Why do I need to know about it?
Cryptocurrency is having a bit of a moment. Put simply, it’s an encrypted digital currency that operates independently from central banks. Cryptocurrencies like Bitcoin, Ether and Litecoin can be used to pay for goods and services, and be transferred between parties, in much the same way as traditional currency.
While its rise may bring to mind the dot-com bubble of the late ‘90s, it’s not something that can be easily ignored. “This isn’t a ‘flash in the pan’: it’s a new means of exchange that is signalling how we will exchange goods, services and our labour in the future,” says Jacqueline Davies, managing director of Audacity Associates and former HRD at the Financial Conduct Authority. “This is now at a stage of maturity that crosses over into the mainstream markets.”
Cryptocurrencies aren’t just being used by tech-savvy elites either. “Cryptocurrencies took off in 2017. People from all ages and social backgrounds are rushing in to grab a piece of the pie, which has grown to a current value of more than $400 billion [£288 billion],” explains Michel Rauchs, lead in cryptocurrency and blockchain at the University of Cambridge’s Centre for Alternative Finance. Therefore HR and businesses more widely need to be aware of this changing digital asset landscape.
What do I need to know?
It’s crucial to understand the difference between cryptocurrency and blockchain. “Blockchain is the underlying technology. A comparison would be the streaming service Spotify. Spotify would be comparable to a cryptocurrency and the internet is the underlying technology used for the service to work,” explains Donna Martin, a partner at Mackrell Turner Garrett solicitors.
Its use could have repercussions for HR in areas like pay and reward, contracts, and corporate transparency. “Communities of specialist talent are already starting to use this,” says Davies. “We’ll need to understand how we can utilise [cryptocurrencies] to bring these skills into our business and pay for them.”
Bringing them in may well mean contracting in a different way. “Ideas have been suggested such as using the technology to create ‘smart contracts’. A contract would be able to ascertain when an obligation has been carried out and then automatically transfer funds to the relevant party,” explains Martin.
Paying for goods and services with cryptocurrency could create transparency issues though, as the system operates outside mainstream banking. Rauchs notes: “Depending on the nature of the company and work, employees should be required to disclose their personal cryptocurrency holdings to avoid conflicts of interest and potential insider trading.”
Where can HR add value?
HRDs should be prepared to answer questions from CEOs, the board, and perhaps employees too. Although cryptocurrency salaries are unlikely to become commonplace soon it’s advisable to be prepared. “We may at some point see employees – and more likely consultants or freelancers – requesting salary payment in cryptocurrency. As the publicity surrounding it increases HRDs will need to be prepared for questions regarding employees’ remuneration: for example whether this is achievable and the advantages and disadvantages of such a method,” advises Martin.
Rauchs concurs that more employees may begin requesting this, and suggests HR gets on board to reap the most benefit. “Companies that create a ‘cryptocurrency-friendly’ environment may gain an advantage in attracting talented developers and highly sought-after software engineers. One option would be to launch an internal ‘company cryptocurrency’ that would function as a reward scheme to stimulate creativity and incentivise performance,” he says.
Cryptocurrency is still relatively new, so proceed with caution. The area is unregulated and the UK government has not released any specific guidance around its usage yet. Though it’s important to keep up to date with developments it may be unwise to rush in. “For a company to internally develop systems it would take a significant amount of time and resources away from the core business, therefore development should be left to [blockchain] professionals,” adds Martin.