How to get paid in cryptocurrency

Bitcoin (BTC) has long had a reputation as the currency of choice for criminals eager to receive payment in a hard-to-trace form. Recent reports suggest this is changing, with other privacy coins becoming increasingly popular with the underground, but it also obscures the fact that there are actually many legitimate ways for businesses and individuals to get paid in cryptocurrency.

From online payment systems designed to make it easier to buy and sell using BTC, to companies and job-seeker platforms providing payment in cryptocurrency, there are plenty of reasons why you might want to receive payment in the form of digital currency.

Working for crypto

When the Pyeongchang Winter Olympics kicked off in February 2018, Canadian speed skater Ted-Jan Bloemen made headlines for becoming the first athlete to be paid in cryptocurrency. The arrangement was part of a sponsorship deal with ONG Social, a social network and crypto community, and virtual reality provider CEEK VR.

Elsewhere, more than 4,000 employees at Japanese Internet firm GMO Group have the option to receive a portion of their salary in Bitcoin, while plenty of other companies in the crypto sphere have been offering Bitcoin salary payments for years. And when you consider that cryptocurrencies are designed to offer a viable replacement for fiat currency, this makes sense.

There are even several job-seeking websites designed to allow freelancers to find work and get paid in cryptocurrency. For example, Ethlance allows its users to hire or work for Ether (ETH), while Coinality aims to connect employees and job seekers with job opportunities that pay in digital currency.

If you currently have a job, you could also ask your employer whether it’s possible to get a portion of your salary paid in Bitcoin. However, with many employers wary of paying in cryptocurrency, you may have to explore other options. One example is Bitwage, which specialises in converting fiat currency salaries into cryptocurrency, but is currently only available on payments from the UK, US and European employers.

Earning a passive income from crypto

One of the key ways investors can earn money from shares is to buy stock in a company that pays dividends to shareholders. This practice is mirrored in the crypto world, as some cryptocurrencies also pay dividends to coin or token owners.

The two most common ways to access dividends are by:

• Staking. You can earn interest by storing a proof-of-stake coin in a special wallet.
• Holding. You can earn interest on your cryptocurrency by buying and holding a specific coin or token in any wallet.

For example, NEO holders are rewarded with GAS, the fuel used to power the NEO blockchain network. With every new block generated, eight GAS are distributed for all 100,000,000 NEO.

Another example is Komodo (KMD), which pays an annual reward rate of 5% to KMD holders, while Nav Coin (NAV) also pays up to 5% interest to users who stake their NAV holdings.

In this way, some cryptocurrencies provide added value to buyers, providing the opportunity to earn a passive income from your crypto holdings.

Take a look at the table below for a round-up of some of the most well-known dividend-paying coins.

Crypto mining

These days it’s quite difficult to make money mining Bitcoin, as the process now requires specialised equipment, significant processing power and a whole lot of electricity. However, there are plenty of other cryptocurrencies that can be mined, including Ether (ETH), Zcash (ZEC) and Monero (XMR). While mining isn’t an easy way to earn a second income, it can be a useful hobby to help you earn additional funds.

Learn more about how mining works in our handy guide.

However, it’s also important to be aware of the tax treatment of mining Bitcoin. If you operate a Bitcoin mining business, any income derived from the transfer of the mined Bitcoin to a third party must be included in your assessable income. The expenses you incur as part of the mining activity can be claimed as deductions, while any losses may also be subject to the non-commercial loss provisions.

Other ways to get paid in crypto

There are plenty of other ways you can potentially earn small amounts of cryptocurrency, including:

• Answering cryptocurrency questions on Cent, which rewards users with ETH if they provide an answer voted to be one of the best.
• Using “paid-to-click” websites that pay users in cryptocurrency for visiting certain websites or viewing specific ads.
• Using crypto faucets that distribute small amounts of Bitcoin or cryptocurrency rewards for visitors who complete a CAPTCHA or specific task.
• Completing micro jobs via a website such as CoinWorker.

Read more on this in our guide to some of the ways to earn crypto for free.

The downsides of getting paid in crypto

If you think getting paid in cryptocurrency sounds like a pretty sweet deal, make sure you’re aware of all the risks and potential downsides:

• Volatility. Cryptocurrencies are highly volatile, so the amount you’re paid today could be worth a whole lot less tomorrow. Take Bitcoin for example. On 28 October 2017 it was worth US$5,769, but by December 18 it had climbed above the US$19,000 mark. At the time of writing (13/02/2018), it was hovering around US$8,765.
• Gambling. Some critics of getting paid in crypto argue that this approach effectively encourages people to gamble. Due to the highly speculative nature of cryptocurrencies, there’s no way of knowing how much your holdings could be worth in the future.
• Regulatory changes. Cryptocurrencies are still largely unregulated and legislators around the world are still catching up with the rapid growth of digital currencies. This means there’s always the risk that the value of cryptocurrency holdings, or maybe even their legality in some cases, could be affected by future law changes.
• Tax requirements vary. If you get paid in crypto from an overseas source, you should be aware that the tax treatment of cryptocurrencies varies from country to country. Not only do you need to be aware of how the Tax Office taxes digital currencies, but also how your funds will be taxed in the country where they are earned.
• Still not widely accepted. While cryptocurrencies are becoming increasingly publicised, they’re still not widely accepted as a form of payment, so you may need to exchange your cryptos for fiat currency in order to be able to spend the money you’re paid.

Tax treatment of cryptocurrencies in the UK

As an EU tax, the VAT treatment for cryptocurrencies adopted by the UK must be consistent with any treatment that may eventually be implemented across the EU.

For VAT purposes Bitcoin and similar cryptocurrencies will be treated as follows:

• Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.
• Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’.
• When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
• Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d).

As with any other activity, whether the treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies will be subject to CT, IT or CGT depends on the activities and the parties involved. See below:

• CT – the profits or losses on exchange movements between currencies are taxable. For the tax treatment of virtual currencies, the general rules on foreign exchange and loan relationships apply. We have not at this stage identified any need to consider bespoke rules. For companies, exchange movements are determined between the company’s functional currency (usually the currency in which the accounts are prepared) and the other currency in question. If there is an exchange rate between Bitcoin and the functional currency then this analysis applies. Therefore no special tax rules for Bitcoin transactions are required. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal CT rules.
• IT – the profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal IT rules.
• Chargeable gains: CT and CGT – if a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss for CT or CGT purposes. Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company.

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Disclosure: At the time of writing, the author holds IOTA and XLM.