

Ask HN: Is it ok to pay outside contractors in bitcoin? - jebeng

Sorry if this is a silly question but I just want to make sure there isn't going to be some kind of accounting issue down the road by doing this.<p>Seems like a win win for us since it works out cheaper overall by quite a bit. And it looks like there are a lot of people out there now willing to work for bitcoin.
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bayesianhorse
The short answer is: No.

The long answer: With some financial engineering it might be a good idea to
pay outside contractors, but only with tight contracts. You need a portfolio
of bitcoins and preferably some derivatives to hedge the risk inherent in
that. You need to be able to buy bitcoin in forward.

You need to factor in the time it takes for the recipient to convert bitcoin
to something usable in his currency (at least 7-14days) and add a premium to
the payment covering the risk he is taking on. You can omit the latter but
then the recipient is going to detract that premium from the price of the
contract...

~~~
bayesianhorse
I forgot to add that I would only consider this option when your only other
means of payment exceed the costs of financial engineering involved in bitcoin
payment...

I haven't calculated it yet, but I would estimate the cost to be between 3 and
10%, and certainly higher when mistakes are made.

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Metatron
It shouldn't be cheaper for you, Bitcoins are still taxable income. It's not
some magic, legal way to evade tax.

Check out this article for extra info, obviously specifics depend on national
tax laws: <https://en.bitcoin.it/wiki/Tax_compliance>

~~~
jebeng
Oops. I should have elaborated there. The savings I was referring to were more
from not having to pay a percentage to a freelance worker website, or not
having to pay fees through paypal, as well as people seemingly willing to work
for cheaper effective rates if being paid in bitcoin(note: I have no data to
back this up).

But assuming everything is in order tax wise, in a future audit is the use of
bitcoin going to throw a wrench in works or anything?

~~~
bayesianhorse
Certainly. How to manage a bitcoin portfolio isn't worked out at all. One of
the problem is how to factor in the price instability with the payment
schedule.

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dagw
How is contract going to be written? Are you going to set the rates is USD (or
whatever your local currency is) and convert that to bitcoins at the going
exchange rate once it's time to pay, or are you going to set the rates in
bitcoins and let the contractor bear the currency risk.

~~~
jebeng
Yes, we would be setting the rates in USD.

At this point the plan would be to keep a small amount of USD in Mt.Gox and
buy bitcoin at a set time and send immediately when payment is due.

This is all new to me, but it seems like a reasonable plan at this point. So
if I'm missing something silly here let me know! Thanks

~~~
dagw
Just make sure the contract is very clear on exactly which exchange rate
you'll be using and at what time. Imagine you agree on a deadline of Friday at
midnight for some project. The contractor delivers the finished job and final
invoice to you on Friday 4 pm, but you don't get around to handling his
invoice until next Wednesday at 11 am. Which exchange rate will you use? The
answer to that question could be worth several thousand dollars to one of you,
so it's not a question to take lightly or assume that it won't cause massive
potential headaches for you.

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muhkel
Would you like to get your salary in currency that is worth $250 one day and
$120 the next day?

~~~
jebeng
Well I'm (hopefully) going to be the one paying freelancers, so what happens
with their money isn't much of my concern.

No company money would ever be sitting in bitcoin for more than the few
seconds it would take to transfer.

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patio11
_No company money would ever be sitting in bitcoin for more than the few
seconds it would take to transfer._

I know why you think this, but it is based on incorrect premises, namely that
your expectations for quality of service from professional financial services
firms apply equally to the Bitcoin "economy."

Consider, for example, the case where you ask your freelancer "What is the
invoice in BTC?" and he quotes you "100 BTC". You go attempt to buy Bitcoins
at the spot price of ~$100 each. You see a message saying "Your order has been
placed, but to protect our customers, we are going to take the liberty of
manually reviewing it." The following day, the order is canceled and the spot
price of Bitcoins is now $140. You are now effectively short BTC, which is
unfortunate, because you're losing.

There are other failure modes. They can be catastrophically expensive. As both
a buyer and seller of consulting services, the notion that you're worried
about a ~3% charge to transfer money to settle up a freelancing engagement is
valuable signal with regards to the general level of business acumen being
brought to bear on this decision. So, as somebody who wants both you and your
freelancers to have happy, successful lives: bringing BTC into the picture
brings in large extrinsic risks of project failure, when doing business with
freelancers is _already_ fraught with many risks. I would suggest avoiding it.

Regarding accounting issues: I wouldn't expect any but if your accountant is
like my accountant I'd expect you to run up a few hundred dollars in fees
prior to him being comfortable signing off on there being no accounting issues
here.

~~~
jebeng
Great answer. Thank you very much. Definitely making me think twice about the
whole situation.

edit: Sorry, just want to be clear about this part:

"the notion that you're worried about a ~3% charge to transfer money to settle
up a freelancing engagement is valuable signal with regards to the general
level of business acumen being brought to bear on this decision."

Is your meaning here more towards:

3% is an insignificant amount to worry about on such an important part of your
business

or

it's a good thing to try to stretch your funding as far as you can by saving
costs like these

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patio11
I don't want to discourage you, because everybody got started somewhere, but
mentioning money transfer costs in the context of contracts/payroll (and
considering paying in Bitcoin) waves a really big "We have never done this
whole 'business' thing before" flag. I will repeat again that I'm on your
side, but that is how the market will read it. (n.b. Anyone saying "I accept
Bitcoin for my services!" is waving the same flag _even harder_.)

~~~
jebeng
I figured that was what you were getting at. I just wanted to make sure. I
appreciate it, thank you.

