Blockchain technology has made significant advances in various sectors, but it can be challenging to distinguish between real-world applications and lofty promises. Two prominent use cases for cryptocurrencies are beginning to demonstrate their transformative power: business transactions and consumer remittances.
Both areas currently suffer from inefficiencies in the current system, such as high fees and slow transfer times. With blockchain, borderless transactions can be executed within seconds for as little as a fraction of a cent.
This is the power of cryptocurrency transactions. For business payments, this unlocks the ability to stream payments globally, increasing efficiency and reducing costs instantly. For consumer remittances, about 1.4 billion people worldwide are currently unbanked. Those who don’t suffer from high fees and slow repayment times. Remittances are low-hanging fruit for blockchain that will benefit those who need it most.
International Businesses: Using Crypto Payments
Traditional financial systems fail in an increasingly borderless world. Foreign exchange fees, long transfer times and transaction fees are common pain points.
While international bank transfers can take up to five days, cryptocurrencies like Ethereum settle transactions within seconds (12 seconds on average). Others deploy even faster – Stellar within 2-5 seconds and Solana within 400 milliseconds. This speed increases business flexibility and cash flow.
Blockchain networks offer significantly lower transaction fees. Ethereum currently costs ~$20 on average, which is acceptable for businesses. However, Ethereum scaling solutions such as Arbitrum and Polygon charge less than $0.10 per transaction. Others, like Solana, accept less than a cent.
Finally, companies that accept card payments typically have 2-3% transaction fees. Cryptocurrency payments eliminate such fees, making it a no-brainer, especially for those with large revenue volumes or tight profit margins.
All of this is readily available and businesses will increasingly adopt these forms of payment over the next few years as a natural progression to improved technology.
Consumer Remittances: A Help for Global Migrants
Similarly, remittances, a necessity for many in developing countries, are plagued by high fees and slow transfer times. These problems make it suitable for cryptocurrencies, significantly reducing fees and waiting times.
In 2022, the World Bank estimated that the average remittance fee was 6.24%. This is partly due to traditional remittance services such as Western Union often charging over 7% more than the average market exchange rate. Together with local bank fees, these costs add up significantly, given that migrants sent around $800 billion in 2022. This puts a rough estimate of remittance fees at $49.9 billion. Blockchain-based payments can significantly reduce this. Ethereum currently faces high network fees, but many other networks are more affordable.
Crypto remittances offer greater accessibility. Despite over 1.4 billion unbanked adults worldwide, two-thirds own mobile phones. Crypto remittances close this gap, allowing even the unbanked to receive funds seamlessly.
Many blockchain partnerships are already rapidly forming to address these challenges. Ripple recently partnered with MFS Africa to simplify real-time mobile payments. Jack Dorsey’s company Block recently partnered with African exchange Yellow Card to facilitate payments from the US that are converted into local African currencies. Stellar is a blockchain network focused on low-fee remittances for countries that need it most and is busy building local partnerships and integrations.
Decentralized finance (DeFi) is also a viable solution. DeFi enables anyone with an internet connection to create an account on popular DeFi networks, where they remain in full custody of their funds and can engage in near-instant global transactions. Networks like Ethereum, Tron or Binance Smart Chain are the most popular. For example, the Tron Network has already seen widespread adoption in Africa due to its extremely low fees.
Current barriers
Despite the great benefits, the adoption of cryptocurrency payments and remittances takes time. There are three main hurdles to overcome:
- Infrastructure: parties receiving payments must be able to convert payments into their local currencies and spend them. This requires bank integrations, which can be a slow and cumbersome process. The US alone has over 4,800 commercial banks. It takes time to bring them on board and even more time to complete the necessary integrations.
- Education: Many businesses and potential consumers remain uneducated or skeptical about cryptocurrencies and unsure of how to use them. This is especially true for consumers among the unbanked population, who will benefit most from crypto payments and may otherwise be vocal advocates for a faster and cheaper solution. Businesses are also constantly bombarded with new opportunities and must prioritize resource deployment.
- Regulation: The US is taking unprecedented action against major crypto exchanges, discouraging many from engaging with the space. Other countries, such as India, whose citizens would benefit immensely, have governments that have cracked down on the sector. Countries like Dubai have been more supportive and we will likely see these countries make rapid progress over the next few years.
While progress will be made over the coming months and years, real change takes time.
Suppose local vendors start accepting payments for goods and services in cryptocurrencies. In that case, the burden of finding banking and payment partners to integrate with becomes irrelevant as consumers no longer need to leave to spend their tokens. In this regard, Visa and Mastercard have been quick to embrace blockchain technology to avoid the risk of irrelevance.
Forecasting Future Trends: The Resurgence of the Blockchain Market
Based on current macroeconomic challenges, such as high inflation and historical cyclical trends, it is plausible that the blockchain market may experience a significant revival in 2024 or 2025. During this period, countries with favorable blockchain regulations are expected to lead the way, attracting institutional investment and driving increased consumer adoption.
Blockade payments and remittances are a sector poised for tremendous growth due to their added value to society. This trend has the potential to drive infrastructure investment, increase consumer awareness, and put regulatory pressure on entities that underestimate the undeniable benefits of blockchain technology.
While we are still in the early stages of blockchain adoption, incremental changes will gradually pave the way for a transformative future.
