Speaking at a Chamber of Digital Commerce panel discussion in late February, City of Miami Mayor Francis Suarez noted that his city’s employees, like others, are worried about the “potential devaluation of the dollar,” so he proposed to the Miami City Commission a resolution to allow “our employees to take a percentage of their salaries in Bitcoin if they so desired.”
After all, notes Suarez, “The highest-paid player in the National Football League” — Carolina Panthers offensive tackle Russell Okung — won’t be earning the most because he’s the best player in the NFL but “because he asked for 50% of his salary in Bitcoin.”
The mayor’s statement may have been a small bit exaggerated — Okung’s ranking as “one of the highest-salaried NFL players at this moment” depends on the price of Bitcoin (BTC), as NBC Sports noted in late February. Technically though, Okung gets paid 100% in U.S. dollars, then half is sent to a custody provider that converts it to BTC. But to Suarez’s larger point, interest in a “crypto wage alternative” seems to be growing.
If so, it raises some questions: Why take a salary in Bitcoin when there is almost nothing that you can buy with it? Aren’t there tax implications that still haven’t been sorted out? What about ongoing BTC challenges like volatility and scalability? And if Bitcoin drops 60% or 70%, who is going to want crypto wages then?
Meanwhile, one is hard-pressed to find any company outside the cryptoverse that is paying its employees’ wages in Bitcoin or altcoins. As Thomas Hulme, head of the blockchain and crypto-asset team at law firm Mackrell.Solicitors, tells Cointelegraph Magazine: “I have not come across an instance professionally where a company has sought advice to pay employees a salary in whole or in part, in crypto assets.”
More employee demand?
Still, as Merrick Theobald, vice president of marketing at BitPay — whose BitPay Send platform has a crypto payroll payment option — tells Cointelegraph Magazine: “We are most definitely seeing greater demand from employees to take at least a portion of their salary in Bitcoin.” It’s being driven by the recent surge in BTC prices, he continues, in addition to greater global awareness regarding cryptocurrency generally. “Bitcoin is quickly becoming more mainstream and employees recognize this and want to be a part of this.”
Jack Mallers, CEO of Zap — whose Strike application enabled a portion of Russell Okung’s salary to be converted into Bitcoin — tells Cointelegraph Magazine: “We have seen an immense amount of demand. We currently have over 5,000 users on our waitlist to convert a percentage of their direct deposit paychecks into Bitcoin here in the U.S. alone.”
But clearly, obstacles need to be overcome before crypto wages 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 cryptocurrency in their corporate treasuries, so the only salaries or compensation to be paid in Bitcoin, say, are “likely to be idiosyncratic requests from talent” — Okung, for instance.
Paul Brody, global blockchain leader at Ernst & Young, when asked if he expects more companies to offer a cryptocurrency salary option soon, opines to Cointelegraph Magazine:
“I think it is unlikely. If you think about what makes sense from a risk management standpoint, having liabilities like your taxes and mortgage in fiat currency — dollars, for example — and getting paid in Bitcoin, for example, is a high risk proposition. A mismatch could lead to big problems, especially if you have a period where cryptocurrencies go down in value relative to fiat currencies.”
A more fundamental barrier may simply be corporate convention — i.e., the incumbent payment systems that have been built up over generations. Richard Ainsworth, an adjunct instructor at Boston University School of Law and co-author of the paper “Payroll Tax Compliance and Blockchain,” tells Cointelegraph Magazine that the major payroll companies, like ADP, are still “not thinking about this in a business simplification way.”
There is nothing inherently problematic about getting paid in crypto, continues Ainsworth. “Income will be determined at the moment of receipt. Holding the crypto may give you a tax problem when you cash in” though, and the exchange rates from crypto to fiat currency will have to be kept minimal — i.e., “subsidized by the employer.”
“It is surely coming”
However, Ainsworth expects crypto wages to be commonplace one day, though it might take a while, as is the case with many innovative technologies: “It took 38 years to go from ARPANET [a precursor to the Internet] to Skype. It may take as long for payroll in Bitcoin to arrive, but it is surely coming.”
When Ainsworth wrote his paper exactly four years ago, he was looking at crypto wages from a global perspective with a focus on companies with operations around the world and employees being transferred from country to country. One scenario he imagines:
“If I had a mortgage on a house in NY, but was going to be stationed in Japan, and then in London for indeterminate periods of time […] I might want my mortgage in NY paid out of my salary, along with some other expenses, but while in Japan (if the company was paying for my housing there), I still might want to get a portion of my pay in Japanese yen (or later in English pounds). Getting paid in crypto would ease that difficulty.”
That probably isn’t the typical worker’s dilemma, though — think of Suarez’s Miami city workers. Hulme tells Cointelegraph Magazine that the vast majority of goods and services typically needed by an employee still cannot be purchased in crypto assets, which “means that the majority of employees would likely rather be paid in fiat currency.”
There might also be tax implications in places like the United States and the United Kingdom, where Hulme is based, as “This will likely raise issues from a PAYE perspective” — referring to the UK system that collects income tax and national insurance payments from employees — “from a practical point of view and a general tax point of view.”
Risks for employees?
People need to diversify their financial holdings, suggests Brody, and right now, the only people likely to demand Bitcoin wages are those already invested in crypto. He adds: “Paying people all or most of their pay in a volatile digital asset poses significant risks for employees. The people most likely to take up this offer are also the ones that are most likely to suffer badly if it goes wrong: people working in the crypto-space already.”
“I am a good example,” he further explains: “Professionally, I am ‘all in’ on blockchain and digital assets — my job depends entirely on the success of this sector. Throwing in all my other financial assets into the same bucket is very risky, and if things go badly, that would leave me without a backup plan.”
Of course, there is no imperative that an employee has to take all their salary in crypto. Okung, for example, will end up having half his NFL salary in Bitcoin, with the other 50% in fiat currency. CoinCorner, a UK-based crypto exchange and wallet provider, has offered its employees a crypto salary option since 2019, and even though all the firm’s employees participate, “Nobody is currently taking 100% of their salary in Bitcoin,” CEO Danny Scott tells Cointelegraph Magazine.
Still, this might not be the best way to think about the matter, suggests Mallers: “The most healthy mental framework is to consider Bitcoin your savings account — money that is intended to be saved and not spent on everyday living.” How much can be safely allotted to a crypto savings plan will differ for each individual. Meanwhile, companies “need to be prioritizing their ability to recruit and retain talent,” Mallers tells Cointelegraph Magazine, adding:
“Those that deny their employees ease of use to receive and hold the best performing asset and savings account in human history will have a tough time convincing the most talented people in the world to be employees.”
Among the benefits for employees from providing a crypto option, Theobald adds that employees don’t need bank accounts, they enjoy advantages like faster access to funding, “and they receive the exact amount sent at the applicable exchange rate.”
How does it work?
The logistics don’t seem to be that difficult. CoinCorner, for instance, has held Bitcoin on its balance sheet for many years, which “has made salary payments in Bitcoin fairly straight forward,” Scott tells Cointelegraph Magazine. The firm’s accountant processes everything in British pound sterling from an accounting and tax side, but then the firm converts the required amount of pounds to BTC when making the salary payment. Scott says:
“We take the close price for the end of the month and use that to work out the BTC amount. Unfortunately, this part may get more complicated if you do not hold Bitcoin on your balance sheet, as you would need to buy and then use the rate from the time you purchase the Bitcoin.”
Nor is Bitcoin the only crypto option offered at CoinCorner: “We support Ethereum (ETH) and Litecoin (LTC) too — but none of our employees have opted for these as of yet,” says Scott.
A company using the BitPay Send platform simply deposits fiat into its BitPay merchant account, and BitPay converts the fiat to crypto immediately before fulfilling an employee’s crypto payout request. BitPay also adheres to Anti-Money Laundering, Know Your Customer, Office of Foreign Assets Control and other global regulatory and compliance requirements, Theobald adds.
A boon for the gig economy?
If a Bitcoin salary option were to become popular, where might it catch on first? “Interest in crypto wages is strong across the globe but we do see higher interest in countries where the local fiat currency is highly volatile,” says Theobald. Interest among firms with cross-border payouts “is also particularly strong, and this is partly driven by the need to make mass payments to the gig economy and affiliate networks” that need to make “payouts anywhere in the world, on any day of the week, and at any time.”
From a freelancer’s standpoint, “Online jobs that pay in Bitcoin are a fantastic way to source work from anywhere in the world,” notes LaborX, a freelance jobs platform, especially with the availability now of fully regulated exchanges and wallet services that store crypto securely.
Brody opines that “You will see this primarily offered in countries where local exchange ranges or high inflation makes being paid in the local fiat currency an even higher risk,” but barring that, he foresees companies defaulting to the simplest payment method with the fewest complications — i.e., fiat currency.
What if BTC price plummets?
Will demand for Bitcoin-paid salaries vanish, though, if the price of BTC falls — or even levels off? Kim suggested that employees are asking for BTC wages now mainly because the price of Bitcoin is appreciating — but if and when BTC achieves some price stability, employees may no longer be so keen to be paid in the cryptocurrency, he tells Cointelegraph Magazine.
But when asked the same question, “Absolutely not,” answers Theobald. “In fact, we believe the opposite. If and when the price of BTC drops we believe we will see an increase in demand as employees who primarily buy Bitcoin as an investment often allocate more money on the dip.” And for the more cautious workers, there are always stablecoins, he adds.
What about the scalability challenges? In response to Suarez’s Feb. 11 tweet in which he announced that he was “exploring […] paying employees in Bitcoin” one Miami resident responded:
Dear Mayor Suarez;Bitcoin can process, at best, 650K transactions per day. Population of MDC 2.7 millionIf all of MDC used bitcoin, we’d be limited to one transaction every four days
— Marc Kwiatkowski (@fbmarc) February 12, 2021
Strike uses the Lightning Network, a secondary system that can speed up Bitcoin transactions. Will Lightning, or some facsimile thereof, be required if crypto wages are to become a reality at scale?
It all depends upon how a company makes its staff salary payments, says CoinCorner’s Scott. If an employer “uses a [service firm] that offers the tools for salary payments, then they may also offer Bitcoin wallets for the staff at which point there are no on-chain transactions initially, meaning there are no scaling issues.”
“Of course, if they want to send the transactions on chain to staff, then scaling comes into play and Lightning would help out. Lightning would also offer up an option to stream salaries rather than pay them weekly/monthly etc.,” says Scott, adding:
“You could, in theory, stream your portion of salary to be paid in Bitcoin every 10 seconds for example over your working day, so you’re effectively paid in real time, rather than once per month/week.”
Looking far ahead
Five years hence, will most global firms offer employees a crypto wage option? “It is doubtful in my view,” according to Hulme. Ainsworth, for his part, is more optimistic, telling Cointelegraph Magazine: “Five years more should bring some changes, and I think there will be MORE, but maybe not MOST global companies.”
If BTC settles down enough to be used to pay company salaries, suggests Kim, “Then the more likely effect is central bank digital currency development will be accelerated.” Brody, for his part, believes that “Companies will offer their employees the option to invest in crypto and digital assets as a part of their normal savings and retirement plans.”
Scott tells Cointelegraph Magazine: “I expect we will see more and more companies offering payments in Bitcoin in the next five years.” It is still early in the adoption curve, and current tools are lacking, “But they will improve with time.” Theobald adds that it will be necessary in the future for employers to “allow employees to be paid how and when they want to be paid.”
Mallers sees a sort of inevitability to the process: “The public is beginning to treat Bitcoin as their savings account, where excess cash is preserved and protected. The natural evolution is getting a percentage of your paycheck in Bitcoin.”