As the cryptocurrency market moves sideways and amid a deepening stablecoin exodus, the sector remains a vital lifeline for many sending money to loved ones while dodging extremely high fees that can be life-changing over time.
Cryptocurrency remittances have been seeing their adoption grow, and the low volatility seen in the space over the last few months might just be the silver lining that encourages more people to transition from mere spectators to active users, harnessing the true potential of this financial avenue.
Compared to traditional methods, crypto remittances sport numerous advantages, which include faster processing time, lower transaction costs and more transparency. Speaking to Cointelegraph, Brendan Berry, Ripple’s head of payments products, noted that for both fiat and crypto, the basic tenets of payment success are “speed, low-cost settlement, security and reliability.”
Berry noted that from a macro perspective, existing domestic payment rails work “relatively well” but face difficulties when cross-border payments are made. Berry added:
“There is no third party or global central bank, so the world has created this complex system of correspondent banking that is costly, error-prone, slow and leaves trillions of dollars in locked-up capital.”
He said that remittances have become a lifeline for millions worldwide and can be greatly improved through new technologies like crypto and blockchain. According to World Bank data, remittances grew 5% in 2022 to reach $682 billion.
Berry added that the high cost of remittances — ranging from 5% to 7% worldwide — and their slow speeds burden millions of families. He stated that the global economy “may seem like an always-online global marketplace, but traditional finance still operates on a 9 to 5, Monday to Friday, schedule.”
Cutting through high costs
The World Bank estimates the global average cost of sending $200 is 6.5% — a massive amount of money for families living on $200 or less a month.
Speaking to Cointelegraph, a Coinbase spokesperson said that whether consumers use banks, money transfer operators or post offices, the impact of fees on their remittance payments is enormous, ranging from 10.8% with banks to 5.5% with post offices.
The spokesperson added that the U.S. average fee rate is 6.18%, which means that every year, Americans, on average, spend “close to $12 billion on remittance fees.” They added:
“Cryptocurrencies like Bitcoin or Ether can greatly cut the cost of sending money internationally by about 96.7% vs. the current system. Sending Bitcoin to another wallet costs an average of $1.50 per transaction, and Ether costs an average of $0.75 per transaction.”
It’s worth pointing out, however, that security concerns associated with custodying cryptocurrencies remain a deterrent for many to enter the space, as managing the private keys to a cryptocurrency wallet can be a challenge, especially to those less tech-savvy. On top of that, the consumer protections offered by the traditional financial system may leave some at ease despite the high fees.
Coinbase added that the time cost is also significant, with the average remittance taking between one and 10 days to settle, while cryptocurrency transactions take on average just 10 minutes.
Adding to this, a spokesperson for Circle — the firm behind the USD Coin (USDC) stablecoin — told Cointelegraph that a key feature of blockchain-powered remittances is “accessibility and inclusivity, requiring only a phone and internet connection to transfer funds across borders and at low-cost.”
Moreover, Lesley Chavkin, head of policy at the Stellar Development Foundation, a nonprofit organization supporting the Stellar network, told Cointelegraph that for remittances sent on a blockchain, preliminary data from “a small, limited-scope pilot focused on the United States to Colombia payment corridor” showed fees were half of those paid for traditional remittances.
As transactions on the network scale up, Chavkin said, remittance fees could drop even more, furthering their advantages. Pavel Matveev, the co-founder and CEO of Wirex, told Cointelegraph that these don’t have to navigate through numerous intermediaries.
Despite their advantages, cryptocurrency remittances aren’t as widespread as one may think. For one, ease of use isn’t at the point of mass adoption, while the cryptocurrency market’s volatility keeps many on the sidelines.
Overcoming fundamental inefficiencies
Ripple’s Berry said that accessibility and user-friendliness are “critical components for the mainstream adoption of crypto remittances.”
User experience, he said, has been a problem for the industry but is arguably the easiest one to solve. He added that legacy payment solutions may appear to be more user-friendly with the use of modern interfaces “that marginally improve the customer experience, which creates the illusion of advancement,” while in reality, there has “been little improvement to the foundational infrastructure that underpins our global financial system which would ultimately unlock true progress and by extension the user experience.”
Nevertheless, Brendan conceded that while cryptocurrencies can be faster and cheaper for sending funds, a “successful remittance solution must also help the customer off-ramp funds in the currency of their choice.” He added:
“The ability for users to transfer value from fiat to crypto or vice versa has historically been a challenge at both the individual and enterprise levels. While individual users have more options than ever before through more than 600 crypto exchanges globally, enterprise-grade off-ramp solutions are sparse.”
Indeed, one has to consider the costs associated with existing cryptocurrency infrastructure and how it interacts with the traditional financial system. While receiving a cryptocurrency transaction may be fast and cheap, paying with crypto isn’t as easy.
Commenting on the situation for Cointelegraph, Gero Piskov, card and payments manager at digital wealth platform Yield App, said that in “regions where crypto remittances thrive, accessibility and UX [user experience] have indeed been hurdles, which have hindered broader adoption.”
Often, the solution involves converting cryptocurrencies into fiat currency, which may incur additional transactions, trading fees and potential withdrawal fees. Converting to fiat currency, however, may be a bigger challenge than it should be, especially in regions where crypto-to-fiat liquidity isn’t significant enough to not add more complexity to the process.
Speaking to Cointelegraph, a Binance spokesperson said that the World Bank’s Global Findex 2021 shows 42% of adults in Latin America and the Caribbean still lack access to a bank account, with the segment representing 24% of the total adult population.
Cryptocurrency solutions, the spokesperson said, have the “potential to fill this gap while also reducing the financial transaction’s time and costs for people who already participate in the traditional system.”
In countries where paying with crypto with one solution or another is possible, users may be exposed to heightened spread they may not be aware of, as well as crypto market volatility. This volatility can completely nullify the advantages of paying less for the transaction itself.
Binance’s spokesperson added that the main goal of blockchain and cryptocurrencies is to simplify the entire process for users; hence, industry players are “dedicating significant efforts and resources into innovating and enhancing its platform with the users’ experience in mind.”
However, they noted that given the nascency of blockchain technology, there are still people without the technical know-how to process crypto transactions efficiently. The spokesperson said:
“One solution that has emerged would be liquidity services on particular blockchains. These international crypto liquidity service providers facilitate the transfer of money from one country to another, with cryptocurrencies acting as a bridge.”
In these blockchain-based liquidity services, Binance’s spokesperson clarified, a sender would transfer money in their own local currency, while the recipient would receive it in their local currency. Such a service would make the process friction and almost instantaneous for users across all backgrounds, they said.
Simplifying remittances and greatly reducing their cost is extremely important, especially for people losing between 5% and 10% of the money they need to survive on fees. This means that remittances have actually become a use case for digital assets, as noted by a Circle representative who spoke to Cointelegraph and added that crypto is expanding access to financial services across the globe.
Crypto as a tool to reduce poverty
Binance’s spokesperson seemingly corroborated the words from Circle, saying that remittances are “the primary economic lifeline for millions of families worldwide, and a major driver of economic growth for developing countries, totaling $589 billion in 2021,” according to World Bank data.
Cryptocurrencies are improving the lives of people relying on remittances, according to experts Cointelegraph spoke to, thanks to the numerous advantages being offered. One example the Stellar Development Foundation’s Chavkin pointed to us is Félix.
Félix is a Whatsapp-based payments platform in Latin America that allows users to send money through an AI chatbot on Meta’s popular messaging platform. According to the platform’s co-founder and CEO Manuel Godoy, Félix uses USDC on the Stellar network to boil the process of remittances down to “seconds.”
Chavkin noted that the figure showing remittance payments grew by about 5% in 2022 “represents only recorded transactions; the true number is most likely significantly higher.” She concluded:
“Providing solutions that are faster, cheaper and more accessible is one tool to help reduce poverty and improve outcomes. Focusing on crypto remittances as a solution is critical to serving these populations.”
Wirex CEO Matveev told Cointelegraph that more may be coming in the near future as technology evolves and collaborations with traditional financial institutions are expected to, along with regulatory developments, make cryptocurrency remittances “even more widely accepted and efficient.”
The costs associated with reentering the fiat currency system may nevertheless hinder the advantages of cryptocurrency remittances. Conversion costs, according to Ripple’s Berry, may not necessarily impact remitters as various companies who support crypto-enabled payments have protections to avoid exposing users to volatility. Blockchain-based transactions, on the other hand, don’t.
Berry noted that forex transactions are also susceptible to volatility, with smaller fiat currencies being more volatile. The cryptocurrency space is nevertheless well-known for its volatility, which could keep some remitters on the traditional financial system, deciding that the fees are less problematic than the volatility and the challenges associated with using cryptocurrency for payments.
On top of that, the uncertain regulatory environment surrounding cryptocurrencies in various jurisdictions only further complicates their adoption as remittance solutions.
Cryptocurrency remittances are effectively revolutionizing the way individuals across the globe who can rely on them exchange value, offering unprecedented advantages over traditional systems, with the crypto realm standing as a beacon of development for those currently losing part of their money to the high fees of a decades-old system.
While challenges persist, especially in terms of user experience and widespread adoption, a future in which cryptocurrency remittances do even more to alleviate poverty likely awaits, adding a new use case to an asset class already helping millions preserve value.
Cryptocurrency education and awareness, however, still has a long way to go to help crypto remittances become a viable long-term solution, as specialized knowledge is necessary to safely use these assets regularly.
According to the US Department of Justice, Wolf Capital’s co-founder has pleaded guilty to wire fraud conspiracy for luring 2,800 crypto investors into a Ponzi scheme.
Making Britain better off will be “at the forefront of the chancellor’s mind” during her visit to China, the Treasury has said amid controversy over the trip.
Rachel Reeves flew out on Friday after ignoring calls from opposition parties to cancel the long-planned venture because of market turmoil at home.
The past week has seen a drop in the pound and an increase in government borrowing costs, which has fuelled speculation of more spending cuts or tax rises.
The Tories have accused the chancellor of having “fled to China” rather than explain how she will fix the UK’s flatlining economy, while the Liberal Democrats say she should stay in Britain and announce a “plan B” to address market volatility.
However, Ms Reeves has rejected calls to cancel the visit, writing in The Times on Friday night that choosing not to engage with China is “no choice at all”.
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On Friday, Culture Secretary Lisa Nandy defended the trip, telling Sky News that the climbing cost of government borrowing was a “global trend” that had affected many countries, “most notably the United States”.
“We are still on track to be the fastest growing economy, according to the OECD [Organisation for Economic Co-operation and Development] in Europe,” she told Anna Jones on Sky News Breakfast.
“China is the second-largest economy, and what China does has the biggest impact on people from Stockton to Sunderland, right across the UK, and it’s absolutely essential that we have a relationship with them.”
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10:32
Nandy defends Reeves’ trip to China
However, former prime minister Boris Johnson said Ms Reeves had “been rumbled” and said she should “make her way to HR and collect her P45 – or stay in China”.
While in the country’s capital, Ms Reeves will also visit British bike brand Brompton’s flagship store, which relies heavily on exports to China, before heading to Shanghai for talks with representatives across British and Chinese businesses.
It is the first UK-China Economic and Financial Dialogue (EFD) since 2019, building on the Labour government’s plan for a “pragmatic” policy with the world’s second-largest economy.
Sir Keir Starmer was the first British prime minister to meet with China’s President Xi Jinping in six years at the G20 summit in Brazil last autumn.
Relations between the UK and China have become strained over the last decade as the Conservative government spoke out against human rights abuses and concerns grew over national security risks.
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2:45
How much do we trade with China?
Navigating this has proved tricky given China is the UK’s fourth largest single trading partner, with a trade relationship worth almost £113bn and exports to China supporting over 455,000 jobs in the UK in 2020, according to the government.
During the Tories’ 14 years in office, the approach varied dramatically from the “golden era” under David Cameron to hawkish aggression under Liz Truss, while Rishi Sunak vowed to be “robust” but resisted pressure from his own party to brand China a threat.
The Treasury said a stable relationship with China would support economic growth and that “making working people across Britain secure and better off is at the forefront of the chancellor’s mind”.
Ahead of her visit, Ms Reeves said: “By finding common ground on trade and investment, while being candid about our differences and upholding national security as the first duty of this government, we can build a long-term economic relationship with China that works in the national interest.”