If one financial disruptor has made the most waves in recent years, it is undoubtedly cryptocurrency. Rising from a niche asset, it is now globally recognized by industry leaders and government entities as a major part of the global financial system. In the UK, where mass adoption of crypto spurred by COVID-19 marches on despite the recent hiccups, roughly 2.3 million adults now trade or are otherwise involved in crypto – almost an 80% increase in just one year.
The continued growth of crypto compels businesses to take a closer look at this uptrend. Investment houses have begun providing exposure to cryptocurrencies futures to their clients. Several prominent companies are now paying executive compensation packages partially or entirely in crypto. International giants like AXA Insurance, Starbucks, and Microsoft have begun to accept cryptocurrency payments. And with the advent of cryptocurrency wallets featured with debit cards, the logical next step seems to be salaries paid entirely in cryptocurrencies – a practice New Zealand already implemented in 2019. But given that crypto continues to retain its properties as a largely speculative investment rather than sound money, here are some long-term considerations when it comes to getting paid in Bitcoin or any other crypto.
Benefits of Crypto That Can Improve Payroll Systems
Protected by blockchain technology
When you hear ‘cryptocurrency,’ the word ‘blockchain’ is usually not far behind. But what is blockchain, and how does it help? Blockchain technology (a.k.a. the Distributed Ledger Technology) is what underlays cryptocurrency transactions. All movements of crypto are recorded automatically in encrypted ledgers via a PoW (Proof of Work) algorithm that compiles a virtual non-corruptible, globally accessible database that safeguards your crypto assets. All data pertinent to a particular transaction is disseminated across the entire network, where it’s authenticated and verified by all participants (nodes) in real-time.
Reduces third-party interference
Because cryptocurrencies are decentralized, there is significantly less need for third-party entities when paying employees in cryptocurrencies. For instance, transacting via traditional banks, even if it’s online, is expansive and requires multiple third parties to step in as custodians, guarantors, facilitators, correspondents, and insurers. This complexity is compounded when transacting cross-border – especially since some financial institutions require their clients to use different platforms, prolonging clearing time for days, sometimes weeks. With cryptocurrency, all employers/workers need are an active crypto wallet and a crypto salary card that either can apply for in minutes and start transacting even before the actual plastic comes in the mail. There are multiple applications in the EU and the UK that further streamline this process. Specifically, TRASTRA not only makes it easier for employers to pay a portion of employee salaries in crypto but helps employees diversify and earn passive income with every payout.
The Flipside of Paying Employees in Cryptocurrency
Although the combined market cap of the top three coins – Bitcoin, Ethereum, and Tether – has amounted to £716 billion this June, it’s important to note how vulnerable crypto is. Just recently, Bitcoin’s value dropped by almost 40% in less than a month. Analysts point to the reasons for this slump ranging from government bans (as seen in China and recently in the UK) to weird tweets that plunge Bitcoin instantly by double-digit numbers. This has caused many market insiders to scrutinise the seriousness and stability of cryptocurrency as an investment vehicle, but as an instrument of payroll, crypto (stablecoins in particular) is hands-down perfect: it’s fast, cheap, and you can exchange it to EUR the moment you receive it escaping the volatility factor altogether.
Many investors will say that cryptocurrency is the most viable hedge against inflation. But that is only built on the belief that crypto’s finite number of tokens protects them from value dilution. However, Fortune notes that there are no direct links between inflation and crypto valuations. Rather, the patterns that show cryptocurrencies rising during the high period of inflation were merely coincidental. Although theoretically, crypto payroll is susceptible to inflation, again, it’s a matter of distinction between crypto the speculative investment and crypto the efficient vehicle for fast and reliable transactions. While any crypto you hold will not necessarily dip due to inflation’s movements, neither will it translate to an increase in value. Since most of the world still functions around fiat currency, crypto as a long-term investment will not protect you, your company, or your team from the widespread effects of inflation.
The double-edged sword of paying your employees in cryptocurrencies is decentralization is the lack of protective regulations. The legality and taxing issues concerning cryptocurrency salary remain a murky topic worldwide. Her Majesty’s Revenue and Customs (HMRC) has yet to release formal guidelines surrounding crypto payments in the UK. This may later result in higher taxations or outright prohibitions. This grey area also means it is harder to account for a “fair” crypto salary; because the UK implements capital gains taxes, this may even result in debt on the recipient’s end if crypto prices suddenly drop and they are unable to make payments. Just this year, the Financial Conduct Authority (FCA) has announced that up to 50 crypto-heavy companies may be closed down for failing to meet the UK’s anti-money laundering rules. This has prompted officials to advise investors to be wary of crypto since there are no existing government schemes to buffer losses.
Should You Consider Paying Your Employees in Cryptocurrency?
Depending on the type of your business activity, getting paid in Bitcoin, stablecoins, or any other crypto can mean both a massive convenience and serious risk. While there is no doubt that cryptocurrency will remain a speculative investment asset, you’d do well to realize its potential for fast and reliable cross-border transactions. Using tools like the TRASTRA crypto salary card will make a huge difference in sustaining a distributed workforce in the gig economy, especially given that using crypto for paying salaries, remittances, honorariums and other types of wages does not mean complete abandonment of fiat.