Wanting to use cryptocurrency for a domain is a red flag — A counterparty

There are few legitimate reasons to use cryptocurrency in domain transactions.

I’ve been thinking a lot regarding cryptocurrency as a payment and disbursement option for domain transactions. The key question is why someone would buy a domain or accept payment for a domain in cryptocurrency, and if marketplaces and escrow services ought to support it.

I’ve come up with three reasons someone would want to use crypto rather than fiat for a domain transaction.

To avoid taxes. As in, cheat the taxing authorities.

Tax laws vary from country to country, but in the U.S. and some other countries, buying something with a cryptocurrency or selling something for a cryptocurrency is a taxable event. So there’s no tax advantage of using cryptocurrency for a domain transaction…unless you intend to cheat by hiding it.

If you pay for a domain in bitcoin, you have to realize the gain or loss on that bitcoin at the time you acquire the domain. If you sell a domain for bitcoin, you have to recognize the value of that crypto you receive when you sell the domain.

(The same goes if you buy an NFT with crypto or trade into a different cryptocurrency, by the way.)

So there’s no real tax benefit to buying or selling a domain with crypto compared to fiat. I suppose if you want to take a loss on crypto you could do it through a domain transaction, but you could also do this by just selling the crypto for fiat and using that.

To be untraceable. Cryptocurrency transactions are generally irreversible. They also have a degree of anonymity. So if you want to sell a stolen domain, this is how you want to get paid. It’s also helpful if you’re laundering money.

For more convenience. Transferring money between banks can still be a slow(ish) process. Depending on the amount and jurisdiction, it can take a couple of days. Cryptocurrency transfers can be quick. Also, since they generally aren’t reversible, it might give the domain seller comfort in a transaction.

This convenience can also be a way to avoid government transfer restrictions. But using crypto to bypass government restrictions means someone breaking the law.

The net-net

I can think of few legitimate reasons that someone would use cryptocurrency to pay for a domain name unless they are in a jurisdiction that treats it favorably from a tax standpoint. So I’d be very cautious if your counterparty in a transaction requests to use cryptocurrency. It’s not a deal killer but think hard ahead of completing a transaction if the counterparty insists on using cryptocurrency.