While traditional international money transfer is slow and expensive, sending money is supposed to be easier than ever. However, two other things have emerged that seek to break this status quo: digital fiat services and cryptocurrencies.
Speed: The Crypto Advantage
When it comes to the speed of cross-border transfers, crypto has a clear and decisive edge over traditional fiat money.
Wire transfers and services like Western Union may take several business days to settle payments. Conversely, cryptocurrencies can facilitate nearly instantaneous transfers anywhere in the world.
For example, the Bitcoin network averages transaction confirmation times under 10 minutes. Even more impressively, XRP ledger settlements usually complete in 3-5 seconds.
The reason behind this vast differential lies in the very structure of blockchain networks. By distributing data across nodes rather than siloing it within banks, confirmation and clearing happen simultaneously. It circumvents many of the manual verification processes in legacy finance.
Moreover, the rise of the crypto payments gateway has further streamlined this process. It enabled businesses and individuals alike to send and receive funds with minimal friction and maximum speed. That’s pretty crucial for global e-commerce and freelance economies.
Furthermore, cryptos run around the clock, meaning fund transfers can occur over the weekend or even on holidays. On the other hand, most of the cross-border fiat services are only available on weekdays during business hours. Customers often wait through long delays.
Cost: Lower Fees with Crypto, Under Certain Conditions
The cost comparison between crypto and fiat is a bit more complicated. Crypto advocates rightly praise the technology for slashing cross-border fees to a fraction, or often nothing at all, compared to services like SWIFT bank transfers or Western Union.
But those savings don’t automatically apply across the board. In practice, the cost efficiency of crypto depends greatly on transaction size and network conditions.
For major cryptocurrencies like Bitcoin, Ethereum, and XRP, the base protocol transaction fees are negligible. The fee averages under 0.50 even during times of peak congestion. These networks prioritize keeping costs low for basic peer-to-peer transfers. As a result, crypto offers huge savings for micro-transactions under 500 that would otherwise get eaten away by wire fees and FX margins.
However, this changes when transacting larger sums. Most blockchain networks apply additional “gas” fees based on transaction complexity to prevent network spamming. These can fluctuate dramatically with market conditions – just look at the extreme congestion on Ethereum during the 2021 NFT boom. Transferring $50k+ on crypto may still beat out wire services, but usually costs more than digital fiat for larger payments.
The biggest transaction cost factor, regardless of size, comes down to on/off ramping between crypto and fiat. Users almost always pay a significant premium (up to 5%) when exchanging currencies through CeFi platforms. DeFi offers some alternatives, but adoption remains niche. Ultimately, you’ll incur extra costs during conversion that dampen crypto’s fee savings.
Accessibility: Crypto Wins for the Unbanked, But Has Limitations
Cryptocurrencies can give financial access to unbanked and underbanked populations all around the world. Experts consider it the most transformative aspect of cryptos.
Cryptocurrencies are decentralized and digital. It means anyone with a mobile phone and the internet can have self-sovereign access. There is no need to provide reams of KYC documentation or maintain an account minimum. There is no reason to discover why. All you want is a crypto wallet, and you can begin sending and receiving cash.
There are no restrictions on networks like Bitcoin, Ethereum, Cardano, and others. These platforms operate freely across borders with no limiting authorities. It gives the marginalized and oppressed a censorship-resistant way to finance.
However, crypto adoption still faces critical challenges around user experience and understanding. Managing private keys, navigating volatile markets, and avoiding exploitation remain barriers for many unbanked users. They hope to use crypto for savings and transactions. So while the technology itself is readily accessible, real-world usage requires much additional progress.
Volatility: Crypto’s Major Weakness
The most imposing barrier to mainstream business and consumer acceptance of cryptocurrency valuations is the extreme volatility that cryptocurrencies have experienced.
On an intraday basis, prices of Bitcoin and Ethereum, at least for the main crypto assets, have wild price movements. It is not uncommon for prices to jump and fall by 5-10% in a single day. Thus, crypto is not suitable as a short-term store of value. What if, on accepting a Bitcoin cross-border payment, you cannot exchange it into local currency for another 20% because the price of Bitcoin falls 20% overnight?
It is highly volatile from many sources, such as speculative trading activity, lack of liquidity depth, sensitivity to news/FUD cycles, and so on. It does not matter where it originates; it adds unacceptable uncertainty to the real-world financial transactions.
Other cryptocurrencies, such as stablecoins, have set out to peg valuations that abide by fiat currencies or assets for stable values. However, these questions cannot be answered for long-term sustainability and regulatory risk.
In contrast, digital fiat transfers operate on floating exchange rates tied to global currency markets. While still variable, these forex fluctuations pose little concern over short-term horizons. Intraday moves rarely exceed 1%, thanks to the immense liquidity and trading volume of the $6.6 trillion daily forex market. Such stability spares businesses and individuals from profit loss or missed payment obligations.
Until cryptocurrency markets mature to provide a reliable and consistent store of value, volatility will remain the Achilles’ heel, preventing mainstream business adoption.
Conclusion
The main advantage of crypto lies in its high speed of cross-border transactions and access, thanks to distributed infrastructure and digital reach. However, compelling and depends heavily on the size of the transaction and the external volatility. For those prioritizing privacy, crypto’s censorship resistance is far away from any surveillance concerns with existing payment systems.
We will see more of this as blockchain tools continue to advance to a point where crypto will continue to beat fiat by speed, cost, and privacy, and they will nail down stability and pro-regulatory standing. However, there will continue to be defining features of universal access and human governance for the foreseeable future.
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