| As the global economy is going digital, and digital currencies get more prominence and usage, employers, most especially those in tech sector, are beginning to pay their workforce in Cryptocurrency, even more employees which to be paid in cryptocurrency. |
The liberalization of Fintech and devaluation of some countries fiat currencies like the Nigerian naira are some of the driving forces for Crypto-salaries hunger.
Olaf Carlson-Wee, Coinbase employee was the first to be paid entirely in Bitcoin in 2013, for three years.
Just like Olaf Carlson-Wee, many people especially Nigerians also want to be paid in crypto. Earlier this year, in July, Timi Ajiboye, CEO and CTO of Helicarrier (formerly Buycoins), announced that the company’s employees would now be paid in USDC. Twitter went agog, with many asking Ajiboye for employment at his company.
Why would Nigerians not want to be paid in crypto or in foreign currencies when Naira is losing its value by the day?
Another factor people now want to be paid in crypto is because of legalisation of these digital currencies in some countries. In few recent past months, El Salvador legalized Bitcoin, making it a legal tender in that country. Bitcoin will on this week be listed in New York Stock Exchange.
Advantages of Crypto-salaries
1. Insulates the employees from depletion of the value of local fiat currency
Although it wouldn’t completely insulate one from drop in value of local currency as one living in that country, at least the value of one’s salary will not reduce as fast as it would, if he was paid in local currency. Kola, a Nigerian tech expert who receives his salaries in Coinbase told TechCabal: “At least my salary’s value isn’t dropping as fast as it would have if I was earning in naira.”
2. Reduces extravagant spending of once income
With earning in crypto asset, one is likely to covert same fractions of his salary earning only when he needs to spend. Kola, who receives his salaries in USDC put it this way: “I don’t withdraw my full salary at once because you never know what the exchange rate will be tomorrow. So, even if waiting would add ₦500 to my salary, I’d rather wait than withdraw all at once and have the naira in my account drop in value between when I withdraw it and when I spend it.”
3. Digit money is the future of finance
Digital money like cryptocurrencies, CBDCs and Stablecoins will play a significant role in the future of financial services. Cryptocurrency is gaining worldwide acceptance; Stablecoin, a peculiar type of cryptocurrency, has been labelled the “future of money” by the Harvard Business Review; and all these are in direct competition with CBDCs.
Rest of World reported on how Stablecoins have found a use case in volatile markets like Nigeria, where CBN’s regulations force Nigerians to spend limited amounts of US dollars via their dollar cards each month. In order to bypass this limitation, Nigerians have switched to using Stablecoins to make their payments.
Stablecoins, such as the Tether (USDT), Binance USD (BUSD) and USD Coin (USDC) are a form of cryptocurrency pegged to a traditional asset like the US dollar or gold. In sub-Saharan Africa, Stablecoin remittances can be up to 20 times cheaper than traditional money transfers. USDT and USDC transfer fees are often as low as 0–1%. Paxful, a leading cryptocurrency trading platform in the country, declares that 1.5 million Nigerian users, representing about 5% of the platform’s trading volume, use USDT, the most popular Stablecoin.
There is a growing adoption of Stablecoins like $DAI, $USDT, $BUSD and $USDC in Nigeria. Unlike such cryptocurrencies as Bitcoin and Ethereum, which are notorious for their volatility, Stablecoin, like CBDCs, is a non-interest coin. Stablecoins have seen rapid growth this year, with USDC, the second-largest Stablecoin in the world, reaching a market capitalisation of over $30 billion.
The Central Bank of Nigeria banned commercial banks in the country from engaging in cryptocurrency settlement and payments transactions, directing them to close the accounts of individuals and corporate boding used for crypto transactions, citing unregulated nature of the crypto and possibility of using it to finance terrorism.
Months later, after releasing that digital currency is actually the future of finance, introduced Nigeria’s digital currency, e-Naira.
Read also: Advantages and Disadvantages of Central Bank of Nigeria's Digital Currency, e-Naira
Disadvantages of Crypto-salaries
1. Each employee, especially the contract staff are usually responsible for remitting their taxes.
If the company is to help the employee with this process, an internal document containing tax and pension calculations and payments information has be circulated around the company. This is the company battling the challenge that comes with paying employees in crypto, as legal barriers in many countries prevent this.
2. Legal barriers. Some of the barriers include the non-recognition of cryptocurrency as a legal tender and the challenge of calculating taxes when employees are paid in cryptocurrency. For instance, it’s still risky to pay employees in crypto in the US because the currency is recognised by the Inland Revenue Service (IRS) as a property and not a legal tender. A piece of legislation, the Fair Labour Standards Act—a major custodian of employee rights—backs this position. The act states that employees must be paid in “cash or negotiable instrument payable at par”.
While legal systems around the world need more time to develop regulations that cater for crypto adoption, US-based Coinbase announced last week that it is launching a new direct deposit service, “Get paid in crypto,” that will let nearly anyone in the US receive all or part of their wages in cryptocurrencies. There are high hopes for the success of this rollout because if even a fraction of Coinbase’s millions of US customers sign up, the service will contribute, in no small way, to making crypto mainstream in the broader American workforce.
Some countries are already making progress with creating laws that define the payment of workers in cryptocurrency. For example, since 2019, New Zealand has made it legal to receive salaries in cryptocurrency and be taxed accordingly. This year El Salvador legalized Bitcoin, which means it can also be used to pay salaries in that country.
3. Ban on Cryptocurrency in some countries. Like in Nigeria, holding cryptocurrency account is illegal likewise paying employees in crypto remains illegal. Nigeria’s primary legislation on the relationship between an employer and employees, the Nigerian Labour Act—established in 2004—renders any contract where part or all of a worker’s wages is made payable in another manner apart from legal tender illegal, null and void.
Despite these legal constraints, Nigerian employers in technology startups continue to make smart moves to create value for their employees and the move towards remunerating employees in crypto is one that’s unlikely to go away anytime soon. CBN's guidelines on then use of e-Naira, mandates businesses to accept all payments made in e-Naira. If business can accept e-Naira, which is a digital currency, in other words, businesses can pay their staff in same digital currency, if not now, in the nearest future.