The Bitcoin Remittance Myth
Posted on Apr 13, 2015 by Edrizio De La Cruz
There are a lot of misconceptions about Bitcoin floating around. One of them is its potential role in revolutionizing the remittance industry.
While I agree that Bitcoin offers tremendous potential for remittances, I think that most analysts have forgotten about the most important part of the industry: the people who send them.
In my family, we’ve been sending remittances since we arrived in the U.S. from the Dominican Republic 20 years ago. As a member of this diaspora, I think it’ll be a long time before Bitcoin changes the way the majority of people support their families abroad.
Here are five myths about Bitcoin and remittances, debunked.
Myth #1. Bitcoin is free
Contrary to popular belief, there are fees associated with Bitcoin. You have to pay to acquire bitcoins in the first place. Coinbase, the largest Bitcoin wallet service, charges 1% for each transfer from bitcoin to dollars or from dollars to bitcoin + a flat fee of $0.15.
Right now, miners are rewarded with bitcoins for facilitating exchanges, so they have an incentive to do it. However, as mining becomes less and less difficult, the rewards are decreasing, which means miners will shift to transaction fees in order to make a profit.
And while many traditional money transfer services do charge high fees, online money transfer businesses have been finding ways to lower fees.
Myth #2. Bitcoin is Completely Safe
While bitcoin transactions are currently secure, if the mining process were to end securing bitcoin transactions could become troublesome because the two are intertwined. According to Bitcoin.org, mining “prevents any individual from replacing parts of the block chain to roll back their own spends, which could be used to defraud other users.“
Once all 21 million bitcoins are mined, mining rewards will come to an end and it’s not guaranteed that transaction fees will be enough to keep people mining. As of now, no one knows exactly what will happen then. Some think securing the blockchain will be enough of an incentive for people to keep mining.
Myth #3. Bitcoin is instantaneous
It’s true that transferring bitcoins from online wallet to online wallet takes as little as ten minutes, but getting started with Bitcoin takes more time than simply going to a store and sending a cash remittance.
First of all, to acquire Bitcoins as an end-consumer you must purchase them via an exchange (e.g. Coinbase). It’s a lengthy process. First, you need to register for a bitcoin wallet, set up 2 factor authentication, and have your bank account verified. Getting set up can take two days.
Even when you have a wallet set up, purchasing bitcoins on an exchange is far from instantaneous. It took a week for them to show up in my wallet!
Myth #4. Bitcoin is widely accessible and easy to use
As CNBC has previously debunked, Bitcoin is not nearly as big as all the talk around it suggests. Bitcoin has a total value of $10.8 billion, which is minute compared to the total stock of the U.S. dollar and the $4 trillion in global currency traded daily. Merchants haven’t adopted Bitcoin widely because the price is volatile and because governments haven’t decided how to regulate it yet.
Right now, Bitcoin is an esoteric technology at best. Few people understand it, let alone use it. According to recent research, Bitcoin users are overwhelmingly male (88%), young, and fairly affluent (over half have annual incomes of over 50k).
Myth #5. Bitcoin will be readily adopted
This is the biggest myth of all. Those advocating for Bitcoin as the savior of the industry seem to think remittance senders are hip on tech. Bitcoin use is limited even among people who are tech savvy and comfortable making purchases online. Remittance senders tend to be neither.
The reality is that 90% of remittances currently happen offline because unlike Bitcoin users, the vast majority of remittance senders are working-class immigrants who are not trusting of e-commerce or not familiar with it at all. Remittance senders will have a higher learning curve when it comes to Bitcoin because they are generally underconnected, underbanked, and wary of online financial services. Not to mention that adopting Bitcoin isn’t as simple as switching to a new company, it’s more like adopting a new philosophy.
Even if Bitcoin takes off tomorrow, replacing other forms of monetary transfers in all developed countries, banks and payout locations in recipient countries don’t currently accept Bitcoins. Since there’s no reliable system in place to cash out Bitcoins, payout locations where recipients can pick up cash would still be necessary, which means people would probably still need to pay fees. To think that current remittance receivers will a) be able to set up and receive Bitcoins and b) be able to use them anywhere in their country for what they need (often basic necessities like groceries) is unrealistic.
Don’t get me wrong. I believe in and totally support Bitcoin. I think that in a few decades Bitcoin will do for payments what email did for mail in the 90s and what debit cards did for checks in the 80s. I just think it’s gonna take some time.