- “The true benefit of blockchain technology comes through moving cryptoassets,” Philipp Sandner, founder of the Frankfurt School Blockchain Center, told Blockworks
- “Within 10 minutes maximum, I get the funds in my local account.”
Individuals who live in nations that are experiencing hyperinflation or have a history of financial instability are increasingly accepting cryptocurrencies as their main source of income.
In countries such as Argentina, Brazil, Turkey and parts of Africa, people are turning to cryptocurrencies as inflation runs hot, Philipp Sandner, founder of the Frankfurt School Blockchain Center, told Blockworks.
Companies utilize blockchain technology to source talent worldwide and pay their employees in cryptocurrencies, such as bitcoin, ether and US dollar-pegged stablecoins, as a cost-effective alternative to traditional international money transfers.
“The true benefit of blockchain technology comes through moving cryptoassets,” Sandner said.
Individuals employed by companies based in other countries find digital assets particularly useful.
Joel Oshiegbu, a Nigerian employed by Berlin-based crypto accounting solution basenode.io, is currently being paid in tether (USDT) by his employer “because it’s the most popular stablecoin, easier to get a buyer and less susceptible to a bank run,” he said.
Once Oshiegbu receives his paycheck, he sends the funds to an exchange and sells his assets.
“Within 10 minutes maximum, I get the funds in my local account,” he said.
Nigeria banned bank-trading of cryptocurrencies in February 2021 and launched its own digital currency, the eNaira, in October, but the prohibition has not stopped the Nigerian crypto community from engaging in peer-to-peer trading.
A recent Chainalysis report looked at “countries with the greatest cryptocurrency adoption by ordinary people” and ranked Nigeria sixth in the world for cryptocurrency adoption and 18th in peer-to-peer exchange trade volume.
A 2020 World Bank report shows that the cost of remittance is at 6.5%, more than double the United Nations’ Sustainable Development Goal of 3%. In comparison, cryptocurrency transfers are much cheaper because they don’t come with bank fees and foreign exchange rates.
“Using other methods to receive funds, I lose 2% to 5% of funds received,” Oshiegbu said. “The conversion rate is determined by the platform and is usually less than the current market rate, also the conversion to local will cost some additional funds.”
With crypto, it’s almost zero cost, Oshiegbu said.
“I get the full value, and it’s faster,” he added.
At the time of writing, sending ether on Ethereum mainnet costs roughly $0.71 USD. Stablecoin transfers are a bit more. While layer-2 networks should reduce costs considerably, transaction fees are already significantly less than outbound international wire transfers from traditional banks such as Bank of America, which charges $45.
Oshiegbu’s employer, Oliver Schantin, co-founder and CEO of basenode.io, says employees can pick which token they wish to be paid in, or have the option to be paid in fiat currencies.
“Usually people don’t want to be paid in bitcoin or ether because it’s volatile, so they prefer something that is pegged to the US dollar,” Schantin said.
This sentiment is echoed by Melissa Quinn, chief operating officer at UMA protocol, an optimistic oracle with around thirty employees based in ten different countries including Canada, the US, Brazil and Argentina.
“We steer away from payment in ETH and BTC, not because we don’t believe in it, but just because the volatility makes it hard,” Quinn said.
Price volatility is not simply limited to ETH and BTC, Quinn said.
“We actually see [volatility] with exchange rates and local fiat currencies as well, which is why we offer to pay in USDC, because it stabilizes and levels the playing field for all our employees internationally.”
Broadening the talent pool
Paying international employees in cryptocurrencies does not only benefit the worker, employers are also given access to a significantly larger talent pool.
“This brings about a diversity of cultures and perspectives that can greatly impact the organization’s ability to build great products,” Lena Bachmeyer, technical recruiter at Set Labs, told Blockworks.
“The flexibility and making it easier to integrate daily life with work in a meaningful way is one of the main benefits that interest people in making the career switch to Web3.”
For Schantin, paying employees through cryptocurrencies has also allowed basenode.io to hire talent in sanctioned countries, such as Iran, with volatile local currencies.
An Iranian employee who spoke to Blockworks under the condition of anonymity said they tend to keep payments as stablecoins on KuCoin, a crypto exchange based in Seychelles.
“But, if needed, I will use another wallet address, created on a local crypto exchange, this way I convert the received funds to my local currency instantly and deposit them into my bank account in less than 2 minutes,” the employee added.
The employee has used crypto to pay for rent, Amazon gift cards and books, they said.
“Getting paid in cryptocurrency has been a really pleasant experience for me,” the employee said. “I believe the speed and fees offered by cryptocurrencies can make working remotely or across borders much more convenient and will help us create more efficient markets.”
The limitations of blockchain technology
Although there are many upsides to paying employees in cryptocurrencies, crypto salary payments are not available to individuals living in countries with strict cryptocurrency regulations.
The US reimposed sanctions on Iran in 2018 and recently crypto exchange Binance had reportedly served Iranian crypto-traders, though no evidence that sanctioned individuals used Binance was found. This exposure will only harm Binance if sanctioned Iranian clients on their platform dodge the US trade embargo as a result of the transactions.
Most recently in China, salary payments in the form of USDT were banned, stating that digital currencies did not have the same legal status as legal tenders, according to Cointelegraph.
In the United States, crypto paychecks still sit in a relatively gray area. The IRS defines cryptocurrencies as “properties,” and any profit made from buying or selling cryptocurrencies is subject to capital gains taxes. Income from cryptocurrencies must reflect the market cash value of the currency on the day you were paid, so the value of your currency will fluctuate based on the value of the cryptocurrency you choose to be paid in.
“From a legal perspective and depending on the country or state, it can be difficult for organizations to pay employees in crypto. For the employee or contractor, being paid in crypto can be challenging for the same reasons,” Bachmeyer said.
This story was updated on July 12, 2022 at 7:55 am ET.