- Though cryptocurrencies are considered safer than real money, many countries have banned cryptocurrency trading due to concerns like money laundering, and tax evasion.
- Most major economies allow holding cryptocurrency assets. However, China has made it completely illegal.
- Paying wages in cryptocurrencies is rising, with tech giants like Twitter also considering paying salaries in bitcoins.
- However, firms must assess the potential legal complications, fluctuating crypto prices, and tax implications, to name a few.
- As per the Fair Labour Standard Act, the salary should be given to the employee in cash or a negotiable instrument payable at par.
Cryptocurrency is digital money considered safer than real money. Cryptocurrencies use cryptography to make the transaction secure. They first came into existence in 2009. Since then, there has been a massive surge with thousands of cryptos currently trading on the market, including Bitcoin, Ethereum, Ripple, ZCash, Litecoin, and Dash, among others.
Source: Melpomenem | Megapixl.com
Related Links: What is blockchain and blockchain technology?
Bitcoin has gained huge popularity in the last few years driven by the following reasons:
- Many bitcoin supporters consider it as the currency of the future. Hence, many people have started buying them.
- It would remove central banks from managing the money supply.
- Bitcoin’s technology follows a decentralised processing and recording system which is safer than the traditional payment system.
Because of the rising popularity, many companies have issued their own currencies, known as tokens, and are traded for the goods and services offered by these companies.
Bitcoin’s Entry into Mainstream Payment
Of late, bitcoin has made its entry into the mainstream payment. Many tech-savvy businesses in the US have started paying their staff in cryptocurrency. And it is just not the technology sector. Businesses across diverse sectors have started exploring paying wages in bitcoins.
Recently, PayPal rolled out a crypto trading platform to all qualified US customers. Leading technology company, Twitter, is also considering paying salaries in bitcoin.
Although using bitcoin as a mode of salary payment is a fast, simple, and inexpensive way, firms must also consider the concerns around legal compliance, tax implications and fluctuations in crypto prices, to name a few.
In Which Geographies is Bitcoin Transaction Legal?
Currently, most major economies allow holding cryptocurrency assets. These include the US, most countries within the European Union, Japan, and South Korea.
However, in countries like China, bitcoin mining and trading on the crypto exchange is illegal. Besides, India and Nigeria have also made headlines for the attempts by their central banks to ban Cryptocurrency usage. In March 2021, India passed a bill to ban crypto trading. The bill permits cryptocurrency trader to liquidate the position within six months. The ban was due to the concerns related to bitcoins, including lack of traceability, possible tax evasion and black marketing.
Debate Around Paying Salaries In Cryptocurrency
Different people might have different opinions when it comes to whether paying a salary in cryptocurrency is correct or not.
Some experts believe that making payment in cryptocurrencies is a risky business for both employers and the employee. As they are volatile, there are still legal issues that need to be resolved.
Other factors like the law of the land also come into the picture of whether the country supports payment in cryptos. As per the Fair Labour Standard Act, the salary should be given to the employee in cash or a negotiable instrument payable at par. Cryptocurrencies do not fall under this category.
Impact of Crypto price fluctuations - A recent news that went viral
During the first week of May 2021, an employee was paid in crypto for the services he delivered as per his contract. The personal was in a contractual role. In August 2020, the employee received the payment in crypto and since then, the price of that crypto has zoomed by 700%.
The employee claimed that he worked with the CEO for several years and tends to change the terms after agreeing on a certain method of making payment. He also claimed that he received an email from CEO to send back all the crypto accepted in August 2020 and take US dollars for hours worked. The CEO gave the reason that the employee did not generate revenue.
While the CEOs reasoning may seem legitimate, the massive surge in the cryptocurrency’s price could potentially be the main reason for the objection.
Bitcoin’s YTD Performance – A Prime Example of Price Volatility
Bitcoin has had one of the most volatile histories. According to price data from Coindesk, bitcoin started the year at US$29,333 before surging to a high of US$63,346 on 16 April. During this period, the world’s largest crypto witnessed multiple fluctuations. The massive variations have continued with the prices tumbling post the 16 April-high and near the US$38K-mark on 28 May.
A significant factor that pushed the bitcoin price up in the first few months was the entry of big multinational giants like JP Morgan and Morgan Stanley into the bitcoin space (after Tesla, MicroStrategy, and Square) which gave confidence to the investors and pushed the demand for bitcoin.
The recent drop
During the third week of May 2021, Bitcoin prices dropped significantly below US$40,000 after the People’s Bank of China stated that digital tokens could not be used as a part of the payment. According to the People’s Bank of China, bitcoins are virtual currencies and should not be used in the market as these are not real. The bank added financial and payments institutions cannot price products and services with virtual currency.
Bitcoin prices, like other cryptos, have witnessed a massive decline of late (Source: Charon | Megapixl.com)
- Crypto Market Crashes! US$1 Trillion Wiped Off In 5 Days
- Five cryptocurrencies that lost more than 50% in 24 hours
- How did the Latest Crash affect Cryptocurrencies’ YTD Returns?
As more and more companies opt for bitcoin and other cryptocurrencies as a mode to pay wages, there is a clear sign that the strategy is here to stay. Further, there is a higher likelihood that employees request to be paid in bitcoins in the future.
However, there could be a few traps for companies paying in cryptocurrencies and should be carefully assessed. In addition, different geographies have different legal implications, so it is imperative for an organization to conduct a thorough study before deciding to pay its employees in bitcoins and other cryptocurrencies.