The Pros and Cons of Getting Paid in Cryptocurrency
Freelancers can accept payment in crypto, as can businesses. But for the employees of those businesses, there’s a whole lot of gray area. They’re protected by the Fair Labor Standards Act, which mandates that employers pay wages “in cash or negotiable instrument payable at par.” Bitcoin, Ethereum, Dogecoin and the rest are neither, and a patchwork of conflicting state laws makes crypto-based payroll a murky legal area with lots of barriers.
As for the merchants and contractors who can accept crypto as payment, they have to first decide if they should. There’s a lot to consider, both good and bad.
There’s a Lot To Like About Getting Paid in Crypto
Whether you’re an employee, a freelancer or a small-business owner, receiving the fruits of your labor in cryptocurrency can make getting paid feel even better.
Crypto Payments Are Immediate
When you accept crypto as payment, you cut out the middleman — the bank. That means you don’t have to wait for banks to do whatever it is they do while checks are clearing and direct deposits are pending. With crypto, transactions are immediate.
Cryptocurrency Is En Vogue
Even if you never process a single payment with Bitcoin or Ethereum, just giving your customers the option can be good branding. Crypto is a hot trend and most businesses don’t accept it. That puts those that do on the cutting edge.
Merchants Avoid Credit Card Transaction Fees
Merchants pay transaction fees for the privilege of offering their customers the convenience of using a credit card. If you don’t take plastic, you’ll lose business. If you do, you’ll pay 1.3% to 3.5% per swipe plus a flat fee, usually about 10 cents per transaction. Cryptocurrency transactions, on the other hand, can be made for nothing or close to it.
Say Goodbye to Pesky Chargebacks
Chargebacks add an extra layer of protection for customers, but for businesses, these credit card payment reversals are frustrating and expensive. Crypto doesn’t offer that kind of protection. Once complete, a crypto transaction can’t be undone so there are no chargebacks.
But There Are Plenty of Drawbacks To Consider, Too
It’s not all roses. Cryptocurrency is still unfamiliar to most, not widely accepted, and fraught with risks. Before you rush into taking it as payment, consider the following.
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The Value of Your Payment Can Change Without Warning
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.
If you had received one Bitcoin on June 15, you would have been paid $40,406.27. Just six days later on June 21, your payment would have been worth just $31,676.69 — and that’s not at all unusual. If that had happened with cash it would have meant that society was collapsing.
Your ‘Money’ Is Vulnerable and You’re on Your Own
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.
There’s a Learning Curve and a Tech Curve
Cryptocurrency isn’t regulated by the Securities and Exchange Commission, it isn’t traded on the stock market, it can’t be bought or sold directly in ETFs, and isn’t traded on standard currency exchanges. In order to receive payment in cryptocurrency, you’ll have to open an account and a digital wallet on a special exchange. It’s not hard to launch on a service like Coinbase Commerce, but it is unfamiliar to most.
You Think Taxes Are a Pain Now?
The IRS taxes cryptocurrency holdings as property like gold, stocks or other assets. When you buy crypto and leave it in the exchange or in your digital wallet, you don’t pay taxes on it, according to NextAdvisor. But if you use it as a medium of exchange — if you swap it for goods or services, sell it for dollars or trade it for a different kind of cryptocurrency — it’s taxed based on capital gains or losses.
If you receive crypto instead of cash as payment for services, you have to report that cryptocurrency’s value in U.S. dollars as income to the IRS. Keep in mind:
- 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.
- You’ll probably need specialized professional tax help, at least for the first year.
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