Advantages and Disadvantages of Crypto Cross-Border Payments

Crypto cross-border payments are executed using blockchains. This removes the need for banks, which usually slow down the payments rather considerably. When trying to send funds to another country, the first step is converting fiat currency into a digital asset of your choice. A broad spectrum of websites and platforms serve as a drive, which means purchases can be made using bank transfers and credit or debit cards.

When you want to make a transfer, they can simply give you the address of their wallet, which is similar to the account number you’d get at a traditional bank. These addresses are composed of dozens of characters, so getting them right is crucial.

Once the funds have made it to the account, the recipient has a few choices. They can either convert the cryptocurrency to fiat and withdraw it or swap it for a less volatile digital asset like a stablecoin.

What Advantages Does Cryptocurrency has Over Fiat Money?

Simply put, cryptocurrency is cheaper and faster and could also help crack down on money laundering. There’s plenty of excitement around the way cryptocurrency​ could transform cross-border payments as we know it – making cash transfers, where workers in other countries send funds to their loved ones much cheaper.

Cryptocurrencies can help reduce transaction costs by 40 percent to 80 percent – and the advantages may not even end here. It can take around three to five business days for funds to get past old-fashioned wire networks, which is not great for someone who needs money in a hurry. But on particular blockchains, it is feasible for payments to be confirmed in a few seconds.

Moreover, blockchain transactions can be rich in data – this means metadata can be transmitted from end to end. All this can help crack down on money laundering and terrorist financing, two concerning things for regulators. Numerous crypto platforms have also launched the Know Your Customer checks to verify users.

A crucial benefit that cryptocurrencies deliver is unlocking access to financial services for the unbanked. According to research, 1.7 billion people worldwide do not have a bank account; there can be a number of reasons for this.

What are the Downsides to Using Crypto?

Cryptocurrencies like Bitcoin and others often get criticized for allegedly being too volatile, and some say the blockchain technology is way too complicated for everyday consumers to understand.

​It is essential to mention that there’s one aspect that will determine whether or not crypto-based cross-border payments are more affordable – the digital asset that’s being used. Making transfers in Bitcoin and Ether can be rather expensive, more so during times of peak demand. Ethereum has been swamped by transaction volumes on numerous occasions throughout the years – helped by a rise in demand for collectible cats and decentralized finance.

Tackling scalability concerns is going to be vital if cryptocurrencies are going to be used more broadly for remittances. Ripple, for instance, offers solutions that are created to make cross-border payments more affordable via the XRP asset. Numerous banks are already on board, and Ripple says that it is able to process 50,000 transactions per second.

Cryptocurrency will only help address financial inclusion – those who stand to benefit most from transfers can be taught about how digital assets work and have access to Internet-enabled mobile devices so they can access their funds.

The Bottom Line

A significant challenge regarding cryptocurrency​ and blockchain is regulation. Industry experts have already warned that more crypto regulation is on the books – this doesn’t necessarily mean that a ban on digital assets is coming. However, many regulators have acknowledged that they can benefit from reducing the costs associated with cross-border payments.

Therefore, some are considering whether they should release their own central bank digital currency.

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