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Disrupting Remittances: The Impact of Cryptocurrency and Blockchain

Disrupting Remittances: The Impact of Cryptocurrency and Blockchain

Remittances refer to the transfer of funds from migrant workers to their families and communities back home. The economies of many developing countries depend on these transactions, as it provides millions of households abroad the much needed financial support. This, in turn, contributes to the GDP of the countries that embrace them.

It’s not just about the families and communities, though. With the increase in global migration, remittances are becoming an essential component of the international monetary system that sculpts economic progress, social well-being, and the ever-expanding financial inclusivity.

Although the current solutions for remittances have been functional, they still have several pain points for users. However, with the rapid advances in technology, a new hope has emerged in the form of cryptocurrency and blockchain.

In this guide, we’ll explore how blockchain technology is transforming the remittance landscape, creating impacts across the global economy.

The Current State of Remittances

According to the World Bank Migration and Development Brief, in 2022, remittance inflows to low- and middle-income countries (LMICs) experienced a 5% growth, amounting to $626 billion.

In 2022, remittance volume experienced a 5.2% increase in Sub-Saharan Africa, a 10.3% increase in Europe and Central Asia, 9.3% in Latin America and the Caribbean, 2.5% in the Middle East and North Africa, 3.5% in South Asia, and 0.7% in East Asia and the Pacific. India has become the first country to receive over $100 billion in remittances annually

The growth of remittance transactions is influenced by various factors, including the reopening of host economies after the COVID-19 pandemic, fluctuating prices affecting migrants’ real incomes, currency appreciation, and more.

Despite being in existence for a long time, the current remittance systems are often considered ineffective due to their slow and costly nature. The average time it takes for a remittance to be processed and delivered to the recipient can vary depending on the service used and the destination country, often taking several days to reach the intended recipient. This can cause financial strain and hardship for families relying on these funds for daily living expenses.

Moreover, remittance services can also be costly, with average fees ranging from 2% to 3% of the total amount sent. Sending $1000 could cost between $20 to $30 in fees alone, and exchange fees may also apply, making the process even more expensive. The slow and costly nature of current remittance systems can significantly impact the lives of those who rely on them, making it a pressing issue worth addressing.

As the amount of remittances sent across borders continues to increase yearly, there is a growing need for alternative solutions that make cross-border payments more seamless and efficient.

Revolutionizing Remittances: Unlocking the Power of Blockchain Technology

Cryptocurrency and blockchain technology provide a unique opportunity for fast and cost-efficient remittance processing. Blockchain technology enables peer-to-peer payments and offers smart contracts, which have agreement terms written into code. Furthermore, tokenization enables digital assets to be easily transferred across borders.

In summary, the advantages of blockchain technology over traditional remittance systems are:

Blockchain technology also enables innovations such as stablecoins, which allow for the exchange of funds through a stable digital asset that acts as a store of value. Stablecoins are Digital assets that remain pegged 1:1 to a fiat currency, effectively serving as digital dollars. This feature is particularly important for people sending money to countries with volatile currencies. 

Stablecoins can also increase financial inclusion and access to remittance services and USD payments for individuals who may not have had access to them before.

According to the Report on Stablecoins by the FDIC, the amount of stablecoin usage is rapidly expanding, as stablecoins exceeded a market capitalization of $127 billion in October 2021. Stablecoins present a much-needed alternative to traditional payment systems, which depend on financial institutions. 

It’s worth noting that there are many types of stablecoins that all carry a different risk’s. Always do your own research (DYOR) before converting funds into any digital asset. 

Real-World Examples of Cryptocurrency Remittances

Using a cryptocurrency wallet, you can send money to anyone with a valid wallet operating on the same blockchain. Additionally, decentralized apps such as Streamflow can streamline and automate the process of sending remittances. Streamflow offers the ability to automate recurring payments to recipients, allowing them to receive continuous value. For instance, if you want to send $750 per month to a family member but don’t have all the funds at once, Streamflow can help by allowing you to set up daily payments of $25. You can start the payment stream with less than $750 in your wallet, and add funds to your wallet before it runs out by ‘topping-up’ the stream.

Overall, Streamflow can empower the remittances industry with:

Exploring the Streamflow ecosystem

To provide a comprehensive analysis of Streamflow’s multi-chain capability, it’s worth noting that the Average Time to Finality (TTF) is an important metric to consider when evaluating the performance of a blockchain network. TTF measures the time it takes for a transaction to be deemed final and irreversible. Streamflow, being multi-chain, operates on various blockchain networks, including Solana, Aptos, and Ethereum.

Here’s a brief overview of the TTFs for the chains Streamflow operates on:

Messari

Bottom Line

The remittance industry is undergoing a transformational phase, propelled by the potential of cryptocurrency and blockchain technology. These innovations offer a promising new landscape for cross-border money exchange that was once deemed impossible just a decade ago. As adoption grows, the cryptocurrency and blockchain universe could potentially reshape the global economy and provide new opportunities for millions to participate in the marketplace.

To learn more, visit streamflow.finance/payroll