In order to send $200 from the United States to Kenya it costs around $15. To send to the Philippines $10. To send to the Dominican Republic $13. On average, sending remittances costs around 8.58% of the amount sent. Due to the high cost of sending money overseas, it is no wonder that migrants want to find the cheapest way possible to send their money back home. With the emerging popularity of Bitcoin, migrants may have found a way to send money overseas while avoiding the high fees of companies like Western Union and MoneyGram.
Bitcoin, a form of virtual currency, offers a way to transfer money anywhere in the world for an extremely low fee. It was established in 2009 and has since gained a reputation for its prices being highly volatile. Bitcoin is earned through data-mining, a process which, in the simplest of definitions, involves a computer running an open source software program that solves complex mathematical problems. Once a problem is solved, a Bitcoin is gained. However, this process is slow and solving the mathematical problem can take weeks. Perhaps an easier way to obtain Bitcoin is to purchase it via websites like MtGox. As soon as an individual obtains Bitcoin it is easily and immediately transferable peer-to-peer.
Using Bitcoin to send remittances essentially decreases the need for companies like Western Union or MoneyGram, thus making it a seemingly good idea to use for overseas money transfers. These companies may begin to compete with newly forming Bitcoin exchange companies like Buttercoin and BitPesa, who intend to open local Bitcoin exchanges within countries and trade Bitcoins for local currency. While Buttercoin and BitPesa will charge a fee, it is not expected to be nearly as high as fees charged by traditional money transfer companies.
Another incentive for migrants to use Bitcoin is the speed at which the money will transfer. Traditional money transfer routes can take anywhere from under an hour to five days or more to wire money. With Bitcoin’s peer-to-peer network, transferring money is as quick as sending an email.
However Internet availability in the developing world is a major hurdle when it comes to sending remittances via Bitcoin. While the sender is unlikely to have problems accessing and maintaining an internet connection – since many senders live in well developed countries – the recipients of remittances may have difficulty accessing the internet. This poses a problem for Bitcoin because it functions as an online currency, and without access to the internet it cannot operate.
The volatility of Bitcoin may have migrants skeptical about using it at all for remittances. However, this worry is quelled by the fact that Bitcoin exchange companies plan to absorb any change in price. For example, when an individual sends $200 worth of Bitcoin, that price is locked in and the recipient will receive that money even if the price of Bitcoin drops.
But perhaps Bitcoin’s biggest downfall, at least when it comes to sending remittances, are the Bitcoin exchanges. The idea of migrants using Bitcoin to send money back home is still new, and essentially an untapped market. Some of the largest recipients of remittances, India, the Philippines, Mexico, Nigeria, and Egypt, simply do not have established Bitcoin exchanges yet, and their migrant populations do not know what Bitcoin is. Companies like Buttercoin aim to tackle this problem by setting up local Bitcoin exchanges in countries that receive high amounts of remittances.
With remittances expected to rise to $707 billion by 2016, Bitcoin can become a viable way to send and receive remittances anywhere in the world for those looking to cut out high money transfer fees. It remains to be seen, however, it is likely that Bitcoin exchanges are going to have an impact on traditional wire transfer companies in the future.