Can Bitcoin be used for International money transfers?
Bitcoin, the most recognized and widely used cryptocurrency, is making waves in the sphere of international remittances and contributing to the growth of Bitcoin knowledge globally.
As expatriate workers all over the world continue to send money back to their families in their home countries, the need for an efficient, secure, and low-cost system for transferring funds is evident.
The World Bank estimated that in 2018, the global remittance volume to developing nations peaked at an unprecedented $529 billion.
However, the traditional methods of transferring funds internationally are laden with exorbitant fees, often reaching up to 20% of the total amount sent. Additionally, these methods can be painfully slow, with transfers taking several days to process, and may not be accessible to everyone, especially to those living in remote areas with limited banking infrastructure.
This is where Bitcoin steps in, promising a sea change in the world of remittances.
Unearthing Bitcoin’s Potential for Global Money Transfers
Lower Fees and Faster Processing: One of the standout advantages of Bitcoin and cryptocurrencies is the potential for much lower fees. Cryptocurrency transactions bypass traditional intermediaries, which means the associated transaction fees can be significantly reduced. Additionally, the processing times for cryptocurrency transactions are often much faster than traditional methods. This ability to send money almost instantaneously is particularly valuable in emergencies where funds are needed immediately.
Increased Accessibility: Another substantial benefit of Bitcoin and cryptocurrencies is their potential to increase accessibility. In developing countries, the lack of access to banking services can make it challenging for individuals to receive or send remittances. Cryptocurrencies can provide a viable alternative, enabling individuals to conduct financial transactions independent of traditional banking systems.
Enhanced Security and Privacy: Bitcoin transactions provide enhanced security and privacy. Each transaction is confirmed and recorded on the blockchain, a transparent and decentralized digital ledger, which means that transactions cannot be tampered with. Furthermore, no personal information is necessary to perform transactions, providing an added layer of privacy.
Turning Theory into Practice: Bitcoin for Remittances
Already, there are shining examples of Bitcoin being successfully employed for remittances.
BitPesa, for instance, is a digital currency exchange and payment platform enabling users in Africa to send and receive payments in multiple currencies, including Bitcoin.
Similarly, Abra, a global investment app, permits users to buy, sell, and hold various cryptocurrencies, including Bitcoin, and even allows direct money transfer to the Philippines through the app.
But, as with any innovation, there are challenges to using Bitcoin for money transfers, including the volatility of cryptocurrency prices and the risk of fraud or hacking attacks. However, the security inherent in blockchain technology helps to mitigate these risks.
The Challenges Ahead for Bitcoin for Remittances
However, like all novel technologies, using Bitcoin for remittances comes with its own set of challenges.
Cryptocurrency prices are known for their volatility, and there’s a risk that the transferred amount’s value might decrease before it’s received.
Additionally, the potential for fraud or hacking attacks persists, although the use of blockchain technology significantly mitigates these risks.
Pioneering Bitcoin for Remittances: El Salvador’s Chivo Wallet
Looking at the example of El Salvador, which has adopted bitcoin as legal tender, we can consider a number of advantages over traditional money transfer methods.
One of these benefits is the offer of $30 worth of free bitcoin for every Salvadoran in the country who signs up for the Chivo wallet. This is no small amount in a country where the minimum monthly salary is $365.
Remittances from abroad account for almost a quarter of El Salvador’s GDP, and around 70% of the population receives them regularly. The average monthly remittance is US$195, and for households that receive remittances, they account for 50% of their total income. Thus, remittances from abroad back home in El Salvador are crucial to the survival of the majority of the country’s population.
According to official figures, around 60% of these remittances come through money transfer companies and 38% through banking institutions. Fees vary from company to company, but in general, the smaller the withdrawal, the greater the percentage that goes to fees.
For example, if a person wanted to send US$10 to family in El Salvador, he would pay more than US$3, or more than 30% of the commission to Western Union.
However, if he uses a Chivo wallet for the transaction, which is for Salvadoran citizens living in the country or abroad, the transaction will be free. Once his family receives the funds, he can go to one of the 200 new Chivo ATMs that the government has introduced and withdraw US dollars from his virtual wallet.
The State of Bitcoin Regulation for Remittances
Regulation of Bitcoin and cryptocurrencies is still in its early stages and varies significantly from country to country. For example, countries like Japan and Switzerland have issued guidelines for Bitcoin regulation but have not yet officially recognized it as legal tender. Other countries, such as China and Vietnam, have banned or severely restricted the use of Bitcoin and other cryptocurrencies.
Despite the challenges, the potential benefits of using Bitcoin for remittances are enormous. In addition to lower fees and faster processing times, the increased accessibility and enhanced security and privacy that Bitcoin provides could dramatically reshape the traditional remittance industry.
As Bitcoin and other cryptocurrencies become more accepted for remittances, it’s likely we’ll see a dramatic shift in the traditional remittance industry. This shift could lead to lower fees and increased competition in the market, ultimately benefiting individuals and families who depend on remittances.
Furthermore, the widespread use of Bitcoin and cryptocurrencies could significantly impact developing countries, where access to traditional financial services is often limited, and remittance methods are inefficient and expensive.
While the future of Bitcoin and cryptocurrencies for remittances is still uncertain, it’s clear that they have the potential to substantially improve the speed, accessibility, and security of financial transactions worldwide. As we continue to explore the possibilities that Bitcoin and other cryptocurrencies offer, we could be on the verge of a revolution in the remittance industry.