Wages as a driver of cryptocurrency adoption and investment
More and more individuals are earning cryptocurrency in the course of their daily jobs or secondary employment. However, this digital value serves various purposes depending on the nature of the employer, the local jurisdiction and the needs of the worker.
Last month, leading media reported that New Zealand had legalised the payment of salaries and bonuses in crypto assets. Meanwhile, in the United Kingdom — a jurisdiction that has proven notoriously conservative when it comes to digital currencies — the financial and tax authorities now recognise for tax purposes the payment of cryptoassets as employment income. And, while conventional UK employers may not pay base salaries in crypto, they can offer digital currencies as bonuses or fringe benefits.
A similar situation exists in Australia, where employees may also be paid a proportion of their earnings in crypto — essentially making it a viable option for bonuses and supplementary payments. According to the ATO, ‘Where an employee has a valid salary sacrifice arrangement with their employer to receive cryptocurrency as remuneration instead of Australian dollars, the payment of the cryptocurrency is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act 1986.’
A number of other countries have actively engaged with the regulatory implications of businesses paying their employees in these new currencies. Canadian legislation requires that employees are taxed on the CAD value of their wages, before conversion of the crypto into fiat. Employees can also be paid in cryptocurrency in Singapore (which typically follows UK law), Japan, Malta (both of which require base payment of salaries in ‘legal tender’ but allow crypto bonuses), Germany and Switzerland.
Other jurisdictions have also engaged with the new technologies but reached a different conclusion. In the United States, China and Russia, payment in cryptocurrency is not legal and can have serious consequences.
The growth of interest in digital currencies
Over 40 million Bitcoin addresses have been created, by users all around the world. Of these, 7.1 million can be considered ‘active’, or owned by users who perform real bitcoin transactions. Approximately 2.3 million people have been found to use bitcoins to make payments, while 4.8 million users hold bitcoin in the hope of future profit. According to Chainalysis, approximately 1.5 million people currently receive at least part of their salaries in cryptocurrencies, primarily bitcoin.
The overwhelming majority of leading experts in the blockchain industry believe that the number of employees seeking to receive part of their wages in cryptocurrencies will increase over time. In order to assess the prospects for this use case for crypto assets, it helps to understand in more detail the evolving structures of employment, organisations and remuneration of labour.
‘Non-traditional’ employment
We are witnessing the rapid development of new forms of organisation and remuneration in addition to traditional permanent employment. We can assume that digital assets will be most actively used as remuneration for work in jobs with non-traditional types of employment. The following non-traditional but significant and growing forms of employment can be identified:
The ‘gig economy’. On-demand work is commonly associated with organisations such as Uber and others. However, most freelancers are in the on-demand business, one way or another. Unlike traditional employment, there is rarely any developed labour legislation for gig economy workers, including regular salaries and benefits packages. Cryptocurrency, or rather blockchain, can solve this problem by using smart contracts to create agreements between employers and employees, or between platforms and workers.
Remote employment. Secondly, remote employment is growing rapidly. Fast, secure, efficient and borderless, cryptocurrencies are the ideal way to pay remote employees. There is, however, one caveat: remote employment often involves interaction between workers and employers in different countries and, as a consequence, in different jurisdictions — with potentially different legal approaches to cryptocurrency payments.
Hi-tech industries. In the most cutting-edge areas of the tech industry, traditional employer-dominated labour markets are being replaced by employee-dominated markets. In robotics, bioengineering, augmented reality and the blockchain sectors, for example, demand for highly skilled workers far exceeds supply. Suitably qualified and talented individuals can demand a high premium over their colleagues, with special remuneration packages often available to them. Benefits may include partial or full payment of wages in crypto assets, depending on the circumstances. It is also common practice for blockchain companies to offer bonuses in the project’s own tokens.
Migrant workers. Fourthly, we continue to see growth in the migrant labour market. Almost all demographic forecasts assume significant increases in economic migration. However, this takes place against the backdrop of hardening anti-migration sentiment in Europe and North America — especially when it comes to low-skilled migrant labour. The introduction of blockchain-based forms of organisation and payment in low-income countries would provide such workers with a career history and means of establishing their reputations.
Use of crypto wages
Given the diversity of the groups described above, it is no surprise that the way they use their crypto earnings also differs. We can distinguish at least three different use cases.
For part-time or low-income workers, these wages are an exclusive source of livelihood — money that is almost entirely spent on day-to-day expenses. For higher-paid employees, crypto funds may serve as both payment and a form of investment. For the highest-paid workers, and for some who earn crypto in secondary employment or ‘hobby’ jobs, these wages may be entirely put aside as savings for the future.
The value of the crypto payments and their perceived future potential also makes a difference. According to a survey conducted by Yahoo Finance at the end of 2017, when the market capitalisation of cryptocurrencies reached a historic high, only 4% of respondents purchased bitcoins to use as a form of payment, while 53% saw them purely as an investment.
Wages as a driver of crypto adoption
An increasing number of employees will seek to receive part of their remuneration in digital assets — primarily bitcoin and stable coins, as well as proven cryptocurrencies such as Ethereum, Litecoin and others.
The ultimate ratio of fiat to crypto earnings will be determined by wages, for the reasons outlined above. Low-paid workers will typically want to continue to be paid in fiat currencies or equivalents, though these payments will take place within blockchain platforms that offer built-in protections such as smart contract agreements and reputation systems. Meanwhile, depending on their needs, the more workers are paid the more likely they are to keep an increasing proportion of their wages in crypto (primarily Bitcoin), as a form of savings and investment.
While employment in all its forms will be a driver of more widespread crypto use, the speed at which this shift occurs depends on the development of user-friendly, reliable platforms and software.
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