Should You Receive Your Freelance Salaries in Bitcoin?
If cryptocurrency is created to disrupt the existing financial system by significantly improving the transaction speed, privacy, cost, and convenience, it will take time before everyone is paid in cryptocurrencies.
The definition of consumer payment has been evolving since bartering, the earliest known form of value exchange for goods and services. For centuries, the only change has been how it has been enacted throughout human history. Today, the predominant form of transactions occurs in fiat currencies, which were first used in the 7th century. The world has adopted fiat digital payments with the emergence of debit cards which represent a helpful bridge between old and new methods of fiat payments. Interestingly, we are facing another change that may redefine how we perceive payment – through cryptocurrencies.
Many experts feel that cryptocurrencies are the catalyst for the next payment revolution, which certainly works for new and different payment methods as we gradually move into an entirely digitized world. While the popularity of this new type of currency remains to be seen, there is now a preponderance of crypto debit card options that allow the exchange of cryptocurrency for spendable fiat currency at the touch of a button. Cryptocurrencies, while still an often underestimated means of payment, have their foot in the door thanks to payment apps and their multi-functionality. Apps such as Bitpay, Crypto.com, and Revolut have integrated features that allow buying and selling of cryptocurrencies and spending, in some instances, to attract new and savvy mainstream customers to their platforms.
Cryptocurrency as the future of payments
Apps like the above mentioned are where the future of money and payment is heading. According to a report by Pew Research Center, it is estimated that more than 2.5 billion people have smartphones, allowing a third of the world’s population to connect to the internet and enjoy a wholly digital, convenient payment experience on their mobile devices. Therefore, coupled with appropriate incentives, these apps could drive the new wave of adoption to the masses and create real-world use cases for cryptocurrencies.
In August 2019, New Zealand’s tax authorities ruled to allow companies to legally pay their employees in Bitcoin (BTC) and other cryptocurrencies. In addition, companies will be able to deduct income taxes using their current PAYE (Pay-As-You-Earn) frameworks under the Income Tax Act 2007. This bold move by New Zealand’s government is likely to gain the attention of other crypto-friendly nations, which may result in a series of regulatory reforms about salaries issued in cryptocurrencies, as well as a growing interest in more people looking to receive their salaries in BTC or other cryptocurrencies. Crypto payment apps that offer Visa-backed debit cards may also gain a good number of users since these apps will allow users to spend cryptocurrencies for real-world purchases. However, it is undeniable that Bitcoin and other cryptocurrencies can be incredibly volatile. The market is famously unpredictable, and anyone accepting Bitcoin for their salary could see the value plummet and skyrocket. There needs to be careful consideration by an individual over what they can afford to lose.
Employee’s salary in Bitcoin
Bitcoin (BTC) is one of the most popular forms of cryptocurrency amongst employers and employees as the preferred cryptocurrency for salary payments. Employers, particularly in the tech startup sphere, offer employees the option to receive their salary in cryptocurrencies to attract new talents and complement this with other job benefits. There are several reasons, including better USD-to-BTC rates (as compared to paying via the native fiat currency) when dealing with internationally-based employees, or if the company is funded through Initial Coin Offerings (ICOs), where they raised their fundings through BTC, thus an adequate supply of BTC within the company’s reserve for payment-related matters. Also, it can be seen from existing Bitcoin earners that these employees have deployed various methods to manage their crypto salaries.
One approach is through “immediate cash-out,” practiced by Lindsay Holland, assistant director of the Bitcoin Foundation. Like all the foundation’s employees, Holland receives her entire salary in currency. She leverages the available stablecoins such as USDT or crypto payment apps if she needs to convert them into fiat currencies to fulfill her everyday expenses, which can only be made through fiat currencies.
Industry and commerce are truly globalized today, with an ever-increasing number of remote workers. Bitcoin payments can be sent conveniently anywhere, with the advantage of not having to deal with foreign banking, exchange rates, delays, and holding times. Although transaction fees could be incurred, Bitcoins are far easier to handle than those historically levied by financial institutions. They can also be used as an easy way to onboard employees in the complex world of investments. Rather than navigating complicated stock options and investment strategies provided by brokers and banks, Bitcoin’s direct payment enables an individual to take straightforward and instant control of their cryptocurrency portfolio. So keeping an open mind to adopting crypto instead of a fiat currency might open doors to some lucrative job opportunities.
Encouragingly enough, more businesses from the broader world are already looking into cryptocurrency as an alternative for their employees’ salaries. In December 2017, the Japanese Internet firm GMO Group revealed that they offered 4,000 employees the option of earning a portion of their wages in bitcoin. Recently, the company expanded into cryptocurrency mining and trading, commenting that the change was necessary for “nurturing and developing cryptocurrency literacy.“
Legal Implications
Understandably, the above examples for Bitcoin are far from indicative of universal reality. Cryptocurrencies may gain traction and popularity amongst the people, but they are still struggling to catch up with international financial frameworks and the regulatory bodies which regulate them. The problem is, in many cases, deeply ingrained. Bitcoin can be illegal to vary degrees, depending on the country the employee is in. For instance, Bitcoin has never been legal in Bolivia, while in Ecuador, the currency was outlawed in mid-2014 as part of the country’s financial reforms.
On the contrary, China’s stance on Bitcoin has been rather tricky as they have banned ICOs, and cryptocurrency exchanges and made mining illegal in the country, but only recognized and protected Bitcoin since 2013 as a virtual asset (other cryptocurrencies are exempted from the recognition and protection for the Chinese law). This may be partly because many Chinese citizens are active in Bitcoin trading. Similarly, the Internal Revenue Service (IRS), the United States federal agency, considers Bitcoin a property rather than a currency. At the same time, the Fair Labor Standards Act requires that employers pay their employees “cash or negotiable instruments payable at par.”
Given the fact that legislators around the world have yet to determine precisely the financial status of cryptocurrencies, it may cause other unwanted dilemmas for people looking forward to receiving Bitcoin as salaries, specifically since the legal regulation may encompass tax-related matters which, depending on the employee’s location, can become a complex issue. In the UK, HM Treasury issued guidelines in 2018 that stated that cryptocurrencies received as employment payments are subject to national insurance and income tax. Still, further underlying considerations in other jurisdictions, such as capital gains, must also be factored in.
A Salary Worth Considering
Obtaining Bitcoin as a salary may be an enticing option for many individuals, especially millennials, who are also seeking a new investment opportunity with a lower learning curve and capital required than the traditional stock market. However, at the time of writing, cryptocurrencies may carry a great deal of stigma due to the perceived risks and legal implications that come with moving payroll over to this new financial concept since most regulatory bodies are still uncertain about the exact categorization of Bitcoin and other cryptocurrencies in the financial market.
Despite its shortcomings, our team believes cryptocurrency is gaining traction and exposure in the mainstream market, as shown in growing coverage from mainstream financial media outlets such as Forbes and Bloomberg. Regulatory bodies are taking an active interest, and the number of people with a digital wallet is rising. If the cryptocurrency space continues to evolve and deliver disruptive solutions for the global financial markets, taking the plunge and switching to Bitcoin for salary payments is a huge step forward for most people.