Remittances to developing countries have been a major issue for decades. Cryptocurrencies can make the process easier and cheaper, but the volatility of cryptocurrencies may be a deal breaker.
Bitcoin remittances have seen an increasing adoption rate in recent years, but volatility may be a deal breaker for some. Read more in detail here: bitcoin remittance.
For a variety of reasons, cryptocurrency use is increasing. Crypto remittances are a factor in developing countries, according to studies, but others say that utilizing cryptocurrency for these transactions is little more than a purist’s fantasy.
Alexander Höptner, the CEO of cryptocurrency derivatives trading platform BitMEX, projected earlier this month that by the end of next year, at least five nations would have recognized Bitcoin (BTC) as legal money, owing to the fact that crypto assets may make transfers quicker and cheaper.
He thinks that all five will be developing nations that will embrace cryptocurrencies as a result of the growing need for cheaper and quicker cross-border transactions, rising inflation, and escalating political tensions.
Other observers have argued that Bitcoin and other cryptocurrencies offer a solution to the high costs of remittance payments, claiming that a cryptocurrency transaction may be considerably cheaper than a remittance payment while settling in a shorter period of time.
El Salvador became the first nation in the world to recognize Bitcoin as legal currency on September 7, when the country’s Bitcoin Law went into force. The government has developed Chivo, a bitcoin wallet that transacts via the Lightning Network, a layer-two scaling solution. Over time, the nation has also bought 700 BTC.
In 2018, global remittances totaled $689 billion, with fees so high that a $49 billion industry sprang up around them. El Salvador is a great illustration of how cryptocurrencies may positively alter the world for bitcoin supporters, but for others, volatility and a general lack of confidence in the market make cryptocurrency adoption impractical and unwise.
Are cryptocurrencies providing financial services to the unbanked?
Bitcoin may successfully assist provide financial services to El Salvador’s unbanked and underbanked people using the Chivo wallet. Despite the backlash against the new legislation, which saw protesters destroy a Bitcoin ATM machine, the country’s president, Nayib Bukele, announced in September 2021 that 2.1 million Salvadorans are actively utilizing the wallet.
2.1 million Salvadorans use @chivowallet on a regular basis (not downloads).
Chivo is not a bank, yet it has amassed more users in less than three weeks than any other bank in El Salvador, and it is on track to surpass ALL BANKS IN EL SALVADOR.
This is insane! #Bitcoin
September 25, 2021 — Nayib Bukele (@nayibbukele)
Chivo, he claims, isn’t a bank, yet it has acquired more subscribers in three weeks than any other bank in the nation. That adoption, however, may be linked to El Salvador’s $30 BTC airdrop to every adult resident using the government’s wallet app.
Remittances utilizing cryptocurrency, according to Eric Berman, senior legal editor of US finance at Thomson Reuters Practical Law, are a “purist’s pipe dream.” While Höptner noted that remittances accounted for 23% of El Salvador’s GDP in 2020, Berman responded that just a small percentage of the country’s companies accept Bitcoin payments, and that the government’s cryptocurrency app has been hampered by technical problems.
As a result of the cryptocurrency’s volatility, “much of El Salvador’s $6 billion in yearly remittances still flows through money transfers,” according to Berman. Bitcoin hasn’t been extensively embraced as a payment option among businesses, he added, due to the volatility’s impracticality.
“For the marginalized and unbanked, this impracticability is amplified tenfold. No one wants to send $100 to Mom only to have it be worth $80 by the time it arrives.”
“Rather than the populist revolt that BTC purists have been preaching for years,” Bitcoin’s acceptance has been increasing, according to Berman, thanks to “some maybe long overdue pleasant sounds from US and worldwide authorities.”
Indeed, Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), has said that crypto would not be banned. This week, the SEC authorized ProShares’ Bitcoin Strategy ETF, the first Bitcoin futures-linked exchange-traded fund (ETF) in the United States.
Berman said that Bitcoin’s rising popularity and price are the consequence of “institutional excitement that is quite the polar opposite of the grassroots movement for the downtrodden and unbanked that launched BTC over a decade ago.”
El Salvador’s acceptance of Bitcoin, according to Oleksandr Lutskevych, the founder and CEO of cryptocurrency exchange CEX.IO, emphasizes Bitcoin as “replacing the conventional, centralized railroads used for transfers.”
According to Lutskevych, Bitcoin’s infrastructure is being used to encourage the transmission of stablecoins on top of its network, guaranteeing that remittances are unaffected by the cryptocurrency’s volatility. According to him, El Salvador’s action encourages financial inclusion by lowering remittance expenses.
Adoption as a result of “absolute need”
Crypto proponents argue that adoption in developing countries is a consequence of “pure necessity,” since transaction costs on most blockchain networks exceed those paid to certain remittance providers.
According to Lutskevych, the purpose of the action was to “push BTC acceptance ahead via remittances,” which is “abundantly apparent in the reasoning behind Bukele’s campaign that declared BTC legal currency.” Lutskevych continued, saying:
“By utilizing BTC and its transfer infrastructure to promote financial inclusion, one of the main reasons why the government enacted such law was to reduce remittance costs, increase financial inclusion, and enhance GDP.”
According to him, “pure necessity” is often the driving force behind the adoption of new technology, and this may be the case with Bitcoin and cryptocurrencies in developing countries whose populations are heavily impacted by remittance costs, which, according to Markus Franke, a partner at cross-border crypto payments firm Celo Labs, average 6.38 percent and frequently exceed 10% of the amount being sent.
Lutskevych said, “Out of the top 20 nations by cryptocurrency adoption, two-thirds are “developing countries with a large proportion of GDP originating from remittances,” according to the Chainalysis Global Crypto Adoption Index for 2021.”
He went on to say that “BTC’s scalable transfer infrastructure, coupled with Bitcoin’s sound money characteristics and decentralization,” is finally realizing the importance of “BTC’s scalable transfer infrastructure, combined with Bitcoin’s sound money properties and decentralization.”
Lutskevych also noted that Bitcoin’s Lightning Network capacity has increased by more than 25% since El Salvador’s Bitcoin Law took effect, while the number of payment channels routing payments on the network has also increased significantly and has begun a “parabolic trend right around the time the law took effect,” according to Lutskevych.
Growing peer-to-peer (P2P) trade volumes in places like Nigeria, according to him, indicate that cryptocurrencies like Bitcoin are “bringing foreign money into the nation.”
Franke contributed to the discussion by stating that cryptocurrencies can be coded, enabling for more sophisticated financial transactions to be carried out without the involvement of third parties. These characteristics, according to Franke, have sparked interest in cryptocurrency among remittance behemoths.
He cited MoneyGram’s launch of USDC settlement on the Stellar blockchain as an example, and said that services like Ripple, Mobile Money, and bKash helped “deliver faster settlement, greater operational efficiencies, and more competitive foreign exchange rates during the COVID-19 pandemic,” according to the Asian Development Bank.
According to Amr Shady, CEO of business-to-business payment and finance platform Tribal Credit, Mexico may be the next nation to embrace cryptocurrencies for remittances, since estimations indicate that they could cut expenses by 50% to 90%.
It’s all about the statistics.
If five nations do actually accept Bitcoin or any other cryptocurrency as legal money, adoption is expected to continue to rise. Remittances are important in emerging countries, and stablecoins seem to be a feasible alternative to the volatility of crypto assets like Bitcoin.
Stablecoins are already being used by projects like Facebook’s Novi to enable cross-border transactions, with the project’s marketing efforts focusing heavily on remittances. Central bank digital currencies (CBDCs) may provide comparable low-cost transactions, making it easier for consumers to transfer money across borders.
What are the current statuses of Asian CBDC projects?
The issue with these two methods is that they are backed by central organizations that may easily discriminate against users, such as geoblockers. Decentralized blockchains are scaling up to support thousands of transactions per second, lowering remittance costs. When stablecoins are added, the only thing standing in the way of widespread crypto acceptance may be the specialized expertise required to traverse various blockchains and comprehend how addresses operate.
Addresses and blockchain navigation have long been pushed to the back of the user experience, allowing consumers to concentrate on payments. Remittances will eventually shift to crypto once blockchain technology is used behind the scenes at a cheap cost. Those deals, though, may take years.
The bitcoin money transfer service is a cryptocurrency that allows for easy and quick remittances. However, the volatility of bitcoin may be a deal breaker.
- best crypto for cross border payments
- latin america cryptocurrency
- best cryptocurrency for money transfer
- western union crypto
- i-remit crypto