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Bitcoin Needs Employers, Not Merchants

Disclosure: the author of this article is a partner at KryptoKit

One of the more exciting things to come out of the Bitcoin economy in the last month is the sheer number of new merchants that are accepting it. In the past week alone, we have the Scottish tech store CeX accepting Bitcoin for one of its new promotional offers and including in one of its stores a Bitcoin ATM, Bitcoin merchant payment processing company raising $30 million from Index Ventures and Richard Branson, as well as breaking 30,000 merchants, a large store in Sweden taking BTC, and existing Bitcoin businesses like Cheapair and BTCTrip are expanding their offerings into hotels. Even US politicians can now legally accept Bitcoin donations. However, at the same time, actual Bitcoin adoption is proceeding considerably more slowly. Transaction counts and unique address counts have only just stopped declining since the last bubble and are starting to recover, and Google search volume is still going down, though historically it is known that search volume is one of the last indicators to reverse a downward trend after a Bitcoin bubble. By now, the majority of people in developed countries have heard of Bitcoin, and they have either made the choice to use it or not use it. If we want to see Bitcoin getting used by more people, it is thus the Bitcoin ecosystem itself that needs to change.

In my view, however, what needs to change the most is a fundamental shift in focus in terms of how we want to see cryptocurrency adopted. Currently, the way that ordinary consumers are “supposed” to use Bitcoin is as follows:

1. Buy bitcoins at an exchange, incurring heavy inconvenience providing documentation and waiting for account activation, or at localbitcoins or an ATM, paying a 3-15% fee.
2. Spend those bitcoins at a merchant.

Let us analyze the benefits of doing this versus the traditional credit card approach. First off, the total fee using Bitcoin is substantially larger than the 3% charged by credit cards and Paypal. In some cases, it is less; for example, in the US one can buy bitcoins at a 1% fee with Coinbase, but in many other countries it is substantially higher. Second, the hassle is higher. Most people already have credit cards, and getting set up with Bitcoin is a hassle. Finally, Bitcoin has much higher volatility risk. In some cases, for example where privacy is an issue, credit cards are not available in certain countries or are even used as mechanisms to enforce region blocking, or the recipient does not have a bank account, Bitcoin is superior, but by and large there is little advantage for the consumer to fall into this pattern.

Now, let us consider an alternate case: an employee receives part, or all, of their salary in Bitcoin. In that case, that employee now has two choices:

1. Save the bitcoins, and eventually spend them at a merchant.
2. Convert them to cash, paying a 1-5% fee (generally, more people want to buy than sell, so the “street” fees are lower on the sell side).

In this case, (1) is in very many cases a superior value proposition, especially when combined with the convenience of browser wallets like Kryptokit as well as cash-back offers from Gyft or the money-saving Amazon pass-through service Zincsave. Of course, there is also the option of declining the bitcoins and taking fiat, presumably at a 0% fee, but the general point is that that when people receive bitcoins through their employer the equation radically shifts in Bitcoin’s favor. Now, there remains one question: don’t the conversion fees just get passed on to the employer? However, here there are two solid answers. First, the process of obtaining bitcoins is done by fewer employers, and therefore in larger volumes, reducing fees drastically. Second, quite often the employer should not need to pay any fees at all – specifically, if they are also accepting BTC as a merchant and thus directly receiving it from customers. In the long term, ideally more and more businesses would start both accepting BTC as merchants and paying out BTC to desiring employees, thereby creating increasingly large closed-loop economies with no fees at all.

So why isn’t this happening already? The main issue is a practical one. Although platforms for accepting Bitcoin as payment do exist, and platforms for sending Bitcoin to employees exist, the platforms do not talk to each other. Both input-side and output-side platforms exist independently of each other, and both assume that the business ultimately wants to send and receive fiat currency. There is also another issue: volatility risk. Although businesses that use Bitcoin on both the input and output side would end up shuffling a lot of BTC through directly, one can expect there to be an unpredictable imbalance between the two sides, and so the business would need to keep some quantity of BTC on hand as “float”, and thereby be vulnerable to gains and losses from the change in the Bitcoin price.

To the former concern, the solution is obvious: make a platform that handles both the input and output sides simultaneously. To the second, there are two solutions. The first is hedging: use a platform like Bitfinex to make a leveraged bet against the Bitcoin price going up, and constantly adjust the size of this bet so that the Bitcoin price going up by $1 equally benefits the business by increasing the value of its BTC holdings and hurts it because of the leveraged bet in the opposite direction on the exchange. In this circumstance, of course, the Bitcoin price going down by $1, or by $200, would also have no net effect, so the business is (almost) completely insulated from all upward and downward risk. The second is simpler: give employees who want BTC the option of receiving a “mystery amount” of the currency per day, and calibrate that amount to be exactly equal to all incoming BTC receipts. The rest of their salaries would then of course be paid in traditional fiat currency. A third solution is a hybrid approach: send as much BTC as possible directly from customers to employees’ wallets, and get the rest from an exchange or sell it at an exchange. A full-stack input-and-output enterprise-bound Bitcoin payments platform should ideally support all options.

Finally, of course, such a scheme requires not just technology but a few daring businesses willing to adopt it. Some companies, like, are content to go 100% BTC, but traditional firms are of course not willing to take such a leap. TigerDirect and Overstock, however, would likely be quite happy to integrate a platform as I described above if only someone were to create it. There are undoubtedly enough tech geeks in both companies to completely absorb all of the incoming customer BTC straight into their pockets, and smaller Bitcoin businesses should also try the same thing. The pitch to businesses is simple: some of your customers want to pay Bitcoin, some of your employees almost certainly want to receive at least some Bitcoin, so meet both needs at the same time and cut costs on both ends.

Aside from reducing fees, widespread adoption of such a scheme would not only cut fees down drastically, but also help stabilize the Bitcoin price. Right now, absent deliberate speculation, the default pressure on the Bitcoin price is down. The reason is that there are much more people spending Bitcoin than earning it, and the coins paid to those earning it are generally paid out of the pockets of BTC-holding venture capitalists or customers and not bought at an exchange. If this happens, however, the equation will change, since the default destination for bitcoins spent by customers will simply be tech enthusiasts’ wallets. The price will thereby be able to stay more stable in the long term even without large new waves of interest. And of course, hopefully, the larger number of consumers ready to spend bitcoin will be what actually drives the next wave.

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  • techenomics

    Why would anyone want to earn their salaries in Bitcoin when it’s extremely volatile. If I were paid in bitcoins 3 months ago, I would have lost over 60% of my income.

    Satoshi intended for mining to serve as a distribution method. Unfortunately, ASICs killed Bitcoin.

    • newuser1232

      Agree. I would argue that bitcoin is more centralized compared to the current global system of fiat currencies.

      Bitcoin is controlled by very few key developers and very few mining pool operators. This is probably not more than 50-100 people total and 5-10 of them have most of the power.

      That’s not very different from the US dollar or other fiat currencies.

      • Moron detector

        dear god … so FAIL … *face palm*

      • techenomics

        Agreed. Bitcoin is becoming very centralized both by ASIC cartel and few core developers such as Gavin Andersen and Andreas M. Antonopoulos. Decentralization is dead in Bitcoin.

        • newuser1232

          Yes. Effectively, Bitcoin represents the currency of the tech elite. They are the only ones who understand it and make all the decisions. Regular people have absolutely no control over it and they can’t vote or mine.

          In contrast, with state currencies the people can vote who they want to represent them and one person equals one vote.

          With bitcoin, you need to PAY to be a member of the Bitcoin Foundation and only then you can vote.

    • Dense

      >Why would anyone want to earn their salaries in Bitcoin when it’s extremely volatile. If I were paid in bitcoins 3 months ago, I would have lost over 60% of my income

      This is shortsighted. If employers pay in bitcoin and merchants accept in bitcoin, there becomes less and less need to use dollars at all. There’s nothing inherently volatile about btc, only its btc/usd pair.

      This couldn’t be more chicken and egg.

      • techenomics

        If you want to get paid in Bitcoins and lose income, go ahead you do it. Don’t ask me to do it and don’t speak for me. I don’t need to carry this burden and risk.

        (hint: distribution and adoption and hence volatility wouldn’t have been a problem if mining was efficient, effective and fair. Solve this distribution problem and there will be mainstream adoption. Hopefully, in the future an alternative cryptocurrency would solve it.)

        • Dense

          What is “fair” distribution? The wealthiest inherit their fortune, are earning more income than the remaining 99% and pay the least tax percentage on that money. No monetary distribution is fair for EVERYONE but bitcoin’s a lot fairer than the dollar right now.

          • techenomics

            I said in the Future *IF* cryptocurrencies have any chance at all, they need to solve the distribution problem. Distribution problems are not yet solved – Consumers don’t care for crypto (especially expensive Bitcoin) – no mainstream adoption. Period!

            Fiat does not have a distribution problem, everybody already earns in fiat and you can buy and sell anything with fiat. It is the core of all economies (network effect).

  • Voice of Reason

    A bitcoin salary would be pretty useless without bitcoin merchants. The more merchant adoption, the more it will make sense for employers to adopt. Merchant adoption *must* precede employer adoption.

    • Dense

      Inversely, merchants have less interest in cost to adopt (employee training, integrating new payment processors, security) unless they are guaranteed more consumer adoption.

  • dg

    The solution is simpler then that, an employee can opt to get a percentage of there salary as they like (say 3-5%) as crypto at the day of payment (or a random day in the week to avoid P&D’s) should solve the volatility issue and strongly benefit crypto currencies.

  • Jonathan D. Fluck

    I agree, people need to earn bitcoins rather than mine/convert fiat. is a site that implements your strategy by selling books for bitcoin and paying the author’s royalties also in bitcoin. The authors can cash out or keep their payment as bitcoin. I think it encourages new people to accept bitcoin and use it for purchases.

    • dg

      That’s a great idea actually.

      • Jonathan D. Fluck

        Thanks. Now that these people have some BTC the can spend it at, they can go to, etc. But no matter how you splice it, they are in the BTC world…and that’s good for Bitcoin.

      • Jonathan D. Fluck


  • Andrew Wagner

    It’s one thing to say that, and quite another to go about doing it. In the Bitcoin Co-op, most merchants actually keep their bitcoins, and would be more than willing to pay employees in Bitcoin. The problem is finding willing employees, who don’t yet see enough places accepting or stability.

    There’s actually a better (at this early stage) way to help close the Bitcoin economy that I was going to write about, soon. Employees paid in Bitcoin is a good next step, but for now, our focus is fostering business-to-business connections and enabling merchants to pay their suppliers in Bitcoin.

  • Helpful

    The image on top of this article is of the QuadrigaCX Bitcoin Exchange office, which pays its employees in Bitcoin. For those of you wondering.

  • Stateless

    Why would employers want to pay employees in a deflationary currency and have to ask their employees to take paycuts yearly or more? This is the problem with a currency with a limited production. Employers will never widely pay employees in Bitcoin because until it reaches market saturation it will be too volatile, and then once it does reach market saturation it will be deflationary.

  • Mike Desilva

    Crypto Flea Market is coming which helps with this to some degree. Essentially it will allow anyone to earn BTC and a few select alt-coins by selling used goods for the coins. I own 9 BTC and need some new golf clubs, the guy in the next town has some golf clubs but doesn’t really play anymore and they’re in almost perfect condition. He posts them on the Crypto Flea Market, I see the ad, contact him and we meet for the exchange.

    Not a perfect solution, but a start.

  • John Prescott

    1. Holding bitcoin is risky. Getting paid in it is ok as long as you can choose how much or how little of your pay is in bitcoin, in line with how much you intent to spend/keep. It would be foolish to get paid 100% of your salary in bitcoin.

    2. Yes bitcoin is getting merchants.

    Yes, bitcoin can use employers.

    More so, a fast way to broader bitcoin use is collection of estimated sales tax as proposed by these people: bitcoin haters guide dot com

    The states can collect estimated sales tax at point-of-sale for bitcoin-based sales EASILY: They request the 3rd party processor to re-direct an estimated portion of the sale to them, actual % configurable by the merchant. Benefit 1: The state gets paid earlier. Once the state receives the bitcoin, it can cash it out immediately, or (benefit 2:) pay its own upstream vendors with that bitcoin if it gets them a further discount. Now THAT is a lot of visibility with no risk for anyone.

  • Daniel Gerson

    This seems like pie-in-the-ski thinking. Employees will only want their salaries in Bitcoin when the majority of their liabilities and disposable spending is payable in Bitcoin. There are more risks associated with dealing in crypto currency than the fees and volatility. Bitcoin needs to gain traction in the areas where it has a competitive edge, like remittances, porn & gambling and grey area activities with an increased if not absolute need for anonymity.

  • Gus Gutoski

    Today I was surprised to meet a person who receives a portion of his salary in BTC. This person’s employment has nothing to do with cryptocurrency. The employer uses Wagepoint as a third party payment processor. Wagepoint has been offering this service since November.

    One small step.