Explore the transformative power of blockchain in commercial transactions and consumer remittances.
Blockchain technology has enabled significant advances in a variety of fields, but distinguishing between real-world applications and lofty promises can be challenging. Two prominent cryptocurrency use cases have begun to demonstrate their transformative power: commercial transactions and consumer remittances.
Currently, both sectors face inefficiencies in the current system, such as high fees and slow transfer times. With blockchain, borderless transactions can be executed in seconds and at fees of just fractions of a cent.
That’s the power of cryptocurrency transactions. For commercial payments, this unlocks the ability to stream payments globally, increasing efficiency and immediately reducing costs. For consumer remittances, there are currently an estimated 1.4B people globally who don’t have bank accounts. Those who don’t suffer from high fees and slow settlement times. Remittances are a low-hanging fruit for blockchain that will benefit those who need it most.
International Businesses: Leveraging Cryptocurrency Payments
The traditional financial system is struggling to keep up in an increasingly borderless world. Foreign exchange fees, long transfer times, and transaction costs are common pain points.
While international wire transfers can take up to five days, cryptocurrencies like Ethereum can settle transactions in seconds (12 seconds on average). Other solutions are even faster — Stellar settles in 2-5 seconds and Solana in 400 milliseconds. This speed enhances business flexibility and cash flow.
Transaction fees on blockchain networks have been significantly reduced. Ethereum currently costs around $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, such as Solana, cost less than a cent.
Finally, companies that accept card payments typically incur a 2-3% transaction fee. Cryptocurrency payments eliminate such fees, making it a breeze, especially for those with high revenue volumes or tight profit margins.
It’s all easily accessible, and businesses will increasingly adopt these forms of payment in the coming years as a natural progression of improving technology.
Consumer remittances: a boon for global migrants
Likewise, remittances are a necessity for many people in developing countries, but are also plagued by high fees and slow transfer times. These issues make them a good fit for cryptocurrencies, which greatly reduce fees and wait times.
The World Bank projects that the average remittance fee will be 6.24% in 2022. This is partly because traditional remittance services like Western Union often charge fees that are more than 7% above the mid-market rate. These costs are significant when you consider that the amount of money migrants will remit in 2022 is estimated to be $800B, plus local bank fees. This brings the rough estimate of remittance fees to $49.9B. Blockchain-based payments could significantly reduce this. Ethereum currently faces high network fees, but many other networks have cheaper fees.
Cryptocurrency remittances offer added convenience. While there are more than 1.4 billion unbanked adults worldwide, two-thirds of them own a mobile phone. Cryptocurrency remittances bridge this gap, allowing even the unbanked to receive funds seamlessly.
Many blockchain partnerships are already being rapidly established to address these challenges. Ripple recently partnered with MFS Africa to streamline real-time mobile payments. Jack Dorsey’s company Block recently partnered with African exchange Yellow Card to facilitate the conversion of payments from the United States into local African currencies. Stellar is a blockchain network focused on enabling low-fee remittances to 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 a popular DeFi network, where they have full custody of their funds and can make near-instant global transactions. Networks such as Ethereum, Tron, or Binance Smart Chain are the most popular. For example, the Tron Network has seen widespread adoption in Africa due to its extremely low fees.
Current obstacles
Despite the huge benefits, the adoption of cryptocurrency payments and remittances will take time. There are three key barriers that need to be overcome:
Infrastructure: Parties receiving payments must be able to convert payments into local currency and spend them. This requires bank integration, which can be a slow and cumbersome process. There are more than 4,800 commercial banks in the United States alone. It takes time to get them on board and even more time to complete the necessary integrations.
Education: Many potential businesses and consumers remain uneducated or skeptical about cryptocurrencies and are unsure how to use them. This is especially true for consumers in the unbanked population, who would benefit most from crypto payments and might otherwise strongly support faster, cheaper solutions. Businesses are also constantly bombarded with new opportunities and must prioritize resource deployment.
Regulation: The United States is taking unprecedented action against large cryptocurrency exchanges, making many people weary of participating in the space. Other countries, such as India, whose citizens will benefit greatly, have their governments cracking down on the industry. Countries such as Dubai have been more supportive, and we may see these countries make rapid progress in the coming years.
While progress will be made in the coming months and years, real change will take time.
Suppose local vendors start accepting payment in cryptocurrencies for goods and services. In this case, the burden of finding banks and payment partners for integration becomes irrelevant, as consumers no longer need to go down ramps to spend their tokens. In this case, Visa and Mastercard quickly adopted blockchain technology to avoid the risk of irrelevance.
Predicting future trends: The recovery of the blockchain market
Based on current macroeconomic challenges, such as high inflation and historical cyclical trends, the blockchain market could experience a significant recovery 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.
Blockchain payments and remittances are one of the sectors that are expected to see huge growth due to its huge added value to society. This trend has the potential to stimulate infrastructure investments, 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.
