Crypto is increasingly used to pay wages in developing economies

People living 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 resort to cryptocurrencies as inflation rises, Philipp Sandner, founder of the Frankfurt School Blockchain Center, told Blockworks.

Businesses use blockchain technology to attract talent around the world and pay their employees in cryptocurrencies, such as bitcoin, ether and US dollar-denominated stack coins, as a cost-effective alternative to traditional international money transfers.

“The real benefit of blockchain technology comes through moving cryptocurrencies,” Sandner said.

People employed by companies based in other countries find digital assets particularly useful.

Joel Oshiegbu, a Nigerian employee of the Berlin-based crypto-accounting solution basenode.io, is currently being paid in tether (USDT) by his employer “because it is the most popular stable coin, easier to get a buyer and less prone to bankrolls,” he said.

When Oshiegbu receives his payslip, he sends the money to a stock exchange and sells his assets.

“In a maximum of 10 minutes, I get the money in my local account,” he said.

Nigeria banned banking trading in cryptocurrencies in February 2021 and launched its own digital currency, eNaira, in October, but the ban has not stopped the Nigerian cryptocurrency community from engaging in peer-to-peer trading.

A recent Chainalysis report looked at “countries with the largest cryptocurrency adoption of ordinary people” and ranked Nigeria sixth in the world for cryptocurrency adoption and 18th in peer-to-peer exchange volume.

A report from the World Bank from 2020 shows that the cost of money transfers is 6.5%, more than double the UN target for sustainable development of 3%. In comparison, cryptocurrencies are much cheaper because they do not come with bank fees and exchange rates.

“By using other methods of receiving 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 extra funds.”

With crypto, it costs almost zero, Oshiegbu said.

“I get full value, and it’s faster,” he added.

At the time of writing, sending ether on Ethereum’s main network costs about $ 0.71 USD. Stablecoin transfers are a bit more. While Layer-2 networks should reduce costs considerably, transaction fees are already significantly less than outgoing international bank transfers from traditional banks such as Bank of America, which charge $ 45.

Oshiegbus’ employer, Oliver Schantin, co-founder and CEO of basenode.io, says employees can choose which token they want to be paid in, or have the option to be paid in fiat currencies.

“Generally, people will not be paid in bitcoin or ether because it is volatile, so they prefer something related to the US dollar,” Schantin said.

This sentiment is reflected by Melissa Quinn, CEO of the UMA Protocol, an optimistic oracle with around thirty employees based in ten different countries, including Canada, the United States, Brazil and Argentina.

“We steer clear of payment in ETH and BTC, not because we do not believe in it, but just because volatility makes it difficult,” Quinn said.

Price volatility is not just limited to ETH and BTC, Quinn said.

“We actually see [volatility] with exchange rates and local fiat currencies as well, and that’s why we offer to pay in USDC, because it stabilizes and evens out the playing field for all our employees internationally. “

Expansion of the talent pool

Paying international employees in cryptocurrencies not only benefits the worker, employers also gain access to a significantly larger body of talent.

“This creates a diversity of cultures and perspectives that can greatly affect the organization’s ability to build great products,” Lena Bachmeyer, technical recruiter at Set Labs, told Blockworks.

“The flexibility and the easier integration of everyday life with the job in a meaningful way is one of the main advantages that interests people in getting their careers to switch to Web3.”

For Schantin, paying employees through cryptocurrencies have also made it possible for basenode.io to hire talent in sanctioned countries, such as Iran, with volatile local currencies.

An Iranian employee who spoke to Blockworks on condition of anonymity said they tend to keep payments as stack coins on KuCoin, a Seychelles-based cryptocurrency exchange.

“But if necessary, I will use a different wallet address, created on a local crypto exchange, in this way I convert the received funds to my local currency immediately and deposit them in 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 very enjoyable experience for me,” said the staff member. “I believe the speed and fees offered by cryptocurrencies can make it much more convenient to work remotely or across borders and will help us create more efficient markets.”

The limitations of blockchain technology

Although there are many benefits to paying employees in cryptocurrency, cryptocurrency payouts are not available to individuals living in countries with strict cryptocurrency rules.

The United States reintroduced sanctions against Iran in 2018, and recently the crypto exchange Binance had served Iranian crypto traders, although no evidence that sanctioned individuals used Binance was found. This exposure will only harm Binance if sanctioned Iranian customers on their platform avoid the US trade embargo as a result of the transactions.

Most recently in China, wage payments in the form of USDT were banned, stating that digital currencies did not have the same legal status as legal tender, according to Cointelegraph.

In the US, crypto pay slips are still in a relatively gray area. The IRS defines cryptocurrencies as “properties”, and all profits from the purchase or sale of cryptocurrencies are subject to capital gains tax. Income from cryptocurrencies must reflect the market 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 crypto employees. For the employee or entrepreneur, it can be challenging to get paid in crypto for the same reasons,” Bachmeyer said.

This story was updated July 12, 2022 at 07:55 ET.

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