Can Bitcoin Wages Lower Volatility?

January 16, 2015 19:00 UTC

A good discussion here, from Coinbrief, is whether wages paid in Bitcoin would lower volatility. In short the proposal put forward is as follows: Bitcoin wages > businesses need more Bitcoin, they either buy directly or offer goods/services or increased incentives for Bitcoin sales to customers > or use Bitcoin wages (which amounts to the processor buying more bitcoins) > businesses would ask suppliers to accept Bitcoin > employees would be paid in Bitcoin.

An important stage missing is that a country’s government would need to accept taxation in Bitcoin (or a relative Cryptocurrency that was accepted by government and that interacted with Bitcoin). Otherwise, there will always be conversion to fiat to cover this expense by businesses and employees.

One point which the author misses, is that volatility goes both ways, what is being discussed is, in fact, a method of how to potentially assist stopping the declining value in Bitcoin.

Whilst agreeable that an increase in the capital market of Bitcoin would eventually reduce volatility, but the capital size is rather tiny compared to its relative market (fiat/gold). The network adoption that would come from such a process, as described, would create far higher volatility than the market is currently experiencing.

If such a process occurs as written about, which as pointed out, it already is (see Overstock, Amagi Metals). Then in the long term, and under wider adoption, this will increase the value of Bitcoin, which is still volatility.

Also read: Overstock Offers Staff Option To Be Paid In Bitcoin

However, volatility in an increasing value direction is a very positive thing for all involved. Employees being paid in bitcoin will find they are gaining more value for their work, and businesses will also be gaining more value for their products, and seemingly needing to pay their staff less.

Volatility in an upwards direction has a deflationary effect on goods and services, traditional economists state that this is a bad thing because businesses will be receiving less for said goods and services.

What they often do not state is that the businesses will also be recipients of the deflationary (value) currency. This will in turn increase their purchasing power from suppliers, as well as the above mentioned seemingly paying employees less. The concept, that a deflationary currency will not be used by consumers, has been disproved by the very existence and continued use of Bitcoin.

If you think you have seen volatility in the Bitcoin market, you have not seen anything yet.

Images from Shutterstock.

@JoelDalais

Joel loves Bitcoin and Digital Currency. He holds a BSc (hons) in Criminology with Criminal Justice Studies and Sociology, contributes for Bitcoin Magazine, is an Ambassador for Coloured Coins, Software tester and Advises for GreenCoinX and MultiSigX, and is Director of IBWT ("In Bitcoin We Trust"), a Digital Currency Exchange.