In today's global economy, the word "remittance" is often used. Cross-border payment transfers between a migrant worker and his or her home country are referred to as the remittance economy. In many developing countries, it is the source of financial flow.
The bulk of remittances are made through centralised institutions such as banks and currency exchanges. One choice is to use a blockchain-based remittance service.
Blockchain-based Remittance
Blockchain remittance is a financial solution that applies blockchain technology to the remittance economy's different needs. It means that service providers will use blockchain-based payment solutions to send and receive money between two people, most likely in different countries.
Unlike traditional remittance networks, blockchain remittance relies on decentralised authorities such as payment systems, foreign exchange, and banks. Rather, the exchange happens between the sender and the recipient. The only mediators are a mobile wallet/bank client and the blockchain network.
Due to these features, blockchain remittance can provide faster transaction times and lower transaction fees. It's often thought to be a smart way to make foreign money transfers faster. To appreciate the value of blockchain remittance through a peer-to-peer distributed ledger, one must first comprehend the shortcomings of current remittance networks.
The Problem of Centralized Remittances
Slow
The infrastructure of traditional remittance networks is outdated. In most situations, a typical remittance transaction takes up to 5 days. Nobody wants to wait a long time to obtain money from another government.
Traditional networks have remained unchanged even though the remittance industry is predicted to reach trillions of dollars by 2022. Transactions in conventional remittance networks are slow due to numerous mediators and verification procedures.
Expensive
Remittance networks, unlike domestic fund transfers, have high transaction fees. The World Bank reports that the global average transaction fee for sending $200 to another nation is 7%. In other words, remittance platforms could charge up to $14 for a $200 remittance from another country. Multiple mediators are one explanation for the high cost.
Not standardized
The new remittance networks have a significant lack of standardization. Before reaching the recipient's bank account, a single transaction can use multiple global standards.
Apart from raising transaction costs, the lack of standardization causes logistical problems. Experts have also noted that transactions made through these networks are not sufficiently transparent.
Blockchain-based Remittance: A solution for centralized remittances problems
Many of the issues listed above can be solved with blockchain remittance. More significantly, the blockchain-based remittance system would provide a sufficient norm for future years. Blockchain technology has two intrinsic qualities: adaptability and scalability.
Multiple mediators are excluded from the equation of blockchain remittance. Except for the mobile wallet or bank that consumers use, blockchain technology will be the sole mediator in the transaction.
The transaction costs and time constraints of remittance transactions would be reduced as a result of this new design. A remittance transaction can take minutes or even seconds to reach the intended recipient. Since there are no middlemen involved in the transaction, transaction costs would be small.
For verification and stability, blockchain remittance employs cryptography's fundamental principles. All blockchain transactions would be registered on a public ledger, ensuring full protection for the individuals (or entities) involved. Algorithms are used in blockchain technology to avoid data manipulation. In short, blockchain remittance transactions would be safe, private, and verifiable for the most part.
Unlike traditional remittance networks, blockchain remittance can be accessed in a variety of ways. A good example is a mobile app that processes blockchain remittances online. In places where there is no access to the internet, ATMs can help with blockchain remittance. There are several other scenarios in which the simplicity and durability of blockchain technology can be used.
Blockchain-based Remittance Limitations
To become an easy and cost-effective alternative to traditional remittance, blockchain remittance must resolve the following issues.
Since blockchain remittance is based on cryptocurrencies, regulatory uncertainty will be a significant problem. Since financial institutions are involved in traditional remittance, it becomes a greater challenge.
The use of cryptocurrency often brings with it the risk of its instability. Experts recommend stablecoins as a solution, but these coins may not be as common as volatile cryptocurrencies.
Even though ATMs in remote locations are an option, almost anything in blockchain remittance requires an active internet connection. In many parts of the world, this dependence may be a problem.
Cryptocurrencies or bridge tokens are used by blockchain remittance networks. As a consequence, consumers must also use their bank accounts to acquire cryptocurrencies, which is inconvenient.
Conclusion
Do you want to give money to someone else in another country? In the near future, blockchain remittance will eliminate the drawbacks of traditional remittance networks. More users are expected to use blockchain remittance networks as cryptocurrencies grow in popularity.
Many countries are working on a better regulatory structure for cryptocurrency transactions in order to increase consumer trust and interest in these platforms.
