The Shackled Bitcoin
Cryptocurrency solves a lot of problems, and it is an amazing and flexible way to move money and value around the world. And even if you can’t spend it directly, you can always sell it for fiat currency to unlock the value within. So why wouldn’t you want to accept cryptocurrency as your salary?
While for most people, getting a small percentage of their salary as cryptocurrency wouldn’t be a problem and could even be considered as an attractive bonus, let’s imagine for the sake of argument that someone decided to receive all of their income as cryptocurrency. The sad truth is that today, many aspects of our lives rely on what can be tracked and verified using centralized systems like banks and brokerage firms. These systems are woefully ignorant of the value contained in blockchain assets, and this can cause serious problems.
Buying a Car With a Crypto Salary
If you live in place like the US or Canada, you most likely need to have a car in order to survive. When buying a car, the average person will usually need to get some kind of a loan. In order to qualify for that loan, one will need a number of things such as a good credit score, sufficient cash in the bank for a down payment, and in some cases proof of income.
In our hypothetical scenario, all of these tasks could be very difficult for someone who sustains themselves entirely on cryptocurrency, and cannot or does not want to just buy the car completely in cash.
The unfortunate point of credit scores is that they are only built (or destroyed) by interacting with banks and lenders. If someone were to operate wholly on cryptocurrency, and only sell it for fiat in order to buy essentials that cannot be purchased with cryptocurrency, then they would likely have little to no credit history. One way around this would be to intentionally use credit cards or other loans simply to build up a credit score, and that would mean selling crypto into fiat, buying things with a credit card periodically, and paying that off using a bank account. But if someone were truly trying to live only on crypto, they would likely have little or no credit history.
The second one is a little easier. If someone chose to be paid fully in cryptocurrency, they could sell it for dollars in advance of needing to buy something. What can be difficult here, however, is for a major purchase like a car. Some lenders will need to see multiple months of bank statements to see that your bank balance is stable. In other words, if you plan to make a major purchase, you may need to sell your crypto for fiat several months in advance so that you can demonstrate that the bank balance is stable. If the lender sees a single large deposit just a day or two before your intended purchase, you will quite likely be denied. This need to prepare months in advance could force you to lose out on a good deal or a dream car.
The third and perhaps most important is proof of income. Most individuals today who earn cryptocurrency to any extent often find it very difficult to demonstrate or even explain to a lender how they are paid or that they are even paid at all. To make things worse, many companies that pay in cryptocurrency are unable to provide the most common forms of proof of employment, such as the W-2 form in the US. And sadly, most lenders are not going to be sophisticated enough to be able to review bitcoin or Ethereum transactions on an open blockchain in order to verify income.
Personal Housing Crisis
It’s certainly possible to live without a car, especially if you live in a big city or an area that has good public transportation. However, no one in their right mind would want to live without some form of safe housing.
Much like making a major purchase such as buying a car, getting a mortgage, or renting an apartment presents another list of difficulties for those who get paid in cryptocurrency.
For example, in order to rent an apartment in the US from an apartment management company, one will typically need to prove not only how much their income is, but that said income is 2.5 times their monthly rent. Background and credit checks are also essential, and these systems simply have no way to understand or incorporate blockchain assets. In other words, if any significant percentage of your wealth is held in blockchain assets, you may as well not have it as far as these systems are concerned.
When it comes to getting a mortgage for a home, the situation is even more dire. Requirements are proof of income tend to be far steeper, as well as proof of sufficient funds for making a down payment or paying closing costs. While it may be easy to export a PDF showing your holdings in your Schwab or TD Ameritrade account, a service like Coinbase or even worse, a cryptocurrency wallet on your computer or mobile phone, is effectively worthless. To them you might as well be waving around a pile of Monopoly money.
The same rule for buying a car applies here, in that you will likely need to demonstrate a stable bank balance for many months. The mortgage lender will also want to look at the individual deposits made to your account. So if all of your fiat money is coming from, for example, bitcoin sales on Coinbase, to the lender it does not appear that you are getting paid from a job. Instead they will think you are simply moving money around to make it look like you’re getting paid.
Your only hope to get a mortgage is to form your own company and declare your income as either self-employment or income earned through your company, and then continue to keep excessively detailed records for at least two years straight as well as building up a bank account balance in fiat currency for down payments and closing costs.
As you can see, it’s no walk in the park.
The examples given in this article mostly relate to those living in countries like US and Canada where credit scores and bank account balances mean more than how much value you hold in non-cash assets. Of course, if you are a bitcoin millionaire, most of this won’t matter to you because you can simply buy a house or car outright without the need for a mortgage. But for the average white-collar worker making an average salary paid entirely in cryptocurrency, some or even all of these issues could present themselves, and they could be very difficult to address.
What’s worst of all is that all of these issues having nothing to do with cryptocurrency itself. Instead, they are all related to the requirements of old world financial monoliths that want to keep as tight a grip as possible on the average person.
So before you decide to start accepting all of your salary as cryptocurrency, be sure that you already have a place to live and secure transportation, as well as a way to keep on top of your credit score. Because if you don’t, you could find yourself in a world of trouble, or at least, a world of ridiculous inconvenience and frustration.
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