The adoption of cryptocurrencies is increasing for a number of reasons. In emerging markets, research shows that cryptocurrency transfers are a factor, although some argue that the idea of using cryptocurrencies for these transactions is nothing more than a pure dream.
The adoption of cryptocurrencies is increasing for a number of reasons. In emerging markets, research shows that cryptocurrency transfers are a factor, although some argue that the idea of using cryptocurrencies for these transactions is nothing more than a pure dream. Alexander Hoptner, CEO of cryptocurrency trading platform BitMEX, predicted earlier this month that at least five countries will accept Bitcoin (BTC) as legal tender by the end of next year, as crypto assets can be faster and cheaper to transfer money. He believes that all five will become developing countries and due to the increasing need for cheaper and faster cross-border transactions, rising inflation and rising political issues, they will adopt cryptocurrencies.
Various other commentators have suggested that Bitcoin and other cryptocurrencies are a solution to the high fees associated with wire transfer payments, as cryptocurrency transactions can be much cheaper than wire transfer payments while being processed for a shorter period of time. El Salvador became the first country in the world to adopt Bitcoin as a legal tender, with the country's Bitcoin law officially taking effect on September 7. The government has released a cryptocurrency portfolio called Chivo that uses the Lightning Network, a secondary scaling solution for the deal. The country has also bought 700 BTC over time.
Worldwide remittances totaled $689 billion in 2018, and commissions are so high that a $49 billion industry grew around them. For cryptocurrencies, El Salvador is a perfect example of how cryptocurrencies can positively change the world, but for others, the volatility and lack of market trust make cryptocurrency adoption impractical and undesirable. With the Chivo wallet, Bitcoin can effectively help provide financial services to residents of El Salvador who have no bank accounts and insufficient banks. President Naibi Bukele announced in September 2021 that 2.1 million Salvadorans were actively using wallets despite opposition to the new law, which even burned Bitcoin ATMs during protests. According to him, Chivo is not a bank, but in three weeks has acquired more clients than any other bank in the country. However, that assumption could come with a $30 BTC airdrop in El Salvador sent to every senior citizen using the government's wallet app.
In an interview Eric Berman, Thomson Reuters senior legal editor for US financial law, said cryptocurrency transfers were "a pure dream." While Höptner points out that remittances accounted for 23% of El Salvador's gross domestic product in 2020, Berman argues that only a small percentage of national companies make payments in Bitcoin and that government cryptocurrency applications are plagued by technical issues. Berman added that "the vast majority of El Salvador's $6 billion annual remittances are still made via remittances," as many are suspicious of the volatility of cryptocurrencies. Due to the impracticality of instability, Bitcoin is not widely accepted as a payment method by merchants, adding: “This impracticality increases exponentially for those who are less fortunate and bankless. Nobody wants to send mom $100 just for an $80 fee by the time it gets to her. "
Berman added that "instead of the populist uprising that BTC purists have promoted for years," Bitcoin adoption is growing thanks to "some long-overdue happy voices from US and global regulators." In fact, the head of the US Securities and Exchange Commission, Gary Gensler, has confirmed that regulators will not ban crypto. In fact, this week the SEC approved the first exchange-traded Bitcoin futures fund (ETF) in the United States, the ProShares Bitcoin Strategy ETF. The rising awareness and price of Bitcoin, Berman said, is the result of "institutional enthusiasm in stark contrast to the movement for the disadvantaged and bankless that spawned BTC more than a decade ago."
Alexander Lutskevich, founder and CEO of cryptocurrency exchange CEX.IO, seems to disagree with Berman's assessment, saying that El Salvador's introduction emphasizes bitcoin as "replacing traditional and centralized rails for money transfers." For Lutskevich, a Bitcoin infrastructure was introduced to also encourage stable coin transfers at the top of his network and to ensure that cryptocurrency volatility does not affect transfers. El Salvador's move, he said, promotes financial inclusion by helping reduce remittance costs. In emerging markets, cryptocurrency proponents suggest that adoption may be the result of a “sheer necessity,” as the transaction fees paid on most blockchain networks are double the fees paid to some remittance providers.
According to Lutskevich, "it's quite clear the reasoning behind Bukele's campaign to make BTC legal tender" that this move is to encourage BTC adoption via remittances. Lutskevich added: “One of the main reasons countries passed the law was to reduce remittance fees, promote financial inclusion and increase GDP by using BTC and its transfer infrastructure to promote financial inclusion.” According to him, the introduction of new technologies is often the result of “sheer necessity” and this can happen with Bitcoin and cryptocurrencies in developing countries, whose populations are heavily impacted by remittance fees, according to Marcus Franke, a partner at a cross-border company for Crypto payments. Celo Labs, 6.38% on average and can often exceed 10% of the amount shipped.
Lutskevich advanced his position, adding that Chainalysis's global cryptocurrency adoption index for 2021 shows that of the top 20 countries accepting cryptocurrencies, two thirds are "developing countries with a high percentage of GDP from remittances." He added that developing countries are already realizing the value of "scalable BTC transfer infrastructure combined with Bitcoin's solid and decentralized monetary properties". Lutskevich also noted that the Lightning Bitcoin network capacity has increased by more than 25% since the El Salvador Bitcoin Law came into effect, while the number of payment channels that route payments through the network also increased significantly right at the time the law came into effect. affect. "
For him, the increasing volume of peer-to-peer (P2P) trading in countries like Nigeria shows that cryptocurrencies like BTC play a role in "bringing foreign money into the country". Franke added that cryptocurrencies are programmable, which allows for more complex financial transactions without a third party. These features, Franke said, have attracted the money transfer giant to cryptocurrencies. For example, he pointed out that MoneyGram initiated USDC settlements using the Stellar blockchain, adding that the Asian Development Bank introduced services such as Ripple, Mobile Money, and bKash that have helped "make settlements faster.”, greater operational efficiencies and - competitive exchange rates during the Covid19 pandemic.”
Amr Shadi, CEO of inter-company payments and financial platform Tribal Credit, said that Mexico could be another example of a country accepting cryptocurrencies for wire transfers, as estimates suggest they will cut fees by 50 to 90 percent. If five countries do accept Bitcoin or other cryptocurrencies as legal tender, adoption is likely to continue to grow. Emerging markets rely on remittances and using stable coins seems like a viable solution to the instability of crypto assets like BTC.
Projects like Facebook's Novi already use solid coins to facilitate cross-border transactions, with the project's marketing efforts largely focused on remittances. Central bank digital currencies (CBDCs) can offer similar low-cost transactions that help consumers move money across borders at low fees. The problem with these two solutions is the central unit behind them, which can easily differentiate and, for example, geoblock users. Decentralized blockchains work on scaling to handle thousands of transactions per second and lower money transfer fees. Add solid coins and the only thing standing in the way of mass adoption of cryptocurrencies could be the specialized knowledge required to navigate various blockchains and understand how addresses work.
Improvements in user experience have long pushed back addresses and navigation on the blockchain while helping users focus on payments. Once blockchain technology is used behind the scenes at low fees, transfers are bound to become crypto. However, these transactions can take years.