Getting Paid in Cryptocurrency: The Pitfall 90% of Crypto Workers Are Falling Into
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Getting Paid in Cryptocurrency: The Pitfall 90% of Crypto Workers Are Falling Into
Although paying salaries in cryptocurrency has certain advantages, it indeed faces significant legal risks under China's current legal and regulatory environment.
Navigating Web3 tides with focused insightsBy Rao Weitong
A friend recently came to me excitedly boasting about landing a lucrative job. I said, “Brother, if you become rich and powerful…” After persistent questioning, he finally admitted the truth: he was working remotely from China for an overseas Web3.0 project. The job offered great flexibility, and his boss paid him directly in USDT cryptocurrency—his entire salary arrived intact, quickly, and quite generously.
I shook my head immediately. This kind of wealth won’t last.
Paying Salaries in Cryptocurrency Becomes Commonplace
In today’s world where cryptocurrencies are gaining global popularity, more and more blockchain companies are beginning to pay salaries in crypto—primarily using USDT. The benefits are obvious:
On one hand, for cross-border payments, cryptocurrency enables fast and low-cost international transfers. With reduced costs and no need to navigate complex foreign exchange procedures, crypto streamlines payroll. Typically, a crypto project will agree with employees on a fixed monthly amount in USDT. At payday, finance teams simply make a blockchain transfer, paying minimal gas fees to deliver salaries instantly—faster than “Elon Musk tweeting.”
On the other hand, cryptocurrency is a virtual currency powered by blockchain technology. Unlike physical cash, it uses advanced cryptography to ensure transaction transparency and security. All transactions are recorded immutably on-chain. After salary disbursement, employees receive a transaction hash and can verify payment details independently via any blockchain explorer. Everything is transparent—no room for manipulation.
While this all sounds promising… in China, doing so could get you into serious trouble.
Legal Risks Lurk Everywhere
For both Web3.0 project operators and regular employees, using cryptocurrency as salary may bring unforeseen legal risks.
Chinese Law Does Not Recognize Crypto as Legal Salary
First and foremost, Chinese law does not recognize these virtual currencies—RMB is the only legitimate path. Specifically, the Chinese government maintains a cautious stance toward cryptocurrencies, accompanied by strict regulation. There's a saying in the crypto community: “No matter how many times the韭菜 (‘lambs’) are harvested, they grow back when the spring wind blows.” But in China, that “spring wind” for cryptocurrency doesn’t blow easily.
So, regarding the question of “paying salaries in cryptocurrency,” the answer under Chinese law is clear: sorry, it’s not allowed. According to the People’s Bank of China Law, the Interim Provisions on Wage Payment, and the Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation, RMB is the sole legal tender. Bitcoin, Ethereum, Tether (USDT), and other virtual currencies lack legal tender status and do not have equal standing with fiat money. They should not and cannot circulate as currency in the market.
Moreover, since most Web3.0 projects operate overseas, such arrangements also involve foreign exchange control issues. China strictly regulates cross-border crypto transactions, and using them for payments could trigger red flags. The State Administration of Foreign Exchange tightly controls capital flows, and the anonymity and decentralization features of cryptocurrency make it easily suspected as a tool for money laundering. Recently, the Shanghai Procuratorate released the 2023 Shanghai Financial Prosecution White Paper, which, based on financial crime cases over the past three years, reveals numerous instances of illegal foreign exchange conversion and cross-border asset transfers used for money laundering. Regulatory scrutiny in this area continues to intensify year after year.
What Impacts Could Crypto-Based Pay Have on Employees?
With projects registered abroad while development and technical work carried out domestically by Chinese personnel, this is the current reality for most Web3.0 ventures. Then comes the critical question: Are you sure there is an established employment relationship between you and the company?
According to China’s Labor Contract Law and related regulations, only foreign enterprises legally registered and holding business licenses within China qualify as employers under Chinese labor law—and thus capable of establishing formal employment relationships. In all other cases, whether an employment relationship exists depends heavily on contractual terms defining the nature of cooperation. However, given typical Web3.0 industry practices, written contracts are often absent. Even when signed, agreements tend to be nominal or labeled merely as consulting contracts. In such situations, if disputes arise over crypto-based salary payments, employees must provide additional evidence to prove de facto employment. Otherwise, the labor relationship cannot be recognized, leaving their rights unprotected by law.
Of course, you might argue that your employment relationship with the company is clearly established. But then new problems emerge:
Unstable Income
Although stablecoins like USDT (pegged to the U.S. dollar) are commonly used due to low volatility, some projects still pay in highly volatile tokens. These assets can lose 20% of their value overnight—turning your hard-earned salary into a rollercoaster ride. Imagine being a crypto “Wang Duoyu” yesterday and a “Lamb Brother” today. Who can live like that?
Tax Complications
Most offshore crypto projects lack domestic entities and therefore do not withhold taxes for employees. As a result, individuals must self-declare and pay income tax. Under current Chinese tax laws, gains from transferring Bitcoin or other virtual currencies may be subject to personal income tax. However, due to the complexity of crypto transactions, accurate tax reporting becomes extremely difficult. “Better earn less than break the law”—if tax issues go unresolved, even high earnings could end up penalized.
Difficulty Enforcing Rights
Labor law mandates wage payments in RMB. Therefore, receiving salaries in cryptocurrency may fall outside legal protection. If wages or bonuses are withheld, employees may struggle to produce valid proof, making dispute resolution and claims enforcement exceptionally difficult.
Security Risks
After receiving cryptocurrency, employees often need to convert it into legal tender through unofficial channels for daily use. During withdrawal processes, the source of counterparties’ funds remains uncertain. Receiving funds linked to gambling, fraud, or other illegal activities could lead to frozen bank accounts. After all your hard work, you might not only lose access to your money but also face criminal liability for offenses such as aiding information network crimes (“Bangxin”) or concealing criminal proceeds (“Yanyin”).
What Impacts Could Crypto-Based Pay Have on Employers?
Compliance and Tax Risks
Using cryptocurrency to pay salaries may trigger compliance issues, potentially resulting in fines, penalties, or disruptions to normal operations. Cryptocurrency tax policies remain unclear, exposing companies to potential back-tax liabilities and penalties. Accurate tax record-keeping is also challenging. Imagine the finance team working overtime, only to be fined into oblivion because of crypto payments—is this kind of “cost-saving” really worth it?
Risk of Reissuing Wages
Since paying wages in cryptocurrency violates Chinese law, employers who adopt this method risk having such payments declared invalid during disputes. They may then be required to reissue salaries in RMB—an outcome akin to “losing the chicken without saving the feathers.”
Security Risks
The Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation explicitly states: “Participation in virtual currency investment and trading activities entails legal risks. Any civil act involving legal persons, unincorporated organizations, or individuals investing in virtual currencies and related derivatives shall be deemed invalid if it violates public order and good customs; losses incurred thereby shall be borne by the parties themselves. Acts suspected of disrupting financial order or endangering financial security will be investigated and punished by relevant authorities.” When companies hold and distribute large amounts of cryptocurrency as salaries, improper handling may constitute disruption of financial order, leading to legal accountability.
Case Analysis
On May 20, 2019, Shen某某 was hired by a certain internet company and signed a labor contract. The contract stipulated non-fixed working hours, a monthly salary of 50,000 RMB, annual disbursement of 14 months' salary, a semi-annual performance bonus target of 50,000 RMB (pre-tax), and an annual bonus target of 50,000 RMB (pre-tax). During the execution of the contract, after deductions for social insurance and housing fund contributions, Shen’s actual monthly salary was paid in a combination of 2,574 RMB in cash and USDT cryptocurrency. The RMB portion was paid through October 2020, while USDT payments stopped in September 2020. On October 17, 2020, Shen resigned for personal reasons but later claimed the company had failed to pay full wages, performance bonuses, and overtime compensation, and thus filed for arbitration with the Labor and Personnel Dispute Arbitration Committee. Dissatisfied with the arbitration decision, Shen brought the case to court.
The court ruled that paying wages in virtual currency violated Chinese law and was therefore invalid. Employers must pay labor compensation fully and promptly in RMB as stipulated by labor contracts and national regulations. This requirement equally applies to the agreed-upon 14th-month salary and bonuses, which must also be paid in RMB.
The core issue in this case was whether employers can legally pay wages in virtual currency. As previously discussed, Chinese law does not permit virtual currencies as salary. Article 5 of the Interim Provisions on Wage Payment states that wages shall be paid in legal tender. Article 16 of the People’s Bank of China Law establishes RMB as the legal currency of the People's Republic of China. Furthermore, the Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation clarifies that virtual currencies lack legal tender status and thus cannot circulate in the market or serve as remuneration.
This case also highlights the employer’s obligation to reissue wages—a key risk mentioned earlier. In such circumstances, the company bears adverse consequences: crypto-based wage payments are invalidated, and employers must fulfill their obligations by paying employees in full RMB accordance with contractual and statutory requirements.
Conclusion
Despite its advantages, paying salaries in cryptocurrency faces significant legal risks under China’s current legal and regulatory environment. Both employers and employees should proceed with caution, comply with laws and regulations, and avoid legal disputes and financial losses. For us, understanding these risks helps protect our rights and enables smarter decisions.
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