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 every devotee’s dream.
The CEO of the crypto derivatives trading platform BitMEX, Alexander Höptner, 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 funds.
He believes that all year round there will be developing countries that will adopt cryptocurrencies due to the growing demand for cheaper and faster cross-border transactions, rising inflation and major issues.
Many other commentators have suggested that Bitcoin and other cryptocurrencies are the solution to the high costs associated with wire transfers, as cryptocurrency transactions can be much cheaper than wire transfers in the United States if resolved in less time.
El Salvador is the first country in the world to accept Bitcoin as legal tender, with the country’s Bitcoin law officially going into effect on September 7th. The government has launched a cryptocurrency wallet called Chivo with Lightning Network, a layer 2 scaling solution, for transactions. The country also bought 700 BTC over time.
Worldwide remittances hit over $ 689 billion in 2018, and commissions are so high that a $ 49 billion industry has grown around them. For crypto advocates, El Salvador is a perfect example of how cryptocurrencies can positively change the world, but for others, the volatility and general lack of confidence in the market make the adoption of cryptocurrencies impractical and inevitable.
Is a crypto bank a bank?
With the Chivo wallet, Bitcoin can effectively contribute to providing financial services to the population of El Salvador without and without bank details. The country’s president, Nayib Bukele, announced in September 2021 that 2.1 million Salvadorans are actively using wallets, despite outcry against the new law, in which protests even burned a Bitcoin ATM.
2.1 million Salvadorans are active @chivowallet (do not download).
Chivo is not a bank but in less than 3 weeks it now has more users than any other bank in El Salvador and is moving fast to have more users than ALL BANKS IN EL SALVADOR total.
– Nayib Bukele (@nayibbukele) September 25, 2021
According to him, Chivo is not a bank, but in three weeks it has attracted more users than any bank in the country. However, that assumption could include a $ 30 BTC airdrop that El Salvador is sending to every adult citizen using a government wallet app.
Speaking to Cointelegraph, Eric Berman, senior legal editor for US finance at Thomson Reuters Practical Law, said that crypto transfers were “a purist pipe dream.” While Höptner pointed out that remittances accounted for 23% of El Salvador’s gross domestic product in 2020, Berman countered that only a fraction of the country’s companies made payments in bitcoin and cryptocurrency apps, and the government’s death was hampered by technical issues .
Berman added that “the majority of El Salvador’s annual $ 6 billion remittances are still made through remittances,” as many are suspicious of crypto volatility. Due to the impracticality of volatility, Bitcoin has not been widely accepted as a payment method by merchants, adding:
“This unrealistic possibility is increased exponentially for the disenfranchised and bankless. Nobody wants to send mom $ 100 just so it’ll be worth $ 80 when it gets to her. “
Berman added that “instead of the populist revolt that BTC purists have been promoting for years,” Bitcoin adoption is growing thanks to “perhaps happy noises” long overdue by US and global regulators.
In fact, US Securities and Exchange Commission (SEC) chief Gary Gensler has confirmed that the regulator will not ban cryptocurrencies. In fact, this week the SEC approved the first Bitcoin futures (ETF) -linked exchange traded fund in the US, ProShares’ Bitcoin Strategy ETF.
Berman suggests that the growing adoption and price of Bitcoin are the result of “organizational enthusiasm that is the opposite of the grassroots movement for the disenfranchised and bankless currency that BTC spawned over a decade ago.”
Oleksandr Lutskevych, founder and CEO of the crypto exchange CEX.IO, seems to disagree with Berman’s assessment, saying that the introduction of El Salvador highlights Bitcoin as an “alternating, centralized road traditionally used for money transfer”.
As for Lutskevych, Bitcoin’s infrastructure is also being set up to encourage the transfer of stablecoins on its network to ensure that cryptocurrency volatility does not affect transfers. El Salvador’s move promotes financial inclusion by helping to reduce remittance costs, he said.
Adoption out of “sheer need”
In emerging markets, crypto advocates argue that its rollout could be the result of “sheer necessity,” as the transaction fees paid on most blockchain networks are lower than the fees paid by some money transfer providers.
According to Lutskevych, “it is very clear in relation to the reasoning behind Bukele’s campaign to make BTC legal tender,” that the crux of the move is to encourage the adoption of BTC through wire transfer. Lutskevych added:
“One of the main reasons this country passed such a law was to reduce remittance costs, promote financial inclusion, and increase GDP by using BTC and its transfer infrastructure to promote financial inclusion.”
In his words, the adoption of new technology is often the result of “sheer necessity,” and that could be the case for bitcoin and crypto in developing countries whose populations are affected by the cross-border crypto payment company Celo Labs averages 6.38% and can often exceed 10% of the amount sent.
Lutskevych took his stand, adding that the 2021 Chainalysis Global Cryptocurrency Acceptance Index shows that of the top 20 countries for crypto adoption, two-thirds are “the developing countries with a high percentage of GDP from remittances.”
He added that developing countries are now realizing the value of the “scalable transfer infrastructure of BTC combined with the decentralized and rational monetary properties of Bitcoin”.
Lutskevych also noted that the capacity of Bitcoin’s Lightning network has increased more than 25% since the El Salvador Bitcoin Law came into effect, while the number of payment channels on the network has also increased significantly and “the parabolic trend at the same time “The law started working. “
For him, the growing volume of peer-to-peer (P2P) transactions in countries like Nigeria shows that cryptocurrencies like BTC play a role in “bringing foreign money into the country”.
Franke added to the train of thought and said that cryptocurrencies can be programmed, which enables more complex financial operations without the need for a third party. These traits have led remittance giants to take an interest in the cryptocurrency, Franke said.
For example, he points out that MoneyGram is introducing USDC payments using the Stellar blockchain, and adds that the Asian Development Bank has announced services like Ripple, Mobile Money and bKash that have made it possible to “expedite payments”. during the Covid-19 pandemic. “
Amr Shady, CEO of business-to-business finance and payments platform Tribal Credit, told Cointelegraph that Mexico could be another example of a country adopting cryptocurrencies for wire transfers, as estimates have shown it will reduce the cost by 50 up to 90 percent.
It’s all just numbers
If there are actually five countries that accept Bitcoin or another cryptocurrency as legal tender, adoption is expected to continue to grow. Emerging markets rely on remittances, and the use of stablecoins appears to be a possible solution to the volatility of crypto assets like BTC.
Projects like Facebook’s Novi have used stablecoins to facilitate cross-border transactions, with the project’s marketing efforts focusing heavily on remittances. Central bank digital currencies (CBDCs) can offer similar low-cost transactions to help users move money across borders at a low cost.
Related: Asian CBDC Projects: What Are They Doing Now?
The problem with these two solutions are the central authorities behind them, which can easily start discriminating against users and doing geoblocking, for example. Decentralized blockchains are working to scale to thousands of transactions per second in order to reduce transfer costs. Add stablecoins and the only thing preventing the mass adoption of cryptocurrencies is most likely the specific knowledge required to navigate different blockchains and understand how addresses work.
User experience improvements have long since pushed the blockchain address and navigation back, while …