Statistics from the World Bank indicate that traditional cross-border remittance fees average 6-8% of the total transaction, based on the platform used. These high transaction fees are one of the major reasons why crypto remittances have been gaining ground and adoption by global bodies, especially in developing countries.
The global remittance industry is on its way to be worth $1 trillion over the next 5-6 years. According to research by Allied Market, with a compound growth rate of 3.9% annually, the global remittance industry could be worth over $925 billion by 2026. The advent of blockchain technology and cryptocurrency has unlatched a cheaper and faster remittance method to make the procedure more effective.
Cryptocurrency trading has been on the rise as more and more people all over the world are adopting it as a safer way to make, invest, keep, multiply and transact than fiat currencies and traditional banking. We see the increase in the market capitalization of cryptocurrencies like Bitcoin and other cryptocurrencies on different trading platforms like Redot.com. This wide acceptance of cryptocurrencies and its decentralized nature has influenced the adoption of cryptocurrency remittances in many countries today.
Industry observers have indicated that Bitcoin and other cryptocurrencies are a better alternative to the high fees that accompany traditional remittance payments, as it costs less and money can be remitted faster.
The Republic of El Salvador, the smallest country in Central America, became the first country to legalize Bitcoin as a legal tender in the world on September 7, 2021. The government also launched a cryptocurrency wallet named Chivo for transactions within and outside the country. This bold move by El Salvador has been seen by crypto enthusiasts as a great model of how cryptocurrencies can birth positive changes in the world.
Cryptocurrency news like this has driven more people to buy bitcoin, create digital wallets and own digital assets. But to another group of people, the volatility and general doubt present in the crypto market make cryptocurrency adoption unsuitable, unreliable, and impractical.
Are cryptocurrencies creating more financial inclusion?
A lot of developing countries have emerged with higher rankings on the 2021 Global Crypto Adoption Index, having some of the highest cryptocurrency adoptions within the space of 1-2 years.
Emerging markets, like in Africa, have experienced a 1200% growth between June 2020 and July 2021, making it the fastest adoption rate in the world. Similar growth rates appear in other emerging markets across the world.
How come developing countries, some with a lot of underbanked and financially excluded populations, have high crypto adoption rate as also seen in the large volume traded on cryptocurrency exchange sites? Could it be that cryptocurrency has created a platform for more financial inclusion?
President NayibBukele of El Salvador, disclosed that in 21 days, their Chivo cryptocurrency wallet gained more users than all the banks in the country. He disclosed that 2.1 million Salvadoreans are currently transacting with the wallet.
While there are still many that think cryptocurrency adoption in some of these countries are impractical, there are still people like Oleksandr Lutskevych; the CEO and founder of cryptocurrency exchange CEX.IO, that believe El Salvador’s adoption shines Bitcoin as “eliminating the traditional, centralized rails of remittances and promoting financial inclusion by reducing high remittance fees.”
No better option than adoption
Crypto enthusiasts have indicated that the increase in adoption in emerging markets may have stemmed out of “no better option” for the population.
The high remittance fees affecting developing countries has left them with no choice than to adopt Bitcoin and other cryptocurrencies for remittance and daily transactions, as the cost of transacting on blockchain networks are lesser and faster compared to some remittance platforms.
As seen in El Salvador, adopting Bitcoin as a legal tender was aimed at promoting financial inclusion, increasing the country’s GDP by leveraging Bitcoin and its blockchain technology, and reducing remittance cost.
Volatility could be a deep concern
Unlike the fair stability of the traditional market, the cryptocurrency market due to its immaturity still exhibits extreme quick changes in price. There are no indicators to ascertain price volatility in the crypto market and most market observers concur that the cryptocurrency market has a volatility in its own league.
2016 saw the price of Bitcoin rise by 124%, the following year saw it rise by over 2000%. After it’s 2017 all time high, Bitcoin’s price fell again. 2021 has seen Bitcoin price rise to a new all time high again, with no one knowing the next move in the market. Although factors responsible for price changes in the traditional market also affect the cryptocurrency market, their effect in the crypto market is largely inflated as they have less liquidity than the traditional market.
The exaggerated uncertainties that lie within the crypto market and cryptocurrency price is why some observers think it is highly impractical and unwise for countries like El Salvador and others planning to follow suit to make Bitcoin and other cryptocurrencies legal tender or adopted in different sectors of the economy.
Not all businesses in El Salvador have adopted bitcoin as a payment method in their daily and corporate transactions because of the fear and speculation surrounding the unpredictable volatility in the cryptocurrency price.
Cryptocurrency adoption; the future?
It is no doubt that blockchain technology and cryptocurrency is the now and future till something better is invented(if there ever is anything better). With the increasing growth rate of cryptocurrency adoption all over the world in how we transact, in our day to day lives, in international exchanges, and so on, it is certain that this trend is here to stay.
Countries like El Salvador have started buying cryptocurrency and countries in Europe are supporting their indigenous exchanges like Redot, to do well.
All these are aimed at taking its adoption to a whole new level and other countries and continents are beginning to follow suit in adopting cryptocurrency remittances.
The decentralized nature of the blockchain networks has eliminated a lot of intermediaries in different sectors of the economy, hence, affording the world faster and cheaper ways of transacting with one another; within borders and cross borders.
This trend of worldwide acceptance, is sending a strong message to the passive population to buy cryptocurrency, seek to understand cryptocurrency trading, and the crypto market generally now. If it is truly the future, one wouldn’t want to be left behind and in the dark.