Do Crypto-Based Remittances Really Work?

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There has been a lot of talk in the fintech scene lately around the capabilities of crypto, and in particular when it comes to remittances. Do they work? Is it worth your time? What are the benefits? Are they even trustworthy?

These are all very important and very intriguing questions in the modern age of financial services, and through this report originally obtained from MoneyTransfers.com we will attempt to answer them.

El Salvador does not often make international news.

Yet the tiny Central American nation demanded the world’s attention in June 2021, when its government announced an ambitious plan to make Bitcoin legal tender, which means cryptocurrency will need to be accepted as a means of payment for goods and services (unless a company is unable to obtain the technology needed for the transaction.) Bitcoin now appears to be on the way to becoming the country’s national currency.

El Salvador is taking the step for a variety of reasons, including President Nayib Bukele’s ambition to turn the country into a crypto investment center.

But a primary consideration in popularizing digital currencies was the amount of money El Salvador receives in remittances each year: around $ 5.9 billion in 2020, or nearly a quarter of its GDP.

Bukele argues that Bitcoin will offer a new, more attractive route to send that money to El Salvador, which adopted the dollar after its currency collapsed in 2001, and will open financial services to the 70% of Salvadorans without a bank account.

Money transfers cost 7% on average

While fees can be reduced by going through a money transfer company, sending money overseas can be a complicated, slow, and expensive process. The UN reported in 2019 that currency conversions and fees consume 7% of the amount sent through remittances each year.

And delivery lanes are not created the same. In El Salvador, the average cost is 3%. The world’s largest remittance flow is between the United States and Mexico, where the average cost is 4.22% of the transaction. And senders paid an average of 8.9% to send money to sub-Saharan Africa in the last quarter of 2019.

Do cryptocurrencies, which can be sent over the blockchain rather than a third party, offer a way to reduce these costs?

How to send money abroad in cryptocurrency

Sending crypto payments, in simple terms, looks like this:

The process of sending cryptocurrencies internationally

If you’re not already familiar with buying and selling crypto, these steps may raise a few questions, so let’s talk.

You can do this in a number of ways, for example through a centralized cryptocurrency exchange, these are private companies that allow you to exchange coins and require registration and identification.

There are many options with various pros and cons, so this will require some research if you are not already trading.

For example, Coinbase allows you to buy and sell a variety of currencies and offers high security and transparent pricing, but has higher transaction fees than other services, unless you pay for the premium version, according to Investopedia. .

Meanwhile, Cash App is an option with a user-friendly interface that makes it easy to buy and sell Bitcoin but not other cryptocurrencies.

Some sites, like Wirex and Paxful, are aimed specifically at people who want to transfer money into crypto.

Pay close attention to transaction fees and withdrawal fees when choosing an option.

Step 2: Send the parts

For this method to work, the recipient will also need their own cryptocurrency / digital wallet exchange.

Your ability to transfer the crypto will not be hampered if the recipient uses a different exchange than you, as you will only need their digital wallet address. You can scan the QR code associated with the address, or paste its public address. But be careful in this regard, it is crucial not to go wrong here, as crypto exchanges are irreversible.

The specifics may vary depending on your exchange method, but then you must follow its instructions for shipment.

The speed of the transaction can take from a few minutes to a few days – it can depend on the amount of transaction fees you pay.

Step 3: the recipient sells the parts

The value of various cryptocurrencies in fiat currency is notoriously volatile.

If the recipient waits too long to exchange their coins, they may lose significantly if the price drops. Conversely, if the price goes up, they might end up with more than you intended to send.

You should also consider the exchange rates at the time of transfer, as the money will be exchanged twice for the cryptocurrency when you buy it, and will come out when it sells it.

The recipient could, of course, also hold the cryptocurrency and spend it directly (in the limited places where it is possible to do so) or hold it as an investment.

Is sending funds through cryptocurrencies safe?

There are risks every step of the way, although they don’t necessarily have to scare you.

As step 3 shows, the greatest risk is the element of uncertainty as to the value of the coins when the recipient sells them. Then there is the risk that you will make a mistake during the transaction, as the transactions cannot be reversed and you are unlikely to find a remedy to recover it.

However, if you are using a major crypto exchange, the transaction and your money will be secure.

The pros and cons of crypto-based remittances

What are the advantages of using cryptocurrency to make international money transfers?

With so many advantages and disadvantages associated with the already complex process of crypto-based remittances, it wouldn’t be irrational to ask the question “what’s the point?” “

To better understand this, the team at the aforementioned Paxful cryptocurrency exchange explains.

Artur Schaback, COO and co-founder, Paxful

Artur Schaback, COO and co-founder of Paxful, said the main benefits are usually cost, with crypto exchanges avoiding high transaction fees and unfavorable exchange rates from some traditional vendors; speed, as transactions can be completed at any time and on any day, and can take as little as a few minutes; and access provided to people who do not have a bank account or who live in areas where payments are censored by governments or businesses.

Sending a payment cross-border is not always easy, especially for people living in countries where access to financial services is limited or where the government places restrictions on sending and receiving money. by its citizens, Schaback explains.

Sending via crypto to markets such as Ethiopia, Schaback adds, can greatly reduce fees for traditional services, as the seller can usually make money by exchanging Bitcoin.

Schaback believes that savings are only scratching the surface right now when it comes to the use of crypto. In high-income economies, crypto is primarily viewed as an investment asset.

Yet with financial education and more widespread adoption, he believes crypto exchanges will provide a way to fill the gaps in the current financial system.

In the case of El Salvador, recipients of Bitcoin remittances should soon be able to hold these coins and spend them directly, without needing to exchange them for fiat currency.

A verdict from MoneyTransfers.com

As this report was originally obtained from MoneyTransfers.com, their opinion on the state of crypto-based remittances is highly appreciated.

Jonathan Merry, Founder and CEO, MoneyTransfers.com

Cryptocurrency exchanges are definitely an exciting new way to transfer money abroad and can be useful for sending money to countries where it is difficult to transfer money due to sanctions or of their financial system, like Iran, explains Jonathan Merry, founder and CEO of MoneyTransfers. com.

If the recipient has a specific reason for wanting the money owed to them in cryptocurrency, this is clearly a good option as well. Maybe they want to invest in a currency anyway, or think they can make a profit on the exchange.

If both parties to the exchange wish to experiment with transferring money via cryptography and can afford to suffer a loss on the transaction, there are secure ways to do so.

But for the majority of transactions between easily accessible marketplaces, customers may wish to stick with traditional money transfer providers at least until cryptocurrencies are more widely accepted as a form of payment.

The quality and costs of popular digital banks vary depending on many factors such as location, laws and of course what’s going on in the outside world, with crypto not having a small role in banking evolution. during the last years.

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