12 min read
August 06, 2021
Your go-to source for the pros and cons of using cryptocurrency to send money abroad.
For most Americans, cryptocurrency is a way to invest and diversify their portfolio. From well-known CEOs like Elon Musk tweeting about his own crypto investments to the incredibly high returns on such a volatile currency, cryptocurrency is often used to grow wealth...right?
Wrong. In fact, as of 2021, Nigerians reported using cryptocurrency the most, followed by residents in Vietnam, the Philippines, Turkey, and Peru. So, why are citizens of countries in the developing world using cryptocurrency so wildly — even more so than Americans, Europeans, or the Chinese? Well, one word: remittances.
Ever since it was conceived, cryptocurrency has long been hailed as a solution for the “underbanked” population of the world. With currency exchange rates being incredibly high in most parts of the world, and inflation driving up the costs of basic necessities in many countries in South America, cryptocurrencies have emerged as a digital solution.
This is driven in large part by high bank fees, averaging 6.5% for a cross-border payment at the end of 2020. For many emerging economies whose citizens and economy both depend on remittance payments from immigrants abroad, these fees become extremely costly.
What’s more, transferring money through intermediaries like banks takes time. An average international payment takes 2-3 days to clear. This takes a toll when, according to the World Bank, up to 40% of the GDP of some nations is dependent on remittance inflows. Even worse, these transactions are subject to security breaches. In 2017, the Central Bank of Bangladesh lost $81 million after hackers routed cash to accounts in Sri Lanka and the Philippines, instead.
Needless to say, a safe, efficient, and low-cost method to transfer money across borders is clearly extremely attractive. Cryptocurrency transactions are much faster than official currency transfer channels like SWIFT, and their minimal transaction costs beat systems like Western Union and MoneyGram, which have dominated the remittance market for years, allowing them to jack up transaction fees.
What’s more, for unofficial migrant workers who are unable to open bank accounts, or cannot send payments due to political complications like American sanctions, cryptocurrency is the only available solution. It circumvents the inflation risk inherent in transferring fiat currencies and has become so popular that central banks, like that of Nigeria, are actually paying Nigerians to choose official channels for their remittance payments instead.
Finally, sending remittances using cryptocurrencies is extremely secure. All transactions will stay on a public ledger while ensuring maximum security to the people, or entities, involved. There is minimal risk for data manipulation as well, because data isn’t stored in a central server but across a huge network of computers, or nodes, which are constantly checking and verifying if the records are accurate. This makes hacking a lot harder, as a hacker will have to breach a huge number of servers to gather information, making this method of sending remittances the most secure, private, and verifiable system currently available (unlike SWIFT, IBAN, and others).
Now that you want to send money through cryptocurrency instead of traditional methods, how exactly do you go about achieving this? Well, there are several startups and service providers that can help to facilitate cryptocurrency remittances, without even requiring users to understand much about the blockchain technology being used.
SureRemit, for example, is a non-cash remittance service provider that allows customers to make cross-border remittance payments with fees that range from 0-2%. Another service, Rebit, facilitates money payments to the Philippines, mainly from Canada, Japan, and South Korea, and is planning to expand to the Middle East, while Coins.ph is another company operating in the Asia-Pacific region using a similar model.
The World Bank rated InstaReM, a digital cross border payment company that was founded in 2014, as one of the most cost-effective money transfer providers from Australia and Singapore. Fees here vary between 0.25-1.00%, significantly lower than what any bank would charge.
Everex, a Singapore-based financial technology company, enables transfers through stablecoins, a type of cryptocurrency that can be transferred at virtually zero cost and up to twenty five times faster than traditional international money transfers, too.
Then you have larger companies entering the market, too, like IBM. Their pilot international payments system, called IBM World Wire, allows members to transfer funds and exchange currencies in the Stellar cryptocurrency. IBM’s network supports payments across 70 countries, in 50 countries and with 45 banking endpoints. While it serves mainly corporate clients, it does decrease the cost of cross-border remittances for end users.
Ripple Labs is also another notable company in this space, with their XRP currency and RippleNet payments network. There are a number of high-profile members of the Ripple network, including Bank of America and Santander. These cross-border payments are offered to their corporate clients, but Ripple recently launched Payburner, an integrated payments system and digital wallet that allows users around the globe to make payments in XRP in a matter of seconds. This can actually be installed as a browser extension in Google Chrome, making it a readily available feature within the digital space.
Needless to say, these are just a few examples. The market for crypto remittances is booming, so there are a number of startups to choose from, all with fee rates much lower than traditional banks, and larger-name companies are also joining the industry.
The best cryptocurrencies to send abroad are those with high liquidity (so they can be easily converted back to fiat currency and used) and those with low gas fees (payments made by users to compensate for the computing energy required to process and validate crypto transactions). Note, though, that when compared to the high cost of sending remittances in the first place, almost all cryptocurrencies will have lower gas fees than the fees charged by Western Union, MoneyGram, and other banks.
One of the best cryptocurrencies, then, to use to send remittances abroad are stablecoins. These are pegged to fiat currencies so inflation isn’t an issue, and fiat-backed stablecoins are also supported by high liquidity. So, stablecoins such as BUSD, USDT, or USDC are all good options.
Bitcoin is also seen as an attractive medium for international remittances. If you want to send money to China, Iran, or Venezuela in particular, Bitcoin is your best bet. This is because Bitcoin is censorship-resistant, so you can circumvent international sanctions.
However, Bitcoin’s fees are calculated on a per-byte basis, rather than a percentage, so small transactions can be quite pricey. In February 2021, Coindesk reported that the average Bitcoin transaction cost $23, though you could pay much lower by waiting for lower congestion. If you don’t have the luxury of being patient, though, your payment could be even more expensive than traditional remittances.
Litecoin is much cheaper than Bitcoin, though, so if you’re sensitive to transaction fees and are sending money more frequently but at smaller amounts, this might be the best fit for you. The transaction fees with Litecoin amount to maybe $0.02-$0.03, and the payment is made in just a few minutes.
Litecoin is much less liquid, though — especially in certain countries — and it’s harder to find on crypto remittance exchanges as well. The same is true of Stellar, which, while even faster than Litecoin, is not as liquid. In the future, however, with more anchors, Stellar could become one the easiest ways to send money internationally.
Another popular choice is XRP. Unlike Litecoin or Stellar, XRP is up there with stablecoins and Bitcoin for being cheap, fast, and secure, as well as incredibly liquid. XRP is primarily exchanged through Ripple, however, which means it’s highly centralized. While no one can stop you from sending Bitcoin, the same is not true of XRP, which, depending on the country you are trying to send money to, could pose an issue for you.
The pros of sending money abroad with crypto are seemingly endless: it’s cheaper, faster, more secure, can reach unbanked areas of the world, avoid political uncertainty by circumventing sanctions, and it even stays away from issues that affect fiat currencies, like inflation.
On the other hand, though, cryptocurrency can be volatile. The best cryptocurrency to send remittances through remains Bitcoin, which is still highly unstable. While stablecoins are a popular alternative, they aren;t nearly as easy to send, receive, or trade as Bitcoin. Moreover, in order to receive crypto remittances, you do need to have access to the internet, which is still an impediment in many parts of the world.
The other main challenge in this space is the lack of regulation, or even ambiguous regulation, as evidenced by Ripple. The United States Securities and Exchange Commission (SEC) filed a lawsuit against Ripple in response to their use of XRP to fundraise. The SEC alleges that Ripple fundraised for the platform to increase the wealth of their company’s leadership. Ripple, however, maintains that XRP is a currency and not a security, which means it doesn’t fall under the SEC’s regulatory purview. Issues like this could rearrange the regulatory standards of the crypto remittance industry, making it a highly volatile space.
Needless to say, if remittance fees are burning a hole in your wallet, crypto remittances are an attractive alternative. Whether or not they remain the best method to transfer money to loved ones abroad is up to you and your family, but it’s certainly an evolving industry that is likely to be even more dominant in the future.
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