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Remittance, the practice of sending money abroad, is ripe for disruption. More than half a trillion dollars flows across borders to low- and middle-income countries each year, a number so huge that it exceeds foreign investment and foreign aid combined. At the same time, money traveling around the world must be navigated through remittance providers, banks, credit card companies and other institutions. Each middleman adds his own fees and delays, taking a piece of the money from those who need it most.
Into that mix comes Bitcoin, a peer-to-peer network that allows people to send money directly to anyone in the world, bypassing the maze of money-hungry institutions that 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 process of sending remittances cheaper, faster and more accessible, but it's certainly not the last. As the technology matures and awareness grows, Bitcoin will continue to displace the old remittance infrastructure with a peer-to-peer system that will help humanity tremendously.
The growth and challenges of remittances
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 ability to fix things into a profitable handyman business in Greece, their adopted country. As a result, they were not only able to raise their standard of living, but were also able to provide for their family back home by sending back a few precious euros every month.
No trend is more indicative of the interconnectedness of our world than the rise of remittances. As globalization took hold over the past two decades, more people found themselves earning in a country that was not their own and sending some of that money back to their families back home. According to World Bank data, remittance payments reached $646 billion in 2020, representing a 460% increase since 2000. In context, the US stock market and GDP grew by 338% and 100%, respectively, during the same period .
However, remittance fees can often take a huge bite out of the meager earnings foreign workers manage to scrape together, not to mention the time delays it takes for money to travel around the world. Another major issue is the lack of access to traditional banking in the developing world. 1.7 billion people around the world remain unbanked and locked out of global trade. Any hopes that the world's unbanked population will be catapulted into better conditions are severely hampered by the institutional requirements designed against them. Many people living in rural communities don't even have a driver's license or other forms of government-issued identification to open an account.
Bitcoin & Crypto: The Savior Of Foreign Workers
For those living in the lap of luxury in the developed world, Bitcoin may seem like a nice add-on. It may provide protection against the declining purchasing power of fiat and guard against government overreach, but it is not necessary 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 following closely behind. El Salvador, where remittances account for 20% of the country's GDP, liked the idea of using Bitcoin so much that they made it legal tender.
But what makes Bitcoin so attractive to foreign workers worldwide?
First, the peer-to-peer nature of Bitcoin allows them to send money directly to a crypto wallet owned by their loved ones, bypassing any middlemen who seek a fee in the process. Second, bitcoin's divisibility into 100 million units called satoshis means they can send any amount of money they want.
The Lightning Network, a scalability solution that makes Bitcoin payments faster and cheaper, has excited El Salvador so much that it aims to use 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 past six months, adding 36% of its 12,958 nodes in 2021 alone. Lightning's growth is fueled by its ridiculously low fees, currently averaging term at one satoshi ($0.000296926) per transaction.
Another advantage of Bitcoin is that it exists outside of the traditional banking system and is therefore not subject to any of their requirements, such as a government-issued ID. 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, corporations, 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 an “airdrop” stimulus worth $30 in Bitcoin.
The Herald of Hope
Finally, Bitcoin could give citizens of the developing world an opportunity to enter the future of finance on equal terms. While both givers and remittance recipients will have to spend a large portion of their satoshis on expenses, stacking up those extra few sats each month could build up to a respectable Bitcoin stash.
On a social 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 incentivizes people to spend it immediately. Not so Bitcoin, whose value evolves and whose very nature encourages saving and responsible fiscal behavior.
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