Millions of households around the world depend on the money that migrant workers send back to their home countries as a primary source of income. With the introduction of cryptocurrencies, these transactions—which were previously made possible by postal networks, banks, and money transfer services—are undergoing a revolutionary change. In-depth discussion of how cryptocurrencies are reshaping the remittance industry and ushering in a new era of financial transactions will be provided in this article.
Traditional Remittance and Its Challenges
Traditionally, remittances are facilitated by money transfer operators (MTOs) like Western Union or through banking channels. This system, however, is riddled with challenges:
- High fees – MTOs and banks often charge substantial fees for their services, which could range anywhere between 5-20% of the transferred amount.
- Slow transfers – It can take several days for the transferred money to reach its destination.
- Limited access – Not everyone has access to banking services or MTOs. This is especially true in developing countries, where a large segment of the population remains unbanked.
The Cryptocurrency Substitutions
Cryptocurrencies, digital or virtual currencies that use cryptography for security, offer a revolutionary solution to these problems. Here’s how:
- Reduced costs – Cryptocurrencies can significantly lower the cost of remittances. By using blockchain technology and eliminating intermediaries, transaction fees can be dramatically reduced.
- Speed – Cryptocurrency transactions occur in real-time, regardless of the sender or recipient’s location. This means that remittances can be completed in minutes, not days.
- Access – Cryptocurrencies offer a financial platform accessible to anyone with a smartphone and internet connection. This opens the door for financial inclusivity, especially for those unbanked or underbanked.
- Security – The use of blockchain technology ensures the security and transparency of transactions.
Real-world Implications
Around the world, the potential of cryptocurrency transfers has begun to take shape. Using cryptocurrency for remittances is becoming more common in nations including the Philippines, Mexico, and several in Africa.
For instance, to speed up remittances from the United States to Mexico using the cryptocurrency XRP, the business Bitso has teamed up with Ripple and a regional payment gateway provider called MoneyGram.
Meanwhile, platforms like BitPesa are enabling an increase in bitcoin remittances in Africa, where a sizable section of the population lacks access to traditional banking.
