies like it) are undoubtedly the chosen medium of exchange for hackers and online "dark web" contraband. In December 2017, Bit- coin became a household name as even moderately savvy investors were drawn to the rising price as it skyrocketed to nearly $20,000. As Bitcoin grows in popularity and becomes more commonplace, it is import- ant for Kentucky lawyers to be aware of this digital form of money and how it may influence various practice areas. WHAT IS BITCOIN? According to the Internal Revenue Ser- vice, Bitcoin is property. According to the Commodity Futures Trading Commission (CF TC), Bitcoin is also a commodity. 1 Instead of paper notes or metallic coins, Bitcoin is entirely digital – truly a "virtual currency" taking the world by storm. BITCOIN IS ALREADY IN KENTUCKY. In 2013, Fox News reported that both the mayor and police chief in Vicco, Ky., were being paid in the form of Bitcoin. 2 Kentucky's United States Senator Rand Paul accepted Bitcoin donations as part of his fundraising efforts in 2015. 3 Bitcoin is in Kentucky courts, too. The Breathitt Circuit Court made headlines in 2015 when it granted summary judg- ment to a Plaintiff seeking to recover over $67,000 after the defendant failed to repay a loan consisting entirely of Bitcoins. 4 BITCOIN IS NOT ILLEGAL. Kentucky lawyers should un- derstand that while Bitcoin is sometimes used for illegal transactions, it is not illegal merely to pos- sess Bitcoin or to use it as a medium of ex- change in the United States. BITCOIN HAS IMPORT- ANT TAX IMPLICATIONS. It is important that lawyers understand that their clients may have substantial assets in the form of Bit- coin and that the gains and losses associat- ed with trading Bitcoins matters for tax re- porting purposes. For example, if you have a client who owned Bitcoin in October 2016, that client likely recently enjoyed a nearly 300 percent or more increase in the value of those Bitcoins. BITCOIN IS EASY TO HIDE. Because Bitcoin users may serve essentially as their own bank, Bitcoin can be easy to hide. For example, an individual desiring to hide his or her assets might purchase Bitcoins and store them on a personal computer hard drive or even a common USB thumb drive, just like cash stuffed under a mattress. BITCOIN TECHNOLOGY COULD CHANGE CON- TRACTS. Perhaps more accurately, the blockchain (or "ledger") technology that makes Bitcoin work could change the legal profession. For example, primarily alternative cryp- tocurrencies have proposed "smart con- tracts," whose aim is to make contractual agreements work with the accuracy of a computer program. Last summer, insur- ance giant American International Group (AIG) reported that it was partnering What Lawyers Should Know:

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