Although Bitcoin and cryptocurrencies have become popular alternatives to fiat currency transactions, there's one area where financial institutions still have an upper hand over digital assets: salary payments.
Despite valiant efforts from brands such as BitWage, which offers payroll services and enables companies to pay employees a portion of their salary in BTC, bank accounts are still the preferred option for millions of us. Here, we'll look at the pros and cons of receiving Bitcoin salaries.
The Benefits of Digital Currency Salaries
COVID-19 and the gig economy have meant many freelancers work from home and online. They may own an internet firm that means they have clients around the world; however, an issue they may face working globally is that exchange rates can eat into their earnings. Advocates argue that Bitcoin transactions are often far less expensive than using PayPal or a remittance service, and Bitcoin payments can easily be converted into U.S. dollars afterwards.
Another advantage comes in how quickly funds can arrive in an Ethereum or Bitcoin wallet. Salary payments from old-fashioned bank accounts can sometimes take days or weeks to clear, greatly inconveniencing those who have bills to pay.
Blockchain also creates an immutable, transparent record of the salary payments that have taken place — protecting both parties in the event of a dispute. And, if an employee decides to hold on to their BTC, they could see the value of their wages rise over time — especially in a bull run.
Accepting Bitcoin salaries could also bring new business for freelancers, opening up their network to crypto companies and startups that often pay employees in crypto than more traditional companies.
The Disadvantages of Crypto Salary Payments
Unfortunately, where there's light, there's shade. Although digital currencies do solve some of the annoying problems associated with bank accounts and credit cards, they also create entirely new issues. Employees would still need to pay income tax — but right now, many accountants aren't up to speed on how cryptocurrencies work. And, if Bitcoin salaries rise substantially in value after being paid, the issue of capital gains tax might raise its ugly head.
The volatility of cryptocurrencies such as Bitcoin, Ethereum and Bitcoin Cash also mean that unless these digital assets are speedily converted into a fiat currency, their value could fall dramatically in the space of a couple of hours. Imagine receiving your $3,000 monthly wage in BTC at midnight on a Friday, only to wake up at 8 a.m. and discover that a flash crash means it's now worth $2,200. Your landlord might not be too sympathetic when you explain you can't make rent.
Difficulty of Use
Using Bitcoin to pay employees would be a massive boost for mainstream adoption, but cryptocurrencies and crypto mining can be difficult for the typical consumer to understand. Bank accounts are fairly straightforward, and there are safeguards that protect them if they forget their password or attempt to send funds to the wrong place. Some cryptocurrency exchanges don't offer these features, meaning there's a risk of costly mistakes if a long Bitcoin address is typed incorrectly.
Platforms such as Binance and Coinbase are attempting to make accepting BTC and altcoin payments much simpler for newcomers to digital currencies, but there's a long way to go before using Bitcoin transactions as simple as tapping a credit card on a chip and PIN machine.
Regulation could be another issue. There are fears cryptocurrencies could undermine the U.S. dollar, and Trump has made it clear he isn't all that keen on Bitcoin.
To Crypto or Not to Crypto?
Overall, digital currencies are still young, and the cryptocurrency market is maturing. Fiat currency will remain the status quo for salary payments for now, but adoption could rise if financial institutions get involved with digital assets, or a big company gives its workforce the option to get a portion of their salary in this way.
If you are really interested in cryptocurrencies and your employer is willing to pay in cryptocurrency, perhaps taking a small percentage of your salary in crypto (as much as you are willing to risk!) will give you an understanding of how comfortable you are being paid in digital currency.
This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.