Encrypted remittances are adopted, but volatility may disrupt transactions


The adoption of cryptocurrencies has been increasing due to a variety of reasons. In emerging markets, research shows that encrypted remittances are a factor, although some people think that the idea of ​​using cryptocurrencies for these transactions is nothing more than a purist’s dream.

Alexander Höptner, CEO of cryptocurrency derivatives trading platform BitMEX, predicted earlier this month that by the end of next year, at least five countries will accept Bitcoin (Bitcoin) As legal tender, because crypto assets can send money faster and cheaper.

He believes that these five countries will all be developing countries, and they will adopt cryptocurrencies because of the growing demand for cheaper and faster cross-border transactions, increasing inflation and increasing political problems.

Many other commentators have stated that Bitcoin and other cryptocurrencies are a solution to the high costs associated with remittance payments, because cryptocurrency transactions are much cheaper than remittance payments and the settlement time is shorter.

El Salvador is the first country in the world to adopt Bitcoin as the country’s legal tender Bitcoin law is official Effective September 7The government has launched a cryptocurrency wallet called Chivo, which uses Lightning Network, A second-level scaling solution for trading. Over time, the country also purchased 700 BTC.

In 2018, global remittances exceeded 689 billion U.S. dollars, and the commission is so high. This is a 49 billion U.S. dollar industry growing up Beside them. For cryptocurrency supporters, El Salvador is a perfect example of how cryptocurrencies are actively changing the world, but for others, the volatility and general lack of trust in the market make the adoption of cryptocurrencies impractical and undesirable.

Does cryptocurrency provide banking services for people who do not have a bank account?

With the help of Chivo Wallet, Bitcoin can effectively help provide financial services to El Salvador’s unbanked and underbanked population.The country’s President Nayib Bukele revealed in September 2021 that despite the boycott of the new law and even sparked protests, 2.1 million Salvadorans are still actively using their wallets Burn a Bitcoin ATM machine.

According to him, Chivo is not a bank, but it has gained more users in three weeks than any bank in the country.However, this adoption may be related to the $30 BTC airdrop to El Salvador Sent to every adult citizen Use the government’s wallet app.

In an interview with Cointelegraph, Eric Berman, senior U.S. financial legal editor at Thomson Reuters Practical Law, said that using cryptocurrency to send money is a “purist’s pipe dream”. Although Höptner pointed out that remittances accounted for 23% of El Salvador’s GDP in 2020, Berman countered that only a small number of companies in the country accept Bitcoin payments, and the government’s cryptocurrency applications have been plagued by technical issues.

Berman further added that “Most of El Salvador’s annual remittances of $6 billion are still from remittances” because many people are cautious about the volatility of cryptocurrencies. He said that Bitcoin has not been widely adopted by merchants as a payment method due to the impractical volatility, adding:

“For people who are deprived of their rights and have no bank accounts, this unrealistic situation will be multiplied. No one wants to send $100 to her mother, and it turns out that when she receives it, it is already worth $80.”

Berman added, “Unlike the populist uprising that BTC purists have been preaching for years,” Bitcoin adoption is growing, thanks to “the U.S. and global regulators may have long overdue to make some happy voices.” .”

In fact, Gary Gensler, head of the U.S. Securities and Exchange Commission (SEC) Confirm that the regulator will not ban encryption. In fact, the US Securities and Exchange Commission approved The first Bitcoin futures-linked exchange-traded fund (ETF) In the United States, ProShares’ Bitcoin Strategy ETF, this week.

Berman suggested that the increasing popularity and price of Bitcoin are “the result of institutional enthusiasm, which is the exact opposite of the deprivation of citizenship and unbanked grassroots movement that gave birth to BTC more than a decade ago.”

Oleksandr Lutskevych, the founder and CEO of cryptocurrency exchange CEX.IO, seems to disagree with Berman’s assessment, saying that the adoption of El Salvador highlights that Bitcoin “replaces the traditional, centralized track for remittances.”

For Lutskevych, Bitcoin’s infrastructure is also used to facilitate the transfer of stablecoins on its network, ensuring that cryptocurrency fluctuations will not affect remittances. He said that El Salvador’s initiative promotes financial inclusion by helping to reduce the cost of remittances.

Adopted out of “pure need”

In emerging markets, crypto proponents believe that adoption may be a “purely necessary” result, as the transaction fees paid on most blockchain networks dwarf the fees paid to some remittance providers.

According to Lutskevych, “The reason behind Bukele’s activity to make BTC a legal tender is very clear.” The nature of this move is to promote the adoption of BTC through remittances. Lutskevych went on to add:

“One of the main reasons for the country to pass such legislation is to reduce remittance costs, promote financial inclusion and increase GDP by using BTC and its transfer infrastructure to promote financial inclusion.”

According to him, the adoption of new technologies is usually the result of “pure necessity”, which may be the case with Bitcoin and cryptocurrencies in developing countries, where the populations of these countries are severely affected by the cost of remittances, according to his partners What Markus Franke said. Celo Labs, a cross-border encrypted payment company, averages 6.38%, which can usually exceed 10% of the amount sent.

Lutskevych pushes his point further, he adds Chainalysis Global Encryption Adoption Index According to 2021, of the top 20 countries adopting cryptocurrencies, two-thirds are “developing countries with a high proportion of remittances to GDP”.

He added that developing countries are now recognizing the value of “BTC’s scalable transfer infrastructure, coupled with Bitcoin’s robust currency attributes and decentralization.”

Lutskevych also pointed out that Bitcoin’s Lightning Network Capacity growth of more than 25% Since El Salvador’s Bitcoin law came into effect, the number of payment channels for routing payments on the network has also increased significantly, and a “parabolic trend” began before and after the law took effect.

For him, the growing peer-to-peer (P2P) transaction volume in countries such as Nigeria shows that cryptocurrencies like BTC play a role in “introducing foreign funds into the country.”

Franke added that cryptocurrencies can be programmed to allow more complex financial operations without a third party. Franke said these features have made money transfer giants interested in cryptocurrencies.

For example, he points to MoneyGram Start USDC settlement using Stellar blockchain, And added that the Asian Development Bank revealed that services such as Ripple, Mobile Money and bKash will help “provide faster settlements, higher operational efficiency and more competitive foreign exchange rates during the COVID-19 pandemic.”

Amr Shady, CEO of Tribal Credit, a business-to-business payment and financing platform, told Cointelegraph that Mexico may be another example of a country that uses cryptocurrency for remittances, and it is estimated that they can reduce costs by 50% to 90%.

It all boils down to numbers

If there are indeed five countries adopting Bitcoin or any other cryptocurrency as legal tender, then the adoption rate seems to continue to grow. Emerging markets rely on remittances, and the use of stablecoins seems to be a viable solution to the volatility of crypto assets such as BTC.

Projects like Facebook’s Novi are Already using stablecoins In order to facilitate cross-border transactions, the project’s marketing efforts focused on remittances. The Central Bank Digital Currency (CBDC) may provide similar cheap transactions to help users transfer funds across borders at low cost.

related: Asia CBDC Project: What are they doing now?

The problem with these two solutions is that the central entity behind them can easily begin to distinguish, such as geographic block users. The decentralized blockchain is working hard to expand to accommodate thousands of transactions per second, thereby reducing the cost of remittances. With the addition of stablecoins, the only factor preventing mass adoption of cryptocurrencies is likely to be the specific knowledge required to navigate different blockchains and understand how addresses work.

For a long time, the improvement of user experience has been to move addresses and blockchain navigation to the back, while helping users focus on payment. Once blockchain technology is used behind the scenes at low cost, remittances will inevitably shift to encryption. However, these transactions may take years.