Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Crypto Remittances: Benefits and Drawbacks

Secure payments, private transactions, decentralized finances—there are many benefits to cryptocurrency. But what about using crypto to pay remittances?

Data from the United Nations suggests one in seven people use remittances to send or receive money. Although most of these transfers are in traditional currencies, a growing number of people have begun experimenting with crypto remittances due to their lower fees and faster settlement times. Recent data suggests at least 13% of remittance senders use crypto as a primary payment method. New blockchain technologies, companies, and services have made cross-border crypto payments simpler than ever before. 

Although not yet the largest method for remittances, crypto remittances are becoming an increasingly accessible and attractive option. Find out why crypto remittances are growing and what benefits they could provide.

Crypto-remittances-benefits-and-drawbacks
Jump to section

Explaining remittances

Remittances generally refer to money transfers made by people working abroad to family back home, such as migrant workers. 

In many geographies, remittances represent a large proportion of GDP, especially ones with a large diaspora abroad. The rise in international travel and digital payment networks has made it easier for migrants to send cross-border remittance payments to their families. The International Monetary Fund estimates that in 2021, $597 billion in remittances were paid to people in developing countries.

A few common ways people send remittances include wire transfers, mobile money services, and fintech apps—financial applications offered by financial institutions or third-party providers, such as PayPal and Venmo. Workers can also use prepaid cards or money transfer companies like Western Union to send payments back home. 

Remittances are an important facet of financial inclusion, but some senders face barriers when attempting cross-border transfers. In countries without limited public access to basic financial services, such as banks, senders and recipients may not have transaction accounts to make and receive payments and safely store money—migrant workers and their families are often unbanked. The cost of remittance services may also impact access to these payments.

Can people use crypto for remittances? 

Although some countries, like China, have restrictions on crypto transactions, it’s possible to use digital assets for remittances. Survey data suggests at least 23% of remittance senders have used crypto in at least one online transaction. 

As long as a country doesn’t have explicit crypto remittance regulations that prohibit the practice, it’s legal for anyone to send coins like Bitcoin or Ethereum between wallet addresses. All people need is an Internet connection and a digital wallet address to start sending crypto remittances.

Potential benefits of crypto remittances  

Crypto supporters believe digital assets could remove unnecessary friction from the remittance payments sector. From reducing fees to speeding up transactions, crypto has several benefits to offer those sending remittances: 

  • Available worldwide: Crypto is the currency of the Internet. No matter where someone lives, they can access their digital assets online and send them across borders, as long as it is legal.
  • 24/7 service: Unlike banks, the crypto market never sleeps. Whenever someone submits a crypto transfer, it will immediately post on the blockchain.
  • Fast transaction speeds: Even during times of high network congestion, crypto transfers are typically quicker than traditional remittance services. Since crypto doesn’t have to go through intermediary institutions, it has relatively fast finality (the amount of time before a guarantee that the complete transaction can’t be changed or lost). There are even some new projects like Polygon or the Bitcoin Lightning Network that offer near-instant payments.
  • Lower fees: According to the World Bank’s estimates, the average fee for a cash remittance transfer is around 6.4%. These fees could be even higher if a service charges extra for handling costs or foreign exchange rates (forex). While blockchains charge transaction fees, they are generally less expensive than fiat remittance services. Sometimes, the cost of using a blockchain could be less than a penny.
  • No bank account required: People don’t need financial certifications or a bank account to transfer crypto. There are also no minimum requirements to transfer crypto between wallets. Once people have a self-custodial crypto wallet (a wallet where only the owner has the private key associated with the public address), they can start sending and storing digital assets.
  • Low volatility in the short term: Although cryptocurrency is arguably the most volatile asset class, remittance recipients can quickly swap their coins for fiat currencies to avoid price fluctuations. Plus, many stablecoins like USDC and Tether (USDT) have a 1:1 value with the U.S. Dollar. Using these services can minimize the impact of crypto’s inherent value swings.
  • Access to DeFi services: Many self-custodial crypto wallets help people access alternative banking services in the decentralized finance (DeFi) industry. Blockchains like Ethereum, Avalanche, and the BNB Smart Chain have multiple decentralized applications (dApps) that offer access to DeFi services like trading, staking, and lending. While the DeFi sector is new, it provides many unbanked and underbanked users with new financial opportunities. 

Crypto remittance hurdles

Since blockchain technology is so new, it presents a few novel challenges in the remittance payments space. Although Web3 developers are working on solutions, there are significant hurdles to using crypto for remittances: 

  • Lack of widespread adoption: Bitcoin has become a household name in many countries, but it’s still not as common for businesses and governments to accept crypto payments. It may take years for crypto awareness and adoption to become mainstream.
  • Unclear legality and regulation: Aside from El Salvador and the Central African Republic, no nation accepts Bitcoin as legal tender. Some countries such as China have firm bans on all crypto transfers, while others have more nuanced restrictions on this industry. The lack of regulatory clarity can hinder widespread crypto adoption.
  • Requires technical knowledge: There’s a learning curve involved in using crypto wallets and other Web3 services. People need to learn the fundamentals of blockchain technology to manage their crypto remittances effectively. This can present significant barriers to those unfamiliar with financial services or lacking educational financial resources.
  • Access to onramps and offramps: Transferring between fiat and crypto is a significant pain point in the crypto industry. Centralized crypto exchanges (CEXs) offer the best liquidity but aren’t available in every nation. Also, people often have to pay high transfer fees and submit sensitive know-your-customer (KYC) data to use CEXs, such as government ID.
  • Price volatility: Aside from stablecoins, cryptocurrencies are famous for their wild price swings. Even large coins like Bitcoin and Ethereum can lose half their value in a few days.
  • Hacks and scams: There have been many multi-million-dollar hacks and scams in the crypto industry. Anyone transferring cryptocurrencies needs to be cautious when transferring and storing their crypto.

What’s the most common crypto used for remittances? 

Research suggests most people who use crypto for remittances focus on Bitcoin (BTC) or stablecoins. The number of Bitcoin wallets in developing nations like Kenya is surging, and the Bitcoin Lightning Network (LN) is expanding its reach in these countries. Built on top of Bitcoin’s main blockchain, the LN is a way to send money through Bitcoin’s network for virtually no fee. In 2022, the Bitcoin LN announced it now allows BTC remittance services to African countries like Nigeria and Ghana. Crypto apps like Strike also introduced many Latin American countries to BTC transactions through the LN. Near the end of 2022, data suggested there were over 5,000 BTC on the Lightning Network (or about $82.5 million at current prices). 

Although LN adoption is growing in the remittance sector, many people prefer to use USD-pegged stablecoins. In 2022, the market cap for the top ten stablecoins reached roughly $150 billion. Data from blockchain analytics firm Chainalysis suggests over 25% of small retail purchases in Brazil and Argentina now come from stablecoins. Stablecoins became so popular in Turkey that the government introduced restrictions on businesses accepting these tokens in 2020. Companies such as Visa and MoneyGram have even begun experimenting with stablecoin transfers. A few of the fastest and cheapest stablecoins to transfer include USDT, USDC, and BUSD.

How to choose a crypto asset for remittances

Crypto has many attractive features for remittances, but not every coin is created equal. Before deciding which digital currency to send, look for the following features:  

  • High liquidity: Cryptocurrencies with a high market cap and active trading activity are far more convenient to exchange. It’s easier to convert highly liquid cryptos into cash on CEXs, peer-to-peer trading networks, or Bitcoin ATMs.
  • Low transaction costs: Research the average transaction fees associated with your cryptocurrency. You may want to consider using a blockchain with lower transaction costs and swapping for another token later. For instance, some people transfer Litecoin due to its lower network fees and then exchange it for BTC or stablecoins. You could also look into layer-two technologies like the Bitcoin Lightning Network or Polygon to potentially save on fees.
  • Wallet compatibility: Not every digital wallet accepts the same cryptocurrencies. Always confirm the crypto asset you want to send is available in your and the recipient’s wallets. Also, double-check that your wallet address is for the correct blockchain. For example, you should never send Ethereum (ETH) to an Ethereum Classic (ETC) address. Each crypto asset has a unique address, and you’ll lose your funds if you send them to the wrong destination.
  • Reputation: Cryptocurrencies with a long track record for success, transparency, and security are always the safest option. While there are many exciting new crypto projects, experimental tokens tend to be riskier than long-established coins like Bitcoin, Ethereum, and Litecoin.

Wrapping up

Crypto assets may not overtake fiat remittances, but they’ve become a noticeable force in the digital economy. As more migrant workers recognize the benefits of using crypto vs. dollar remittances, more will likely turn to digital coins and tokens. The growth in the Bitcoin Lightning Network and increasing stablecoin adoption suggest several nations are already open to using crypto assets for remittance payments. 

To help more people experiment with crypto, Worldcoin is airdropping DAI stablecoins to millions of crypto wallets. To claim your free DAI, download the WorldCoin app on your phone and subscribe to Worldcoin’s YouTube channel to learn more about our mission.

Related articles

Have questions?

FAQs