A survey by the deVere Group, a global financial consultancy, found that more than half of Gen Z workers would be interested in receiving some of their payments in cryptocurrency. More than a third of Millennials are also interested in getting a portion of a paycheck in cryptocurrency.
Not only that, but a SoFi survey found that some workers would be open to receiving performance bonuses in the form of non-fungible tokens (NFTs).
The idea of getting paid in crypto may be appealing, especially if you think there’s a potential for digital assets to take off and help you build your wealth.
Before you decide to move forward, though, it’s important to understand the pros and cons of getting paid in digital assets.
Pro: Fast payment
Cryptocurrency transactions can be faster than regular bank transactions. For example, it can take a few business days to get your paycheck in the bank using ACH.
However, with cryptocurrency transfers, you can have the money in minutes. Once it’s in your crypto wallet or on an exchange connected to a credit or debit card, you can potentially use it immediately.
Pro-tip: If you want to purchase or trade cryptocurrency, make sure you’re using one of the best cryptocurrency exchanges.
Pro: Reduced taxes
Depending on where you live, you might be able to avoid some taxes when you accept payment in cryptocurrency. For example, there’s a 0% tax on bitcoin in Portugal. However, this might not be the case everywhere, so you need to be aware of the taxes where you’re getting paid and where you’re likely to use your money.
Pro: Potential for bigger gains later
If cryptocurrency is more widely adopted and the price continues to increase, you could potentially see bigger gains. If you’re paid in ethereum today, and it increases in value down the road, your gains could be much bigger than if you were just paid in dollars. Holding onto a portion of your crypto could result in bigger benefits later.
Pro: Instant diversity in your assets
Even if you don’t get all your pay in crypto assets, you could potentially receive a portion of your pay in these assets and diversify your holdings instantly.
If you’re concerned about relying entirely on fiat currency, having some of your pay in cryptocurrency or having bonuses paid in the form of an NFT could diversify your portfolio without much effort on your part.
Pro: Control your money
One of the biggest reasons some people like cryptocurrency is that you control your money. Rather than using a bank, you can create a non-custodial wallet. As long as you have a wallet you control, and your own private keys, you control your money. You can then use your cryptocurrency to lend to others or stake it to potentially earn a higher rate of interest.
Con: Crypto price volatility
Just because some of the best jobs offer innovative compensation packages, it doesn’t mean you should accept every arrangement. Cryptocurrencies are notoriously volatile in price. In fact, you could find yourself with less money a few days after payday if the price of the cryptocurrency drops after you receive your pay.
Even “blue chip” cryptocurrencies like bitcoin and ethereum can experience wide price swings and make it harder to plan your budget.
Con: More taxes
In the United States, getting paid in cryptocurrency can result in getting taxed twice. First of all, when you receive crypto as payment, it’s considered income based on the current market value. Later, if the cryptocurrency increases in price, you might have to pay capital gains taxes on the value of the increase.
For example, let’s say you’re paid a quarter of a bitcoin on July 11, 2022, with the price at $20,600. The value is $5,150. That is considered income, and you have to report it on your taxes as earned income.
Let’s say, though, that you hold onto that portion of bitcoin and then sell it later when the price is higher and you end up with a profit of $2,000. Now, you have to report that capital gain of $2,000 on your taxes and pay accordingly.
Because of the way crypto is viewed by the IRS, you could end up double-taxed when you accept it as payment.
Con: Security can be an issue
Even though non-custodial wallets are supposed to be safe, they can still be hacked. Additionally, exchanges can be hacked. While you might be protected in some ways by theft or cybersecurity insurance on an exchange, or you might be able to get your assets back, the reality is that hackers can still get at your crypto assets.
And those assets aren’t protected by the FDIC or SIPC. So, if you can’t recover them or the exchange fails, you’re out of luck.
Con: Cryptocurrency can be hard to use on a daily basis
Finding ways to use cryptocurrency for daily purchases can be challenging. Cryptocurrency still hasn’t reached critical mass in the United States, so you could potentially have a hard time using your money to pay bills or make regular purchases.
There are places, like Bitrefill, that allow you to buy gift cards using crypto, so you could potentially pay your cell phone or internet bill with crypto-bought gift cards. You might also be able to use a credit card or debit card connected to an exchange like Coinbase or Gemini to make purchases.
However, these solutions take time to work out and they may not be practical when you have to take so many extra steps.
Con: Cryptocurrencies aren't a practical currency
Even though currency is in the name, crypto still doesn’t practically function as a currency in many cases. While you can use crypto to make purchases, the fact that the price fluctuates so often and isn’t backed by a government can lead to problems.
For instance, you could attempt to pay and the price could change dramatically before the transaction is processed on the network.
Additionally, even stablecoins, which are supposed to be pegged to the U.S. dollar or other fiat currency in some way, might not function as expected.
For example, terraUSD, which was a stablecoin that used a sister crypto, terra luna, to maintain a peg to the U.S. dollar, lost its peg when terra luna crashed. There’s no guarantee that even stablecoins will maintain their value.
A currency usually functions on a degree of reliability and stability, and most cryptocurrencies aren’t there yet.
While it might be tempting to accept your paycheck in crypto, it might not be the best course of action. Instead, it might make more sense to use a portion of your paycheck to learn how to buy cryptocurrency.
Additionally, now that Fidelity allows you to allocate a portion of your 401(k) to bitcoin, it might make sense to use part of your employer match or other benefits to purchase bitcoin this way.
Whatever you decide, make sure to do your research and limit your overall portfolio exposure to cryptocurrency. Many experts still consider crypto a speculative asset and recommend keeping your total allocation to 5% to 10%.