At a Chamber of Commerce roundtable in late February, Miami Mayor Francis Suarez noted that workers in his city, like others, are concerned about a possible devaluation of the dollar. So he proposed to the Miami City Council that our employees be paid a percentage of their salary in bitcoins if they want it.
After all, the highest-paid player in the National Football League – Carolina Panthers offensive tackle Russell Okung – earns the most money not because he is the best player in the NFL, but because he has claimed 50 percent of his salary in bitcoins, Suarez said.
The mayor’s statement may be a little far-fetched: Okung’s position as one of the NFL’s highest paid players is currently dependent on the price of bitcoin (BTC), as NBC Sports noted in late February. Technically, however, Okung receives 100 percent of his salary in US dollars, and half is sent to the custodian, who converts it to BTC. But interest in the crypto alternative to payroll seems to be increasing, according to Suarez.
If so, that raises a few questions: Why take a salary in bitcoins when you can barely buy anything with it? Are there any tax implications that have not yet been addressed? What about the current problems with BTC, such as volatility and scalability? And if bitcoin drops 60 or 70%, who needs crypto salaries?
Meanwhile, it’s hard to find a company outside the crypto industry that pays its employees in bitcoin or altcoins. As Thomas Hulme, head of the blockchain and cryptoassets team at law firm Mackrell.Solicitors, explains to Cointelegraph magazine: I have yet to come across an appeal case where a company has sought advice on how to pay employees’ wages in whole or in part in coded values.
Need more employees?
But, as Merrick Theobald, vice president of marketing at BitPay, whose BitPay Send platform offers a cryptocurrency payment option, explains to Cointelegraph magazine: We are finding that employees are increasingly asking to receive at least part of their salary in bitcoin. This is due to the recent rise in BTC prices, he adds, in addition to greater global awareness of cryptocurrencies in general. Bitcoin is quickly becoming ubiquitous, and employees recognize that and want to be part of it.
Jack Mullers, the CEO of Zap, whose Strike app converted part of Russell Okung’s salary into bitcoins, tells Cointelegraph magazine: We have seen tremendous demand. We currently have over 5,000 users on our waiting list to convert a portion of their direct deposits into bitcoins here in the US.
But it’s clear that there are obstacles to overcome before cryptocurrencies become the rule rather than the exception. Henry Kim, an associate professor at York University’s Schulich School of Business, tells Cointelegraph magazine that the vast majority of companies don’t have cryptocurrencies in their coffers, so the only salary or compensation paid in bitcoin is likely to be idiosyncratic requests from talent – Okung, for example.
Paul Brody, global head of blockchain at Ernst & Young, when asked if he expects more companies to offer a cryptocurrency payment option in the near future, told Cointelegraph magazine:
I don’t think that’s likely. If you think about what makes sense from a risk management perspective, having debts like taxes and mortgages in fiat currency – dollars, for example – and being paid in bitcoin is a high-risk proposition. A bad match can lead to big problems, especially if you have a period where cryptocurrencies are losing value against cheap currencies.
A more fundamental barrier may simply be commercial convention, i.e. current payment systems that have been in place for generations. Richard Ainsworth, an assistant professor at Boston University School of Law and co-author of Payroll and Blockchain Tax Compliance, tells Cointelegraph magazine that large payroll companies like ADP are still not thinking about how to simplify the business.
There is nothing inherently problematic about getting paid in crypto, Ainsworth continued. Income is determined at the time of receipt. However, holding cryptocurrencies can lead to tax problems when paying out, and the exchange rate of cryptocurrencies for fiat currencies should be minimal – that is, subsidized by your employer.
It will come
Still, Ainsworth expects cryptocurrencies to become mainstream one day, though as with many innovative technologies, that will take some time: It took 38 years to go from ARPANET [the precursor to the Internet] to Skype. The bitcoin paycheck may be just as long in coming, but it will come.
When Ainsworth wrote his article exactly four years ago, he looked at crypto currency salaries from a global perspective, focusing on companies operating around the world and employees moving from country to country. One scenario he imagines:
If I had a mortgage on a house in New York, but was working indefinitely in Japan, and then in London […], I might want my mortgage in New York paid from my salary, as well as other expenses, but while I am in Japan (if the company pays for my housing there), I might still want to receive part of my salary in Japanese yen (or later in English pounds). A crypto payoff would reduce this difficulty.
This is probably not a typical worker’s dilemma – think of Suarez’s workers in Miami. Hulme tells Cointelegraph magazine that the vast majority of goods and services an employee typically needs still can’t be purchased in cryptocurrencies, meaning most employees will likely be paid in fiat currency.
There could also be tax implications in places such as the US and UK where Hulme is based, as this is likely to raise practical and general tax issues from a PAYE perspective – which refers to the UK system of collecting income tax and national insurance contributions from employees.
Risks to employees?
People need to diversify their financial assets, Brody suggests, and right now the only people who can claim a bitcoin salary are those who have already invested in the crypto. He adds: Paying your salary in whole or in part in the form of an unstable digital asset involves considerable risk for employees. The people who are likely to accept this proposal are also the ones who are likely to suffer the most if it goes wrong: People who already work in the crypto space.
I am a good example, he explains: Professionally, I’m all about blockchain and digital assets – my job depends entirely on the success of this sector. Throwing all my other financial assets into one basket is very risky, and if things go wrong, I’m without a backup plan.
Of course, an employee need not receive his entire salary coded. Okung, for example, will receive half of his NFL salary in bitcoins and the other half in mint. CoinCorner, a UK-based cryptocurrency exchange and wallet company, is offering cryptocurrency-based salary options to its employees starting in 2019, and while everyone in the company is participating, no one is currently taking 100% of their salary in bitcoins, CEO Danny Scott tells Cointelegraph magazine.
But that may not be the best way to look at it, Mullers says: The healthiest psychological framework is to think of bitcoin as your savings account – money to save, not live on. The amount that can be safely deposited in a cryptocurrency savings plan varies from person to person. In the meantime, companies should prioritise their ability to recruit and retain talent, writes Cointelegraph magazine, adding:
If you deny your employees the opportunity to obtain and hold the best investments and savings accounts in human history, you will have a hard time convincing the most talented people in the world to become employees.
Among the benefits for employees offering the crypto option, Theobald adds that employees don’t need bank accounts, they get benefits like faster access to funds and they receive the right amount at the right exchange rate.
How does it work?
The logistics don’t seem that complicated. CoinCorner, for example, has had bitcoins on its balance sheet for years and pays out its salaries in bitcoins in a fairly straightforward manner, Scott tells Cointelegraph magazine. The company’s accountant handles everything in British pounds from an accounting and tax perspective, but the company then converts the required number of pounds into BTC when paying salaries:
We take the closing price at the end of the month and use it to determine the amount in BTC. Unfortunately, this part can get complicated if you don’t have bitcoin on your balance, because you have to buy the fee and then use it from the moment you buy bitcoins.
Moreover, bitcoin is not the only crypto option offered on CoinCorner: We also support Ethereum (ETH) and Litecoin (LTC) – but none of our employees have chosen these yet, Scott says.
A company using the BitPay Send platform simply deposits fiat into its trading account with BitPay, and BitPay converts the fiat into crypto right before executing the employee’s crypto payment request. BitPay also adheres to anti-money laundering principles, know-your-customer requirements, the Office of Foreign Assets Control and other global regulatory requirements, Theobald added.
Good for the labor economy?
If bitcoin payouts become popular, where will they go first? Interest in cryptocurrency wallets is strong worldwide, but we are seeing increasing interest in countries where the local currency is highly volatile, Theobald said. The interest shown by companies making cross-border payments is also particularly strong. This is partly due to the need to make mass payments for the gig economy and connected networks, which need to be able to make payments anywhere in the world, any day of the week and any time of the day.
From a freelancer’s perspective, bitcoin-paid online jobs are a fantastic way to get work from anywhere in the world, notes LaborX, a platform for freelancers, especially with the availability of now fully regulated exchanges and wallet services that store crypto data in a secure location.
Brody thinks this will happen mainly in countries where local exchange rates or high inflation make paying in local currency even riskier, but otherwise he predicts that businesses that are struggling the least – i.e. fiat currency – will forgo the easiest payment method.
What if the price of BTC is a wormhole?
Will the demand for wages paid in bitcoins disappear if the price of BTC falls, or even flattens? Kim suggested that employees are now demanding their pay in BTC, largely because the price of bitcoin is rising – but if and when BTC achieves some price stability, employees may not be so interested in being paid in cryptocurrency, he told Cointelegraph magazine.
But to the same question, Theobald replies: Not at all. In fact, we think the opposite. If and when the price of BTC drops, we think we’ll see an increase in demand, as employees who buy bitcoins primarily as an investment tend to put more money into the business. And there are always stalls for the more cautious workers, he adds.
Wages in streaming?
What about scalability? In response to Suarez’s February 11 tweet announcing that he would pay his […] employees in bitcoins, a Miami resident responded:
Dear Mayor Suarez;
Bitcoin can handle 650K transactions per day at best. MDC population 2.7 million
If all MDCs used bitcoin, we would be limited to one transaction every four days.
– Mark Kwiatkowski (@fbmarc) 12 February 2021
Strike uses the Lightning network, a secondary system that speeds up bitcoin transactions. Does it take lightning or a facsimile of it for cryptocurrency pay to become a widespread reality?
It all depends on how the company pays its employees, says CoinCorner’s Scott. If an employer uses a [service company] that offers payroll tools, they can also offer their employees bitcoin wallets that don’t have blockchain transactions to begin with, meaning there’s no scalability issue.
Of course, if they want to drive transactions to workers lower down the chain, scale comes into play, and Lightning will help them do that. The lightning strike could also be an opportunity to increase wages instead of paying by the week, month, etc., Scott said, adding:
In theory, you could pay your share of the salary in bitcoins, for example. B. send every 10 seconds during the workday to get paid in real time, not just once a month/week.
In five years, will most global companies offer their employees a salary option in cryptocurrency? In my opinion, Hulme says this is doubtful. Ainsworth, for his part, is more optimistic, telling Cointelegraph magazine: The next five years should bring some changes, and I think there will be MORE, but maybe not MORE global companies.
When BTC gets to a level high enough to pay businesses, Kim suggests: The most likely effect is therefore to accelerate the development of a digital currency for central banks. For his part, Brody believes that companies will offer employees the opportunity to invest in crypto and digital assets as part of their regular savings and retirement plans.
Scott tells Cointelegraph magazine: I think over the next five years we will see more and more companies offering bitcoin payments. We are still in the early stages of implementation and the current instruments are inadequate: But they will get better with time. Theobald adds that in the future, employers will have to let their employees decide how and when they want to be paid.
Mullers sees a kind of inevitability in this process: The public is beginning to see bitcoin as its own savings account, where excess money is kept and protected. The natural progression is to receive a percentage of your salary in bitcoins.
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