Remittance, the practice of sending money overseas, is ripe for disruption. Over half a trillion dollars flow across borders to low and middle-income countries each year, a figure that is so huge that it surpasses both foreign investment and foreign aid combined. At the same time, money traveling the globe has to navigate through remittance providers, banks, credit card companies, and other institutions. Each intermediary adds its own fees and delays, taking a chunk out of the money from those who need it most.
Into this mix comes Bitcoin, a peer-to-peer network that allows people to send money directly to anyone in the world, bypassing the labyrinth of hungry institutions who each demand their cut. El Salvador, which recently made Bitcoin legal tender, is the first country to recognize Bitcoin’s untapped potential to transform lives by making the remittance process cheaper, quicker, and more accessible, but they’re certainly not the last. As the technology matures and the awareness grows, Bitcoin will continue to displace the old-school remittance infrastructure with a peer-to-peer system that will help humanity tremendously.
The Growth & Challenges of Remittance
Patrick and his brother Michael had left their hometown of Colombo, Sri Lanka, in search of a better life for themselves. For half a decade, the brothers had transformed their knack for fixing things into a lucrative handyman operation in Greece, their adopted country. As a result, not only did they manage to elevate their standard of living, they were also able to provide for their family back home by sending back some precious Euros each month.
No trend is more indicative of the interconnectedness of our world than the growth in remittance. As globalization took hold over the last two decades, more people found themselves earning in a country that was not theirs and sending some of that money back to their families at home. According to World Bank data, remittance payments reached $646 billion in 2020, representing a 460% increase since 2000. For context, the stock market and the US GDP have increased by 338% and 100%, respectively, during the same period.
However, remittance fees can often take a massive bite out of the meager earnings that foreign workers manage to scrape together, not to mention the time delays it takes for the money to travel across the world. Another significant issue is the lack of access to traditional banking in the developing world. 1.7 billion people across the globe remain unbanked and excluded from global commerce. Any hopes that the world’s unbanked population will catapult themselves to better circumstances are severely hamstrung by institutional requirements designed against them. Many people living in rural populations don’t even have a driver’s license or other forms of government-issued ID with which to open an account.
Bitcoin & Crypto: The Saviour Of Foreign Workers
For those living in the lap of luxury in the developed world, Bitcoin may seem like a nice add-on. It might provide a hedge against the declining purchasing power of fiat and protect against government overreach, but it isn’t essential for survival. Not so in the developing world, where more and more people are turning to Bitcoin as their savior. In Nigeria, 32% of the population use or own crypto, with the Philippines and Vietnam closely following behind. El Salvador, where remittances count for 20% of the nation’s GDP, loved the idea of using Bitcoin so much they made it legal tender.
But what makes Bitcoin so attractive to foreign workers worldwide?
Firstly, the peer-to-peer nature of Bitcoin allows them to send money directly to a crypto wallet belonging to their loved ones, bypassing all the fee-seeking middlemen in the process. Second, bitcoin divisibility into 100 million units called satoshis means that they can send any amount of money they wish.
The Lightning Network, a scalability solution that makes Bitcoin payments faster and cheaper, has excited El Salvador so much so that they are aiming to utilize it on a national scale, serving as a model for the rest of the world. While the Lightning Network has been around for three and a half years, it has grown exponentially in the last six months, adding 36% of its 12,958 nodes in 2021 alone. Lightning’s growth is fuelled by its ridiculously low fees, currently averaging around one satoshi ($0.000296926) per transaction.
Another advantage of Bitcoin is that it exists outside the traditional banking system and therefore isn’t subject to any of their requirements, like a government-issued ID, for instance. Anyone can open a Bitcoin wallet that supports the Lightning Network and start receiving Bitcoin from their loved ones and spending it wherever they want. Once people have a Bitcoin wallet, governments, companies, and community organizations can leverage several ways to incentivize good behavior and bootstrap adoption. For example, the President of El Salvador recently announced that all adult citizens are eligible to receive a stimulus ‘airdrop’ worth $30 in Bitcoin.
The Harbinger of Hope
Finally, Bitcoin could give developing world citizens a chance to enter the future of finance on equal footing. While both the givers and recipients of remittances will have to spend a lot of their satoshis on expenses, stacking those extra few sats each month could accumulate into a respectable holding in Bitcoin.
On a societal level, Bitcoin is the perfect antidote to the spend-what-you-can’t-afford culture that prevails in much of the world today. Fiat currency loses its purchasing power over time, which incentives people to spend it immediately. Not so Bitcoin, whose value evolves and whose very nature encourages savings and responsible fiscal behavior.