Should You Use Bitcoin and Blockchain Technologies for Remittances?
Bitcoin has for a while been seen as the future of currency. As a totally digitised form of money, it seems like the next logical step in the evolution of finance. After all, we don’t see most of the money we use. Coins and notes are soon to be a thing of the past.
But Bitcoin hasn’t taken off like its founders expected it to. Its blockchain technology is still viewed by many with suspicion, with few laymen knowing what it is or how it works.
Nonetheless, recent developments have seen startups and big banks adopting blockchain technology for fund transfers. Santander, UniCredit, UBS, Reisebank, CIBC, ATB Financial and the National Bank of Abu Dhabi have all started experimenting with fintech company Ripple for cross-border payments.
It may soon become the norm, so now is a good time to examine the pros and cons of using blockchain technology and cryptocurrencies for remittances.
The advantages
Resistant to fraud
Blockchain technology works with automatically generated ledgers. Any transactions are recorded instantly into a ledger. Because the ledger has no central operator, the transaction is made irreversible and cannot be tampered with.
Best exchange rates
Ripple uses a path-finding algorithm which finds the best possible exchange rates. Since blockchain is all digital, implementing these kinds of technologies is simple and practical.
Instant transfers
Digital transfers can be done in seconds, as opposed to the week or more that most international bank transfers take.
Disadvantages
Possible vulnerabilities
For the most part, blockchain technology has proven secure enough to rely on. However, it has not been around for long enough, or used on a large enough scale, to conclusively state that there are no major vulnerabilities. It could be that once more banks and companies start utilising the technology, hackers will start finding new ways of defrauding the system.
Unstable rates
Cryptocurrencies are much less stable than most other currencies. Their values can swing widely from day-to-day, so if you plan on keeping your money in digital form for any amount of time, you may be in for an unhappy surprise.
Lack of regulation
Cryptocurrencies have not been around for long enough to be as well-regulated as other currencies. For now, that means there are less restrictions on bitcoin and the like. However, that could change as it becomes more mainstream and regulators get more invested in its safety.
Two step process: more charges
It takes a two step process to transfer money with cryptocurrencies. The money has to be converted into the cryptocurrency, and then converted back into the required currency. The volatility of cryptocurrencies, as well as the lack of sufficient liquidity, can cause fees to rise, rather than fall. That is, until cryptocurrencies will be governmentally accepted and enable you to perform activities such as bill payment, car purchase, property purchase, mortgage repayments etc.
Should I use blockchain technology for remittances?
The short answer is, it depends. There are definitely benefits, and it is likely to become a more prominent option in future. It’s especially attractive if you would rather not wait for money transfers to come through.
On the other hand, you might not want to be an early-adopter. While you could be one of the first to benefit, you could also be one of the first to crash and burn. The exchange rate volatility could lose you a large percentage of your money, if something was to go wrong during the process. Hackers might find a way to steal your hard earned wages.
The truth is that blockchain technology works, even on a large scale, on paper. Every crack seems to have been filled. However, we can’t truly know until it’s too late.There are some new related startups working in that field, but none of them is mature enough to indicate
Hopefully we’ll soon have plenty of evidence of the reliability of blockchain technology as a global financial system. For now, it’s a good option if you’re willing to take the small risk. If, however, you are very risk averse, it may be a good idea to wait a while.