Crypto remittances offer a cheaper alternative, but still face challenges in adoption.

As the cryptocurrency market moves sideways and the stable coin migration intensifies, the sector is a critical lifeline for many to send money to loved ones while delaying huge amounts of potentially life-changing payments.

Cryptocurrency remittances have been growing in adoption, and the low volatility seen in the space over the past few months may just be the silver lining in encouraging more people to move from spectators to active users.

Compared to traditional methods, crypto remittances have many advantages, including faster processing time, lower transaction costs and greater transparency. Ripple's head of payment products, Brendan Berry, told Cointelegraph that the fundamental principles for payment success for both fiat and crypto are “speed, low cost, security and reliability.”

Berry noted that from a macro perspective, existing domestic payment systems work “relatively well” but face challenges when it comes to cross-border payments. Berry added:

“There is no third party or global central bank, so the world has created this complex correspondent banking system, which is expensive, error-prone, slow and holds trillions of dollars in capital.”

He said that remittances for millions of people around the world could be greatly improved by new technologies such as crypto and blockchain. According to World Bank data, remittances will increase by 5 percent to reach 682 billion dollars in 2022.

Berry added that the high cost of remittances – from 5% to 7% worldwide – and their slow pace burdens millions of families. The global economy may “always seem like an online global marketplace, but traditional finance still operates on a Monday to Friday schedule, 9 to 5,” he said.

Cutting high costs

The World Bank estimates that the average cost of sending $200 is 6.5%—a significant amount for households living on $200 or less per month.

Speaking to Cointelegraph, a Coinbase spokesperson said that whether consumers use banks, money transfer operators, or post offices, the impact on payments is huge, with 10.8% for banks to 5.5% for post offices.

The spokesperson added that the average U.S. fee is 6.18%, meaning Americans spend an average of “nearly $12 billion in remittance fees” each year. He added:

“Cryptocurrencies like Bitcoin or Ether could reduce the cost of sending money globally by 96.7% compared to 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.

But while the security concerns associated with holding cryptocurrencies continue to deter many from entering the space, it's worth noting that managing cryptocurrency wallet private keys can be challenging, especially for the less tech-savvy. On top of that, the consumer protections offered by the traditional financial system may make some feel uncomfortable, despite the high fees.

Coinbase adds that the cost of time is also critical, with the average transaction taking between one and 10 days, while cryptocurrency transactions take just 10 minutes on average.

Adding to this, a spokesperson for Circle – the organization behind the USD Coin (USDC) stablecoin – told Cointelegraph that a key feature of the blockchain-powered exchange is “accessibility and inclusion, across borders and requiring only a phone and internet connection to transfer funds.” Low Cost”

What's more, Leslie Chavkin, head of policy at the Stellar Development Foundation, told Cointelegraph that preliminary data for blockchain-based remittances show that “a small pilot payment corridor focused from the US to Colombia” is about half of what it costs for traditional remittances.

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As more transactions take place on the network, Chavkin said, shipping fees could further decrease and increase their profits. Wirex founder and CEO Pavel Matveev told Cointelegraph that these don't have to go through multiple intermediaries.

Despite their advantages, cryptocurrency remittances are not as widespread as one might think. First, ease of use is not at the heart of mass adoption, and the volatility of the cryptocurrency market keeps many on the sidelines.

Overcoming basic weaknesses

Ripple's Berry's accessibility and user-friendliness are “crucial elements to the mainstream crypto-remittance,” he said.

User experience has been a problem for the industry, but it's the easiest way to solve it, he said. He added that legacy payment solutions may appear user-friendly using a modern interface that “slightly improves the customer experience, creating the illusion of progress,” but in reality, “little progress has been made on the underlying infrastructure.” It unlocks real growth and supports our global financial system by extending the user experience.

However, Brendan admits that while cryptocurrencies can be used to send money quickly and cheaply, “a successful remittance solution must help the customer spend their money in the currency of their choice.” He added:

“The ability for consumers to move value from fiat to crypto or vice versa has historically been a challenge at both the individual and corporate level. With more than 600 crypto exchanges worldwide, individual consumers have more options than ever, enterprise-level off-ramp solutions are few and far between.”

Of course, one must consider the costs associated with the existing cryptocurrency infrastructure and how it interacts with the traditional financial system. While accepting cryptocurrency transactions is fast and cheap, paying in crypto is not easy.

Gero Piskov, manager of cards and payments at digital wealth platform Yield app, commented on Cointelegraph's situation, saying, “In regions where crypto remittances grow, accessibility and UX [user experience] They have become obstacles that have hindered widespread adoption.

Often, the solution involves converting cryptocurrencies to fiat currency, which can result in additional transactions, trading fees, and withdrawal fees. Converting to fiat currency, however, can be more of a challenge than it's worth, especially in regions where crypto-to-fiat liquidity doesn't make enough sense to avoid adding complexity to the process.

Speaking to Cointelegraph, a Binance spokesperson said that the World Bank's Global Finix 2021 shows that 42% of adults in Latin America and the Caribbean still do not have access to a bank account, and the segment represents 24% of the total adult population.

Cryptocurrency solutions, the spokesperson said, “have the potential to fill this gap and reduce the time and cost of financial transactions for people involved in the traditional system.”

In countries where it is possible to pay in crypto through one solution or another, users may be exposed to the unwitting spread and volatility of the crypto market. This flexibility completely negates the benefits of paying a small fee for the transaction itself.

The spokesperson of Binance added that the main goal of blockchain and cryptocurrencies is to make the whole process easier for users; Therefore, industry players are devoting significant efforts and resources to create and improve the platform keeping the user experience in mind.

However, he pointed out that given the simplicity of blockchain technology, there are still people who lack the technical knowledge to effectively process crypto transactions. The spokesman said:

“One solution that has come up is liquidity services on separate blockchains. These global crypto liquidity providers facilitate the transfer of funds from one country to another, with cryptocurrencies acting as a bridge.

With these blockchain-based liquidity services, a Binance spokesperson explained, the sender transfers the money in their local currency, while the receiver receives it in the local currency. Such a service would make the process frictionless and instant for users of all backgrounds, he said.

Simplifying money and cutting down on expenses is especially important when people lose 5% to 10% of their money on payments. This means that the exchange has really become a tool for digital assets, according to a representative of Circle who spoke to Cointelegraph, and crypto is expanding the reach of financial services around the world.

Crypto as a tool to reduce poverty

According to World Bank data, a Binance spokesperson appears to have confirmed the statement from Circle.

According to experts Cointelegraph spoke to, cryptocurrencies are improving the lives of people who rely on remittances, thanks to the many benefits they offer. One example is Felix who pointed us to Chavkin of the Stellar Development Foundation.

Félix is ​​a WhatsApp-based payment platform in Latin America that allows users to send money with an AI chatbot on the popular messaging platform Meta. According to platform founder and CEO Manuel Godoy, Felix uses USDC on the Stellar network to boil down the transaction to “seconds”.

Chavkin noted that the figure showing remittances growing by about 5% by 2022 “represents registered transactions only.” The actual number could be much higher. She concluded her speech.

“Providing faster, cheaper and more accessible solutions is a tool to help reduce poverty and improve outcomes. Focusing on crypto remittance as a solution to serve these populations is critical.”

Wirex CEO Matveev told Cointelegraph that as technology evolves and regulatory developments require cooperation with traditional financial institutions, cryptocurrency remittances will become “even more widely accepted and efficient.”

The costs associated with re-entering the fiat currency system can offset the benefits of cryptocurrency exchanges. According to Ripple's Berry, the conversion costs may not be on the sender because different companies that support crypto-enabled payments have safeguards against exposing users to volatility. Blockchain-based transactions, however, do not.

Berry said that forex transactions are subject to volatility, and smaller fiat currencies are more volatile. While the cryptocurrency space is known for its volatility, it may keep some remitters in the traditional financial system, judging that the fees are lower than the volatility and challenges associated with using cryptocurrency for payment.

On top of that, the uncertain regulatory environment surrounding cryptocurrencies in various jurisdictions further complicates their adoption as a remittance solution.

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Cryptocurrency remittances are effectively changing the way individuals around the world exchange value, offering unprecedented benefits over traditional systems, and the crypto realm currently stands as a beacon of growth for high-paying losers. A decades old system.

While challenges remain, particularly in terms of user experience and adoption, a future where cryptocurrency remittances can do more to alleviate poverty awaits, adding a new use case to the asset class for millions to preserve value.

Cryptocurrency education and awareness, however, still goes a long way to helping crypto remittances become a viable long-term solution, as specialized knowledge is still necessary to use these assets safely.