Can a contractor convert a cryptocurrency payment into money?

Question

Suppose that an overseas customer tells a contractor that she or he cannot pay for the job via common overseas payment options — such as an online payment, money order, payment card, bank transfer — but can pay via some cryptocurrency.

Assuming that the contractor got a (principally irreversible) cryptocurrency payment, can a contractor convert a cryptocurrency payment into money?

I deliberately avoid to specify a specific type of cryptocurrency because I generally don't know the different types.

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_{By "contractor" I meant to a personal service seller but an answerer might want to explain about an organization as well.}

Answer 1

Yes, there are ways to convert cryptocurrency to various real [believe me, I very specifically chose that word] currencies. If someone claims they can't they are probably setting up fraud of some type.

The 'smell test' that fails here is that demanding very specific payment techniques, to the exclusion of all others, is often step 1 in committing some sort of online service fraud. This is true whether it is demanding a specific type of Western Union payment, or some random cryptocurrency.

The reality of why this is the case, is that payment to the other person is typically demanded in a way that is non-refundable. If you use paypal, you might be able to dispute the charge if the seller doesn't follow through on their end of the transaction, but cryptocurrency is unrecoverable [this is one of its flaws, often touted as one of its benefits].

Answer 2

1. "customer tells contractor that she or he can't pay for the job via common overseas payment options..."

FYI. This is, simply, an outright lie.

It would be like saying "I can not purchase a cup of coffee" or "I am unable to find a Road" or "There's a strange problem and the sun didn't rise today."

Completely silly.

(It could be they want to pay with bitcoin, since (say) they have some on hand, but if they say they "can't" pay normally, it's simply a lie.)

2. It is trivial to convert bitcoin to ordinary money, sure. This happens in the billions each day.

Here's a trivial example -

coinbase.com, costs a few dollars to send USD, GBP or EUR.

3. Note that in this situation, very simply the >> customer << would simply click one button to send normal USD to the contractor.

There is utterly no reason for the customer, to send bitcoin, and expect the contractor to make the effort to exchange it to dollars.

The >> customer << would simply click one button to send normal USD to the contractor.

(Sure, the customer may say "Oh, I can't be bothered doing that, I will give you 20% extra on top so you can do it." But normally the customer would click one button to exchange bitcoin to USD and send a normal transfer.)

This is simply a scam.

Note that this is almost certainly some sort of scam or scammy edge case.

Anyone who "has bitcoin" knows you can click a button, exchange it to USD, and send a normal dollar transfer to say a contractor or other payment.

This happens in the billions every day and it's as easy as buying panties at WalMart. It's a non-issue, trivial.

The fact that they're saying they "can't" do this instantly flags it as some sort of scam or soft scammy edge case.

Do note that if you accept bitcoin in payment, you MUST tell the IRS about the transaction, there is a special form.

Answer 3

The short answer to your question is yes.

You "exchange" cryptocurrencies for fiat like the US dollar, British Pound, or the Euro the same way you would convert your sofa into fiat; You would trade it. You find someone who wants to trade their fiat (money) for your crypto, and you do the trade. There are online exchanges that can help you do this, or you can find someone in person.

Cryptocurrencies are just "points". The specific characteristics of these points make them desirable to some people, which creates demand, which is what gives them value. What these characteristics are (decentralization for example) and why someone would want them, are outside the scope of this discussion. But they are very real.

Cryptocurrencies themselves are not scams. They are often used by scammers due to some characteristics they have, but they are not scams themselves. However, because anyone can create their own cryptocurrency, you have to be careful that the cryptocurrency in question is actually valuable (tradable). Unless you're receiving a well-known currency that has a high trade volume and has been around for years (such as Bitcoin), it's very easy for someone to give you untradable useless crypto. For instance, there is a crypto currency known as Bitcoin Cash which sounds an awful lot like Bitcoin, but it's actually a scam and can be taken from you at any moment by the people who control the crypto. Because this is all unregulated, you have to do the homework and double check everything yourself.

Why someone would say they cannot use any other payment method is completely unknown. It sounds suspicious, but there are innocent explanations. One of which being that they simply don't want to use anything else. Or that they're blacklisted for various reasons. Or they're trying to protect their identity. Or they're going to pull some quick bait and switch and try to scam you. Who knows.

There is lots to say about cryptocurrencies. Well known crypto that has been around for years are not scams. But only if you use them right. Slight oversights can lead to thousands if not millions in losses. Doing tons of homework on your own is the price you pay for using the technology.

Answer 4

Since cryptocurrency can be transferred, it can be exchanged for money. However, some entities in possession of cryptocurrency may prefer not to exchange it for money. Why? Perhaps to avoid an audit. Or, perhaps to avoid prison.

Two possible stories:

1. Suppose that the customer in question acquired Bitcoin a decade ago, when its price was, say, approximately 0.1% of today's price. Suppose further that this acquisition was informal, over-the-counter (OTC) and left little that could constitute an audit trail. Assuming that the customer is happy to pay capital gains taxes, scrutiny of the acquisition might lead to uncomfortable, embarrassing questions. Why was the transaction informal? Where is the contract? Where is the invoice? Was the customer engaged in criminal activity a decade ago? Bribery? Drug trafficking? Money laundering? Terrorism financing? Paying a foreign contractor may allow the customer to evade such scrutiny. Or, at least, to be subjected to less meticulous scrutiny.

2. Suppose that the customer in question is engaged in cyber-crime, say, ransomware. After having held individuals, firms, hospitals and even governments hostage, the customer may possess "dirty" cryptocurrency. Were the customer to attempt to exchange such "dirty" assets for money at a cryptocurrency exchange, he would have to deal with KYC and AML. If the customer attempted to exchange "dirty" cryptocurrency for (physical) cash, he might need to hire armed security. And who would protect him from his own armed guards? Paying a foreign contractor may be attractive because in that case the KYC / AML requirements might be much more relaxed — perhaps even non-existent. Are foreign contractors more skilled than compliance officers at determining whether the documents provided by the customer are fraudulent?

These are only two possibilities. There must be more. Can you think of any?

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Related:

• Found a heap of BTC but have no documentation. What do I do?

• Buying cryptocurrency for a friend at exchange

• Is there any way to reduce the taxes on my capital gains?

• When does it become illegal to exchange Bitcoin for cash?

• Can I cash out 25 BTC without proof of provenance?

Answer 5

You've gotten several answers on whether it can be exchanged, but I think one related to the tax implications of accepting cryptocurrency is perhaps valuable.

In general, accepting cryptocurrency will be effectively identical to receiving cash from a tax perspective, with the caveat that you will have to define the cash value of the cryptocurrency. Exactly how you do that depends on jurisdiction, but for the most part, the easiest way is to simply exchange the cryptocurrency for cash as soon as you receive it, using one of the larger cryptocurrency exchanges (assuming the specific currency you receive is a "major" currency, such as Bitcoin or Ethereum, and is traded in large exchanges). If you do that, then you will immediately establish its market value - by selling it at market value - and can simply ignore the back and forth of the cryptocurrency. Report that value on your taxes as you'd have reported cash. Record the transaction fee - depending on your jurisdiction, this may be reduce your tax burden.

If you do not immediately exchange it, you should at least record what you could have exchanged it for. That will establish the value you received from the client. Any change after that in value - positive or negative - will be more like an investment in the stock market; it will become a capital gain or loss, most likely. Again, check your jurisdiction to make sure this is the case, but it's the common way to treat any exchange of services for goods which then change in value over time.