Costa Ricans can legally receive part of their salary in cryptocurrency, and given the impending financial crisis in Costa Rica, does it make sense to do so?
No. Not yet, anyway.
Article 166 of the labor code says that Costa Rican laws allow for the use of commonly accepted assets as a means of payment. This means employees aren’t necessarily receiving cash or money, but some kind of benefit – cryptocurrency in this case – that is almost as good.
An issue with paying a salary in cryptocurrency is that, as an employer, you have to pay part of your social security based on its value. That means you have to calculate worth on the day you paid in cryptocurrency. And if the price implodes later, it’s risky.
Remind me – what is cryptocurrency?
Cryptocurrency is a form of digital money, but it’s different from any other digital money out there because it’s decentralized, meaning it doesn’t belong to any one entity, such as a government. A free community of people who agree to use the digital money are governed by math and computer algorithms. There is no central authority to seize funds or censor transactions.
Remind me – what is the blockchain?
Blockchain is the digital ledger that records all transactions conducted with a given cryptocurrency.
According to Namir Anani, president and CEO of the Information and Communications Technology Council, the most popular example of blockchain technology today is people sending remittance to their family in other countries. Usually, you have to go through a bank, which may take 5-10 percent of the payment. But with blockchain, because you’re not going through a bank — instead a distributed ledger, which thousands of people validate with mathematical models — you’ll receive all of it.
Does it make sense to get paid in Bitcoin?
According to Jose Zamora, law graduate from the University of Costa Rica and now director at InnovaMars, a Costa Rican startup company that specializes in the development of technological solutions using artificial intelligence and blockchain technology, “it’s risky to receive cryptocurrency as a part of your salary because you have to pay part of your social security as an employer based on these funds you receive.”
The Central Bank of Costa Rica announced last year that cryptocurrencies fall outside the purview of the National Banking System and that portions of salaries may still be paid out in alternative forms. Provided that the legal minimum wage is recognized with money, paying salaries with other goods that are not money is allowed.
Daniel Rojas, a cryptocurrency educator and consultant at CryptoReds, a website that teaches you how to use and invest in cryptocurrencies, such as Bitcoin (BTC), said he’s very careful to recommend cryptocurrencies.
“It’s just so easy to get caught up in the lottery mentality and spend more money than you have,” he said. “People make emotional decisions because they see the comparisons of BTC in 2013 and 2014 when it was around $1,000, to when it peaked at $20,000 last December. […] It’s easy to get tangled up in the price.”
After an unprecedented boom in 2017, the price of BTC fell by about 65 percent between 6 January and 6 February, 2018. Today, the BTC market cap is just below $4,000.
Who accepts cryptocurrency as a means of payment in Costa Rica?
According to coinmap.org, an online map where you can find shops and businesses that use BTC, there are 11 companies in San José that accept it as a means of payment.
One of the companies accepting BTC is UV Line, a Brazilian retail store and brand that sells clothing with solar protection. Filipe Kirsche, distributor of UV Line products in Costa Rica, said he accepts BTC as a means of payment because of the positive publicity. Also, as a BTC user himself, he wants to see more people handling the currency and experimenting.
Although Kirsche doesn’t have many people actually buying goods from his store with BTC, he thinks Costa Rica’s tourism economy could benefit from doing so.
“I could see a lot of businesses getting attention because there are a lot of international BTC users coming to Costa Rica and if they see a hotel that accepts BTC, for example, maybe they’ll choose that one,” Kirsche said.
Stigma and fear around Bitcoin
It’s not all butterflies and sunshine when it comes to handling cryptocurrencies.
Historically, the Costa Rican experience with digital money hasn’t been great. There was a case in 2013 where a Costa Rica-based company called Liberty Reserve – which referred to itself as the “oldest, safest and most popular payment processor, serving millions all around the world” — was shut down by United States federal prosecutors for money laundering and operating an unlicensed financial transaction company.
BTC, on the other hand, is “a neutral technology and tool,” Rojas said. “Cryptocurrency is where the internet was in the early 90’s, not only because of the lack of infrastructure or reporting in the mainstream news, but also the fact that people don’t know a lot about it.”
“Remember the assault on Banco Nacional in Monteverde in 2005?” Rojas asks. “Criminals were able to communicate on the phone inside the bank with people from the outside. After this, banks banned using phones in the bank because of security. Thirteen years after the fact, now it’s kind of rare to see bank security officers asking you to put your phone away.”
This kind of paranoia around the technology, Rojas summarizes, is slowly going away because people recognize that more often than not, technology is used to do good.
“People will use technology to do bad things,” Rojas said. “That’s just how things are.”
Because of the famous cases involving cryptocurrencies on the black market like Silk Road and Mt. Gox, the mentality behind cryptocurrency is still shady, but Zamora says there is a lot of value in blockchain — the underlying technology behind cryptocurrencies.
Silk Road was an online black market known for selling illegal drugs. Operated as a Tor hidden service and part of the dark web, online users could browse it anonymously and securely without potential traffic monitoring. In October 2013, the Federal Bureau of Investigation shut down the website and arrested the founder, Ross Ulbricht, who was convicted of eight charges related to Silk Road and sentenced to life in prison without possibility of parole.
Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan, launching in July 2010. It handled over 70% of all bitcoin transactions worldwide as the largest bitcoin intermediary and the world’s leading bitcoin exchange. In February 2014, Mt. Gox suspended trading, shut down their website and services, and filed for bankruptcy protection. They announced that about 850,000 bitcoins belonging to customers and the company were missing and likely stolen – an amount valued at more than $450 million at the time.
Blockchain > Cryptocurrency
“It’s the mentality in Costa Rica – there is a lot of value in blockchain but not in cryptocurrency. We can’t turn a blind eye to cryptocurrencies. It’s something that’s happening and already out there so we can’t just say, ‘We’ll wait for blockchain to take off and ignore cryptocurrency ” Zamora said.
Zamora’s company, InnovaMars, helps businesses build digital wallets while researching compliance software.
“Most of the cash we handle on a day-to-day basis has microscopic molecules of cocaine,” Zamora says. “Because in some way, it’s drug money.
“Cryptocurrency might have the same stigma, but at least with the blockchain technology, we can trace it back and see where it’s coming from.”
Coinfirm is an example of one website that can do transaction analysis to tell you where the bitcoin is coming from, who has owned it before or where it has bounced around in the blockchain because you can see traceability and accountability that cash is never going to give you.
Tico Blockchain event
Rojas, the cryptocurrency educator, is organizing an event with international and local speakers to communicate key messages around cryptocurrency and blockchain in Costa Rica. It’s called Tico Blockchain and will occur February 2nd. He believes that blockchain technology “is the next step for a great source of jobs in Costa Rica”.