As the cryptocurrency market moves sideways and amid a deepening stablecoin exodus, the sector remains a vital lifeline for many sending money to love
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.
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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…
cointelegraph.com
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