The potential and pitfalls of paying your way in crypto

By Sean Sanders, Co-Founder, Revix

Although still a relatively new phenomenon, a growing number of employers are investigating the potential of paying staff and contractors in cryptocurrency, instead of traditional fiat currencies. Many are beginning to recognise the benefits, particularly as a means of skirting costly international exchange fees when paying overseas-based staff. However, payment in crypto can also come with challenging assimilations for payers and providers alike.

The present system for sending money to independent contractors abroad is woefully inefficient and laced with costs for employers and time delays for employees. Regardless of where in the world your company is based, forex and transaction fees can be anywhere between 2-8%, sometimes even more, which can take a toll on the employer’s budget.

We’ve found that paying in digital currencies, on the other hand, saves us and our freelancers both time and money. While paying highly sought after senior developers and other technical contractors in crypto works for us, cryptocurrencies are still difficult for many non-technical individuals to use – whether they are company owners or employees. Users have to understand the definition and nature of public keys, private keys, cold storage and digital wallets. It’s not an especially user-friendly means of payment as yet, but the savings are there.

With an increasing number of employees and freelancers working remotely from around the world, crossborder payment transaction fees can rapidly mount up. For the past year, Revix has been using Bitcoin, Ethereum and various stablecoins – cryptocurrencies pegged to hard currencies like dollars or pounds – to pay US and UK contractors. Revix has been reaping the benefits of almost instant transactions through borderless payment platforms such as Binance, Coinbase and Kraken, typically at one-tenth of the cost of traditional transaction fees.

Borderless payment platforms and exchanges have made the proposition of paying employees in crypto more appealing and certainly more accessible. In our experience, individuals will convert their crypto salary directly into a hard currency or a stablecoin, while others refuse to deal in traditional currencies altogether.

Numerous borderless payment platforms dealing in cryptocurrency have emerged in recent years, that allow users to keep their transactions entirely digital. They also serve as a vital intermediary, to ensure that payers and providers are protected. A select number provide a Visa card, enabling those paid in crypto to simply swipe for goods and services, in much the same way as a traditional credit or debit card. Like a credit card, users are subject to a transaction fee, although in the case of crypto it includes a conversion fee for converting cryptocurrencies into everyday currencies for retail vendors. This is a similar model to when someone travels internationally and uses their credit card to make a purchase. The difference is that a cryptocurrency is converted into a foreign currency instead of a home currency.

While in principle, it appears to be a relatively simple payment and transaction solution from a contractor’s perspective, employees need to be mindful that being paid in crypto is not the same as receiving currency. Instead, they are receiving an asset which can appreciate or depreciate after they’ve received it. Therein lies the aspect of volatility. For example, if you were to receive payment in Bitcoin and the price goes up by 20%, you stand to make a 20% gain on your invoice fee. However, the reverse is also possible, which could see you making a loss on what you’d initially expected to be paid.

Of course, employers need to do their research and understand the intricacies of paying in digital currency.

A Bitcoin payment, for example, will usually transfer within 45 minutes – an international bank transfer can take up to five days – so this is an immediate benefit. That said, fluctuation in the price of cryptocurrencies means that employers need to get their sums right and be prepared, in case the value of whichever digital currency they are paying in changes over the course of the hour-long transaction.

If the value of, for example, Bitcoin, goes up or down over the course of the transaction period it can mean the difference between you underpaying or overpaying your contractor, which of course is bad for business and employee relations. We learned quite quickly how important it is to speed up crypto payment transactions.

Crypto transactions have to be validated by the network before someone can spend or send what they have received. In the case of Bitcoin, a new block of pending transactions are confirmed every ten minutes and each platform, like Binance, has their own set of rules around how many blocks of transactions need to be processed after the first block that contained your transaction was validated.

This number is based on the risk appetite of the individual platform. Every ten minutes, after a new block of transactions is processed, your transaction becomes more permanent and secure, so some providers require more in order to ensure that deposits are valid. “Choosing providers that do not require too many confirmations is essential to combat price volatility – It’s a whole different kind of payroll administration.

While complementary crypto products and services are still in the early stages, the time and cost benefits far outweigh the volatility aspect, which can currently be mitigated once you’re a little more familiar with the small constraints we face today. As more businesses start developing products like accounting suites and simpler ways to handle and spend cryptocurrencies it will become easier for businesses, staff and service providers to interact with this new, frictionless and secure form of money.