Why You Should Never Rely on ChatGPT for Legal Advice – A Cautionary Look for Crypto Professionals
By Yohan Yun
Executive summary
The rise of generative‑AI chatbots such as ChatGPT has made legal research instant and cheap. Yet, for lawyers, crypto firms, and anyone navigating regulatory disputes, turning to an AI for legal guidance carries hidden dangers: potential forfeiture of attorney‑client privilege, mandatory preservation of chat logs by AI providers, and exposure of confidential strategies to opposing counsel. Recent court rulings and industry commentary illustrate how these issues are already materialising, underscoring the need for caution.
The privilege problem
Attorney‑client privilege is a cornerstone of any legal relationship. It is lost when a client voluntarily shares privileged information with a third party that is not covered by the privilege.
- AI as a third party – When a user inputs confidential facts or legal questions into a public AI model, the data is typically used to improve the system unless the user opts out. OpenAI’s standard terms state that user interactions may be stored and employed for model training.
- Enterprise‑grade alternatives – Some vendors offer “enterprise” versions that allow customers to keep data out of training pipelines, but the default for most free or low‑cost services is the opposite.
Charlyn Ho, CEO of the law‑tech consultancy Rikka, explains that the privilege issue “is complicated and not fully defined yet, but in general, privilege is waived if you disclose privileged information to an unrelated third party.” She adds that the line between safe and risky tools is “fact‑ and circumstance‑based” and depends on the contractual safeguards a provider offers.
Discoverability and court‑ordered preservation
Legal disputes often involve extensive discovery. AI chat logs are now being treated like any other electronic record that a third‑party service provider might be compelled to retain.
- OpenAI copyright case – In a recent New York federal lawsuit, the court ordered OpenAI to preserve and segregate millions of chat logs, even overriding user requests to delete them. The decision set a precedent that AI‑generated data can be subpoenaed.
- Implications for crypto cases – In enforcement actions where transaction data is public but intent must be proved, prosecutors could seek AI chat transcripts as evidence of knowledge or planning. While AI logs are not fundamentally different from other digital evidence, they may provide a more direct window into a party’s mindset.
Ho warns that “AI‑related inputs, outputs or prompts would be treated the same way that Microsoft, Google or Amazon could be sent a subpoena to preserve records.” Consequently, a seemingly innocuous query to ChatGPT about a regulatory filing or token classification could later be handed over to an opposing law firm.
The illusion of “AI lawyers”
Start‑ups such as DoNotPay have marketed themselves as “robot lawyers,” helping users contest traffic tickets or draft basic documents. However, these services run into the same legal constraints as any non‑licensed entity.
- Unauthorized practice of law – U.S. jurisdictions prohibit non‑lawyers, including AI, from dispensing legal advice. Courts have already flagged DoNotPay for violating these rules.
- Human oversight required – Until bar associations revise their statutes, an AI can only function as a research or drafting aid, not a substitute for a licensed attorney.
Ho notes, “I do not foresee a truly autonomous AI lawyer. There may be agents that help people navigate legal issues, but they will not be deemed to be providing legal advice.”
Risks specific to the crypto ecosystem
The cryptocurrency sector routinely deals with cross‑border regulatory scrutiny, AML obligations, and intellectual‑property disputes. The allure of low‑cost AI for quick legal memos is strong, yet the sector’s data‑sensitivity amplifies the dangers:
| Risk | Why it matters for crypto firms |
|---|---|
| Privilege waiver | Confidential token‑omics or fundraising strategies disclosed to a chatbot could be exposed to competitors or regulators. |
| Data retention | AI providers may retain and later produce chat logs, compromising anonymity and undermining privacy‑by‑design principles. |
| Regulatory compliance | Some jurisdictions (e.g., EU’s GDPR, Germany’s “Chat‑Control”) already limit how user data can be processed, potentially making AI‑generated advice non‑compliant. |
| Litigation exposure | In disputes over smart‑contract code or token classification, adversaries may subpoena AI interaction records to infer intent. |
Key takeaways
- Never treat AI chatbots as a replacement for licensed counsel. Even seemingly generic legal queries can trigger privilege loss.
- Review the provider’s terms of service. If the default is to train on user data, consider enterprise versions or self‑hosted models that guarantee data isolation.
- Assume discoverability. Courts can compel AI companies to preserve and disclose chat logs, regardless of user deletion requests.
- Use AI only as a research aid, not as an advisory channel. Any advice derived from an AI should be vetted by a qualified attorney before implementation.
- Stay abreast of evolving regulations. European “Chat‑Control” initiatives and other data‑privacy laws may further restrict how AI can be used for legal work.
Looking ahead
As generative AI matures, legal‑tech firms are working on contracts that explicitly earmark user data as proprietary, prohibit training on confidential inputs, and enforce strict encryption and retention policies. Until such safeguards become standard and courts clarify the privilege landscape, crypto professionals should err on the side of caution and keep AI out of the core legal decision‑making process.
Yohan (Hyoseop) Yun reports for Cointelegraph Magazine. He has covered blockchain, technology policy, and regulatory issues since 2017.
Source: https://cointelegraph.com/magazine/critical-reason-never-ask-chatgpt-legal-advice/?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
