I recently stumbled across an article talking about the Dubai Court of First Instance affirming the legality of crypto payments for salaries under employment contracts in a landmark ruling on Aug. 15. The ruling, issued in case number 1739 of 2024 (Labour), marked a shift in the UAE’s judicial approach to digital currencies, reflecting the growing acceptance of digital assets in the region.
I saw a bunch of articles feeding off this one, talking about how Dubai is forward-thinking and how it’s legitimising the payment of salaries in Bitcoin or likely stablecoins.
Taking two minutes to dig into it the case, the TLDR is The plaintiff’s contract specified a monthly salary in fiat currency alongside some random shitcoin, and the court ruled that the plaintiff is owed the 5,250 EcoWatt tokens.
It was hardly that groundbreaking, but it got me thinking that with Bitcoin continuing its ascent into mainstream finance and digital innovation, the allure of being paid in Satoshis grows with every day; I know I’d love to have more of my salary paid directly in Bitcoin, but I am definitely in the minority here.
Diving into this minority, companies and freelancers are exploring this new frontier, but accepting salary payments in Bitcoin comes with its unique set of considerations.
So before you start telling your employer, pay me in Sats and convert your traditional paycheck into Bitcoin, here are a few things I encourage you to think about the reality of what you’re getting yourself into first.
Respecting Bitcoin Volatility
Bitcoin is renowned for its price volatility; the price can move 10% up or down on any given day, and that’s the norm; outside the norm, a 70% drop isn’t off the table; we’ve seen it before and shouldn’t rule it out again.
Unlike traditional fiat currencies, which tend to have a relatively stable purchasing power (unless you’re in Nigeria or Venezuela, for example), Bitcoin’s price can swing dramatically over short periods.
Consideration:
This volatility means that the value of your salary can change significantly from one day to the next. A paycheck worth $5,000 today could be worth only $3,000 or as much as $7,000 tomorrow, depending on market conditions. This unpredictability can make budgeting and financial planning more challenging.
If you accept your salary in Bitcoin, you should be prepared to weather any storm and ensure you can still cover your fiat obligations and bills. So ask yourself, can I survive if my salary is temporarily cut in half for a month?
If you don’t have the buffers, you might want to reconsider or, at the very least, build up a cash position to cover your bases so you don’t have to sell Bitcoin at the bottom to meet expenses.
Tax Implications
Tax treatment of Bitcoin varies by country and jurisdiction, but in many places, Bitcoin is considered property rather than currency. This distinction can have significant tax implications.
Consideration:
In the United States, for example, the IRS treats Bitcoin as property for tax purposes. This means that if you receive Bitcoin as payment, you must report its fair market value as income at the time of receipt.
Additionally, if you later sell or exchange that Bitcoin, any gain or loss compared to its original value may be subject to capital gains taxes.
This is by no means tax advice, and you should consult a professional and keep a record of all your transactions and UTXOs, which will help them calculate your tax obligations. If you think you’re smart enough to avoid paying taxes on your Bitcoin, you take that risk, buddy. Take it all day long and see how far it gets you.
Alternatively, you can get right with Uncle Sam or your local overlord and reduce your tax obligations through smarter UTXO management and tax loss harvesting, but it’s essential to consult a tax professional who is knowledgeable about Bitcoin to ensure compliance with local Bitcoin tax laws and regulations.
Security and Custody
The security of your Bitcoin holdings is paramount. Unlike traditional bank accounts insured by institutions like the FDIC, Bitcoin relies on personal responsibility for its security.
Consideration:
You need to store your Bitcoin securely, typically in a digital wallet. There are several types of wallets available, including hardware wallets, software wallets, and custodial wallets. Each has its own level of security and convenience.
Hardware wallets are generally considered the most secure, as they store your Bitcoin offline, reducing the risk of hacks, and you should have one for your long-term holdings. However, they require careful handling and backup to avoid loss.
On the other hand, software wallets are more convenient and can be used for your day-to-day expenses since they are connected to the internet, which may expose them to security risks, so you need to minimise your exposure on these wallets and only keep as much as you’re willing to lose.
Legal and Regulatory Issues
The legal landscape surrounding Bitcoin is still evolving. Regulations can vary significantly from one country to another, and what is permissible today might change in the future.
Consideration:
It’s important to stay informed about the legal status of Bitcoin in your jurisdiction. Some countries have stringent regulations or outright bans on Bitcoin transactions, while others are more accepting. Changes in regulations could impact your ability to use, exchange, or even hold Bitcoin. Ensure that you are aware of any legal obligations and that your use of Bitcoin complies with local laws.
If you are going to make a plea to your employer to pay you in Bitcoin, it’s wise that you’re up to date with the latest regulations because they’ll likely need you to guide their accounting and finance team on getting you all set up.
Conversion and Liquidity
Converting Bitcoin to fiat currency or using it directly for purchases involves additional considerations because they likely create additional tax burdens for you.
Consideration:
Depending on your needs, you might have to convert Bitcoin into fiat currency to pay for everyday expenses or to give grandma a few bucks because she’s just never going to use Lightning, and that’s a disappointment you’ll have to accept, okay?
Stop trying to make grandma use Lightning; it’s never going to happen.
When you exchange Bitcoin for fiat, you’ll need to consider the current mining fees, the tax burden on the UTXO you’re selling and the amount you wish to convert.
Additionally, liquidity concerns can arise if you need to sell a large amount of Bitcoin quickly, potentially affecting the price you receive. In contrast, small amounts are easier to liquidate through P2P markets to get you cash or gift vouchers to spend at retailers.
Employer Considerations
If you’re considering negotiating to receive your salary in Bitcoin, discussing this thoroughly with your employer and deciding on the terms is important. Would you accept your full salary in Bitcoin each month? Will you accept your bonus on Bitcoin?
Those are all options on the table.
Consideration:
Ensure that your employer is prepared for the logistics of paying in Bitcoin and has the facilities to acquire and manage it safely; this could be through an in-house finance team or outsourced to a digital asset custodian.
If your salary is managed via a custodian, you might want to research them. First, you wouldn’t want to find out your company kept your salary with FTX.
Would you?
Long-Term Financial Strategy
Integrating Bitcoin into your financial strategy requires careful thought and planning. Bitcoin’s speculative nature means that it may not be suitable as a sole income source or long-term investment for everyone, and emergency expenses can blindside even the best holder.
Additionally, traditional financial institutions do not fully embrace Bitcoin. If you were to head over to a local bank with the intention of taking out an auto loan or home loan and you showed them your Bitcoin pay slip, I guarantee the bank manager will march your arse out of the branch before you can even explain what a Satoshi is.
Consideration:
Evaluate how Bitcoin fits into your overall financial strategy. It might be wise to treat Bitcoin as a supplemental income or investment rather than your primary salary. Diversifying your purchasing power based on your obligations, reducing your tax burden and maintaining a balanced portfolio can help mitigate risks that come with life’s unexpected twists.
If you’re steadfast on the Bitcoin path but do want to acquire finance for a large purchase, you’ll need to look at Bitcoin-friendly lenders and their credit terms and be willing to put up a lot of collateral.
Salaries are KYC Bitcoin
Doing business these days as a freelancer or a salaried worker is as KYC as it gets; you’ve set up a link between yourself, the business and the custodian the business uses to acquire and transfer Bitcoin. Each month, when salaries are released, yours shows up on the blockchain for all to see, so you’ll need to be careful how you manage your blockchain footprint.
If someone can tie one of your transactions online to your social media account or a retailer, they could follow the trail and see your salary history and your entire Bitcoin stash.
This permanent on-chain data set can put you at risk if criminals can find out how much Bitcoin you hold and, of course, where to find you and those tender kneecaps, so protecting yourself against $5 wrench extortion attacks should be at the top of your priority list.
Consideration:
One of the first rules of Bitcoin is never to re-use a public address, and this goes x10 if you’re accepting a salary in Bitcoin; you don’t want someone finding an address and seeing 12 monthly lump sums dumped into it, or you might as well post your pay slip on your social media every month.
Your first point of contact is to set up an X-Pub, give your employer multiple addresses, and use one each month. This will reduce your chances of being spotted on-chain, but it doesn’t mean you’re in the clear; you can still slip up and dox yourself; for example, if you paid someone publicly or paid a retailer publicly, that public address could be tied to your purchase and now that change UTXO left in the wallet is linked back to you.
If you want to break the ties between your salary and your purchases, you’ll need to look at either coin mixing or opening up a Lightning channel. The problem with mixing is that some retailers might not be willing to accept funds coming from a mixer, and you’ll have to sell those coins P2P, adding further complexity to your life.
While Lightning isn’t accepted everywhere, you can submarine swap out to on-chain payments when needed, and it is likely the better option for most people; however, setting up and managing a Lightning node is easier said than done.
If your employer is uncomfortable dealing with X-pubs, one option is to have your salary paid to you via a custodial account; since your salary is already KYC’d, you’re only taking custody risk and then moving the funds to addresses as you see fit.
Alternatively, you could opt for the Liquid side-chain and provide your employer with a single address or several; since Liquid offers confidential transactions, the amounts are blinded on-chain. You also have the option of accepting USDT on the same public key with blinded amounts and converting those stablecoins to L-BTC as you see fit.
Once you’ve conducted your business, consolidated your UTXOs, and are looking to store funds long-term, you can swap out or peg out of Liquid and return to the main chain.
Look, you chose to accept your salary in Bitcoin; you said you were open to taking personal responsibility, so deal with the consequences, okay?
Stop moaning, or go back to earning fiat.
Personal Comfort and Risk Tolerance
Lastly, consider your own comfort level with the risks involved. Bitcoin can be an exciting and potentially lucrative asset, but it’s not without its risks.
Consideration:
Reflect on your risk tolerance and financial situation. If you are comfortable with the possibility of significant fluctuations in the value of your income and are prepared for the responsibilities associated with managing Bitcoin, accepting your salary in Bitcoin might be appealing.
However, if you prefer stability and predictability and not the Chad Hodler you pretend to be on your Twitter nym, sticking with traditional fiat currency might be more suitable.
Also, consider that you are still in the minority; while you might be comfortable with Bitcoin volatility and custody, your employer might not, and if exposure is what you want, a final custody option could be to use a Bitcoin ETF instead, where you would get the price exposure but none of the custody benefits.
Bringing home the Bitcoin bacon 🥓
Accepting your salary in Bitcoin can be a potentially rewarding choice, but it requires careful consideration, a lot of manual labour, and proper planning. From the volatility of Bitcoin and tax implications to security concerns and legal regulations, it’s essential to thoroughly evaluate how this decision fits your financial goals and risk tolerance.
Consulting with financial and tax professionals, staying informed about regulatory changes, and carefully planning your financial strategy can help you navigate the complexities of receiving Bitcoin as a salary.
However, one big hurdle remains the privacy concerns for the individual. With so many government-sponsored attacks on privacy tools, the average salary worker who wants to earn Bitcoin is at risk. Until we can have on-chain privacy, which isn’t easy to flag, it will dampen individuals’ ability to live on a Bitcoin standard.
