Cryptocurrency: salary of the future?

Fifty years ago our wages came in pay packets filled with cash. Next came cheques, and now we wouldn’t dream of getting our salary in any other way than an online bank transfer. Or would we? If you believe the hype, the world of cryptocurrency—also known as digital currency or virtual currency—is looking to change all that. But before you rush out and get a digital wallet, we weigh up the pros and cons of being paid in cryptocurrency.

But first, what is a cryptocurrency?

In 2008, Satoshi Nakamoto, the pseudonymous creator behind Bitcoin, launched the world’s first, and more famous, decentralised cryptocurrency. He describes the concept as “a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”. It takes the form of virtual tokens, or coins, and is essentially the internet equivalent of paying in cash. Today, you can use cryptocurrency for a number of services—from buying eco-responsible cosmetics at Lush to donating to Wikipedia. And when it comes to exchanging cryptocurrency for hard cash, particularly bitcoin, you can use cryptocurrency exchange services. That being said, for most everyday transactions—such as paying for lunch in a restaurant—crypto just won’t cut it. Further, exchanging cryptocurrency for cash can be an extra administrative task of its own.

No longer the preserve of enthusiasts, bloggers and speculators, now anyone might casually buy some Ethereum, Litecoin or one of the many other tokens hoping to become the next Bitcoin. In fact, an estimated 6% of the British population owns some form of digital currency.
You might have a digital wallet, but would you go so far as to receive your salary in cryptocurrency?

Salaries in cryptocurrency

That’s the question being asked by employers across the globe. In August 2019, New Zealand became the first country to legalise cryptocurrency salaries. And in 2018, a Japanese company called GMO Internet Group started offering their employees a part of their salary in cryptocurrency.

In the UK, full crypto-salaries are only offered by a few online coin exchanges and cryptocurrency companies that have a vested interest in paying employees with their own virtual tokens. Geraint Jones, a private client tax partner at BKL, an accountancy firm that offers tax advice, says that he is yet to encounter any non-crypto companies that pay crypto-salaries. “Generally, firms that pay in crypto have easy and cheap access to their own coins,” he explains. “You would have to ask why an employer wants to pay you in that coin.”

But if your company offers to pay your salary in cryptocurrency, should you accept the offer? Here’s why you should and why you shouldn’t.

The pros of getting paid in crypto

• It gets you on the cryptocurrency ladder

Jones can see some limited benefits to incentivising employees with a flexible remuneration package, which allows employees to make manageable investments in a cryptocurrency using a small part of their income. “I hear about it periodically. If I was an employee it may be an easy way to take a first punt on crypto,” he says. “For instance, if I was given a £10,000 bonus and £5,000 was in Bitcoin. Provided my employer was meeting their basic obligations and I could afford to invest that amount, it could be a brilliant idea.”

• It’s an exciting investment

Crypto is an easy introduction to the investment world. If you do receive payment in a cryptocurrency—whether you intend to make a quick buck trading or give yourself a head-start in some global cryptocurrency rollout in the not-too-distant future—you could be sitting on a pot of gold. However, it is also a highly unstable and poorly regulated asset, so it’s vital to do your homework and know what you are buying into.

• There’s increased security

Cryptocurrencies can be a safe way to protect your assets from thieves and hackers. For instance, Bitcoin transactions take place securely using “an electronic payment system based on cryptographic proof” known as blockchain technology. Unlike online banks and companies, which tend to record all non-cash transactions in one single, hackable server, the blockchain process is nigh-on impossible to interfere with. Wage payments would not only be recorded securely, but also kept in relative privacy using anonymised public keys.

The cons of a crypto salary

• It’s all over if you forget your passwords (no seriously)

Some cryptocurrencies are so secure that if you misplace your personal secure key or password you can never recover your tokens. Store them in a secure place!

• It’s not legal tender

Unlike fiat currencies, such as the pound sterling, whose value is backed by the British government and central bank, cryptocurrencies like Bitcoin, are decentralised and not tied to any national standard of value. The Bank of England does not recognise cryptocurrencies as legal tender, and instead describes them as “exchange tokens”.

• Lack of regulation

The regulation that presides over these chaotic markets is still pretty threadbare. The Financial Conduct Authority declared that the vast majority of cryptocurrencies, including popular tokens such as Bitcoin, fall outside of their remit, which means those who get ripped off can’t go to the Financial Ombudsman Service.

• Your tax bill could be larger than your income

Nonetheless, on November 1, 2019, Her Majesty’s Revenue and Customs (HMRC) issued updated guidance that all cryptocurrencies and assets received through employment are subject to income tax and national insurance deductions, in exactly the same way as income paid in fiat.

Deductions are calculated from the time the assets are received which means your crypto-bonus might actually cost you money. For example, if your crypto bonus was worth £10,000 when you received it, you pay HMRC tax on that amount. If the value falls to £0 by the time tax is deducted, you are still liable to pay tax on the £10,000.

It can be appealing to get caught up in stories of Bitcoin billionaires, but the truth is that lightning is unlikely to strike twice. Ultimately, Jones’s verdict of crypto-salaries is quite damning. If you want to dabble in cryptocurrency, he says, do it on your own terms. “I can’t see any significant advantage on the part of the employee unless they only invest a small proportion of their income into it. Even in that case, the employee may as well just choose how much to invest for themselves, rather than having it foisted on them by an employer.”

Despite its shortcomings, cryptocurrency is becoming increasingly mainstream. Regulatory bodies are taking an active interest and the number of people with a digital wallet is on the rise. If the crypto landscape continues to evolve in this way, who knows what the future might hold?

Photo by WTTJ

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