The rapid rise of cryptocurrencies has led to a new trend in the workplace – getting salary as crypto salary. From tech entrepreneurs to freelance creatives, more and more professionals are opting to receive their salary in crypto assets like Bitcoin and Ethereum. The allure of faster payments, lower fees, and potential investment gains has made cryptocurrency compensation an enticing proposition.
However, as the crypto industry continues to evolve, experts caution that accepting salaries in digital currencies may not be as straightforward as it seems. In this comprehensive cryptocurrency primer, we’ll delve into the key drawbacks that employees and employers should carefully consider before embracing crypto as a method of wage payment.
Related Read: What You Should Know About Global Crypto Regulatory Landscape Before you Start Planning your Crypto Investments
Crypto Isn’t a Practical Payment Method
One of the primary challenges of receiving a crypto-based salary is the practical difficulty of using digital assets for everyday expenses. While the number of merchants and service providers accepting crypto assets is growing, the vast majority of landlords, utility companies, and grocery stores still only accept traditional fiat currency.
This means that individuals paid in crypto would need to regularly convert their digital assets into local currency to cover basic living costs. This added step introduces additional fees, wait times, and administrative hassles that traditional cash paychecks do not. As one expert notes, “For the vast majority of workers, their salary is used to, well, live. You need to pay your rent or mortgage, buy food, and manage your utilities. With a traditional cash salary, this is easy. Everybody takes regular currency.”
Volatility Can Wreck Your Budget
Another significant drawback of crypto-based salaries is the extreme cryptocurrency volatility inherent in the digital asset market. Crypto assets like Bitcoin are known for their stomach-churning price swings, with values fluctuating thousands of dollars in a single day. This can make it incredibly challenging for employees to manage their budgets and ensure they have enough funds to cover essential expenses.
As one expert explains, “You may be paid $500 worth of Bitcoin on a Tuesday, and see a drop in value by Thursday that makes your Bitcoin worth just $400. This volatility may be manageable if you’re only receiving part of your income in crypto. But if you’re trying to pay your everyday expenses with crypto income, the volatility can make keeping a budget nearly impossible.”
Crypto Salaries Complicate Taxes
Receiving a portion of one’s salary in cryptocurrency also introduces significant tax implications of cryptocurrency that can quickly become complex and burdensome. In the United States, the IRS classifies crypto assets as “property” for tax purposes, requiring detailed tracking and reporting of each transaction.
Employees paid in crypto must determine the fair market value of their digital assets on the day they were received and report that as ordinary income. Additionally, any subsequent profits made when selling or exchanging the crypto are subject to tax on crypto gains. As one expert notes, “The IRS rules for accepting cryptocurrency also mean that you must keep track of the value for each cryptocurrency on the day it was received and the day it was sold. This can quickly get complicated, especially when you’re managing several transactions a day.”
Many people wonder, is crypto taxable? The answer is yes. You do have to pay taxes on crypto, just like any other form of income or investment gains. The tax on cryptocurrency follows similar rules to other assets, like stocks or real estate. So is bitcoin taxable? Absolutely. The crypto tax laws treat all cryptocurrencies the same for cryptocurrency taxation purposes.
It’s important for anyone receiving crypto income or investing in crypto assets to understand the tax on crypto. Is bitcoin taxed? Yes, and so are all other cryptocurrencies. If you’re wondering “does crypto get taxed?” or “how is bitcoin taxed?”, familiarize yourself with the crypto tax law and taxation of cryptocurrencies. Ignorance is not an excuse when it comes to properly reporting and paying taxes on your crypto earnings.
Are crypto gains taxed? Yes, any profits made from selling or exchanging cryptocurrencies are subject to capital gains taxes, similar to stocks. It’s crucial to keep detailed records of all your crypto transactions to ensure proper tax compliance and avoid potential issues with tax enforcement down the line. Failure to pay taxes on crypto gains could be considered tax evasion.
Crypto Payments Lack Consumer Protections
One of the key advantages of cryptocurrency – its decentralized, peer-to-peer nature – also introduces significant risks for individuals receiving their salaries in digital assets. Unlike traditional financial institutions, crypto platforms and crypto wallets lack the robust consumer protection measures that safeguard against fraud, hacking, and other criminal activities.
As one expert warns, “The reason that merchants get to avoid the headache of chargebacks is that once a crypto transaction is done, it’s done. The customer doesn’t have any fraud protection number to call, there’s no FDIC insurance and Mastercard can’t cancel the transaction. Crypto crime, hacking and scams are common, and if your account gets hacked or you fall victim to a scam or some other crime, your money is gone for good — because it was never really money.”
The anonymity provided by cryptocurrencies is often present in criminal activities involving cryptocurrencies. The lack of third-party reporting and the difficulty in tracing funds through the blockchain makes crypto an attractive tool for bad actors. This is one reason why regulators and law enforcement, like the IMF, are paying close attention to the crypto space. The IMF cryptocurrency stance acknowledges both the potential benefits and risks, with entities like Ripple and the IMF (XRP IMF) working to develop regulatory frameworks.
Navigating the Crypto Salary Landscape
While the prospect of getting paid in digital assets may seem exciting, the reality is that crypto-based salaries come with a host of drawbacks that employees and employers must carefully consider. From the practical challenges of using crypto for everyday expenses to the complex tax implications of cryptocurrency and lack of consumer protections, the crypto salary landscape is fraught with potential pitfalls.
That said, for those willing to navigate these challenges, there are strategies and tools available to help mitigate the risks. These include using stablecoins pegged to traditional currencies to reduce volatility, leveraging specialized crypto taxation services, and choosing reputable, secure crypto platforms and wallets.
Ultimately, the decision to accept a cryptocurrency salary will depend on an individual’s risk tolerance, financial situation, and long-term goals. By understanding the potential drawbacks and weighing them against the potential benefits, employees and employers can make an informed decision about whether embracing cryptocurrency compensation is the right move for them.
The Pros of Accepting Crypto Salaries
Faster Payments
One of the primary advantages of receiving a crypto-based salary is the speed of transactions. Unlike traditional banking systems, which can take days or even weeks to process payments, cryptocurrency transactions are nearly instantaneous. As soon as an employer sends a crypto payment, the funds are available in the employee’s digital wallet.
This immediacy can provide a sense of financial security and certainty, as employees no longer have to wait for checks to clear or direct deposits to hit their accounts. As one expert explains, “When your employer makes a payment to you using [digital currency], as soon as your employer makes that payment, the next second, it is in your account. You don’t have to wait until the following day.”
Lower Fees
Another key benefit of crypto-based salaries is the potential for significantly lower transaction fees compared to traditional payment methods. Whereas credit card processors and international money transfer services can charge fees ranging from 1.5% to 20% or more, cryptocurrency transactions often come with much lower, or even negligible, costs.
This can be especially advantageous for freelancers, remote workers, and small business owners who regularly receive payments from clients or customers located in different countries. By bypassing the fees associated with traditional cross-border payments, crypto-based salaries can help maximize the take-home pay for these individuals and organizations.
Hedge Against Inflation
Crypto assets like Bitcoin have gained a reputation as a hedge against inflation, as their decentralized nature and limited supply make them resistant to the devaluation that can plague traditional fiat currencies. For employees in regions experiencing high rates of inflation, receiving a portion of their salary in crypto can help preserve the purchasing power of their earnings.
As one expert notes, “Bitcoin and other cryptocurrencies like Ethereum have become the go-to for many crypto investors who want to keep and increase the value of their earnings. Similar to gold, the scarcity of Bitcoin has made it an asset that has performed very well over the years. Despite its volatile nature, most people who have bought and held Bitcoin over a long period have turned a profit, making it a very popular hedge against inflation, with some experts calling it ‘digital gold.'”
The Cons of Accepting Crypto Salaries
Volatility Concerns
One of the most significant drawbacks of crypto-based salaries is the inherent cryptocurrency volatility of the digital asset market. Crypto assets are known for their dramatic price fluctuations, with values sometimes swinging thousands of dollars in a single day. This can make it incredibly challenging for employees to manage their budgets and ensure they have enough funds to cover essential expenses.
As one expert explains, “Even with inflation, $1 today will be worth roughly the same in a few days, weeks or even months. Not the case with crypto, an asset class defined by stomach-churning volatility. Bubbles, crashes and wild price swings are the rule, not the exception.” This volatility can be especially problematic for those relying on their crypto-based salary to cover their day-to-day living costs.
Tax Complications
Receiving a portion of one’s salary in cryptocurrency also introduces significant tax implications of cryptocurrency that can quickly become complex and burdensome. In many countries, including the United States, crypto assets are classified as “property” for tax purposes, requiring detailed tracking and reporting of each transaction.
Employees paid in crypto must determine the fair market value of their digital assets on the day they were received and report that as ordinary income. Additionally, any subsequent profits made when selling or exchanging the crypto are subject to tax on crypto gains. As one expert notes, “It’s up to you to keep track of every transaction — crypto exchanges rarely send out 1099-B forms. Crypto pricing is highly volatile — you must report the value of the coin at the time you received it. Every time you move your coins from a wallet or exchange, it gets more complicated — you must track each transfer.”
Lack of Consumer Protections
Unlike traditional financial institutions, cryptocurrency platforms and wallets lack the robust consumer protection measures that safeguard against fraud, hacking, and other criminal activities. Once a crypto transaction is completed, it is irreversible, and there are no fraud protection hotlines or FDIC insurance to fall back on.
As one expert warns, “The reason that merchants get to avoid the headache of chargebacks is that once a crypto transaction is done, it’s done. The customer doesn’t have any fraud protection number to call, there’s no FDIC insurance and Mastercard can’t cancel the transaction. Crypto crime, hacking and scams are common, and if your account gets hacked or you fall victim to a scam or some other crime, your money is gone for good — because it was never really money.”
The anonymity provided by cryptocurrencies is a double-edged sword. While it offers privacy for legitimate users, it is also often present in criminal activities involving cryptocurrencies. The lack of third-party reporting and difficulty tracing funds through the blockchain makes crypto attractive to bad actors.
Adoption and Usability Challenges
Despite the growing acceptance of crypto assets, the reality is that the vast majority of businesses and service providers still only accept traditional fiat currencies. This means that individuals receiving a crypto-based salary would need to regularly convert their digital assets into local currency to cover basic living expenses, introducing additional fees, wait times, and administrative hassles.
As one expert notes, “For the vast majority of workers, their salary is used to, well, live. You need to pay your rent or mortgage, buy food, and manage your utilities. With a traditional cash salary, this is easy. Everybody takes regular currency. But that’s not the case with crypto. Chances are pretty good your landlord isn’t going to take Bitcoin, nor will your utility company.”
Conclusion
The rise of crypto-based salaries has undoubtedly generated significant excitement and interest, particularly among younger, tech-savvy workers. However, as this cryptocurrency primer has highlighted, accepting a portion or all of one’s salary in digital assets comes with a host of potential drawbacks that employees and employers must carefully consider.
From the practical challenges of using crypto for everyday expenses to the complex tax implications of cryptocurrency and lack of consumer protections, the crypto salary landscape is fraught with potential pitfalls. While the benefits of faster payments, lower fees, and potential investment gains are undeniable, the reality is that the cryptocurrency volatility and usability issues associated with crypto assets can make them a less-than-ideal choice for most workers’ primary source of income.
That said, for those willing to navigate these challenges, there are strategies and tools available to help mitigate the risks. By understanding the potential drawbacks and weighing them against the potential benefits, individuals can make an informed decision about whether embracing cryptocurrency compensation is the right move for their unique financial situation and long-term goals.
Ultimately, the decision to accept a cryptocurrency salary will depend on a careful analysis of one’s individual circumstances and risk tolerance. As the crypto industry continues to evolve, it will be crucial for both employees and employers to stay informed and vigilant about the latest developments and best practices in this rapidly changing landscape.
FAQs
Is it practical to accept a crypto-based salary for everyday expenses?
Receiving a crypto-based salary can be impractical for everyday expenses due to the limited acceptance of digital assets. Most landlords, utility companies, and grocery stores only accept traditional fiat currency, requiring regular conversion of crypto to cover basic living costs.
How does cryptocurrency volatility affect budget management for employees?
The extreme volatility of crypto assets can make budget management nearly impossible for employees. Rapid price swings can lead to significant fluctuations in the value of their crypto-based salary, posing challenges in ensuring enough funds to cover essential expenses.
What are the tax implications of receiving a crypto-based salary?
Receiving a crypto-based salary introduces complex tax implications, as crypto assets are classified as “property” for tax purposes in many countries. Employees must track the fair market value of their digital assets on the day received and report any subsequent profits made when selling or exchanging the crypto.
What are the consumer protection challenges associated with crypto payments?
Unlike traditional financial institutions, crypto platforms lack robust consumer protection measures, leaving individuals vulnerable to fraud, hacking, and other criminal activities. Once a crypto transaction is completed, it is irreversible, and there are no fraud protection hotlines or insurance to rely on.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies involves risks, and readers should conduct their own research and consult with financial advisors before making investment decisions. Hash Herald is not responsible for any profits or losses in the process.
