Can crypto replace cash remittances?
Solicited response to Kernel Magazine
Crypto remittance platforms promise instant cross-border transfers for minimal fees, but as highlighted in Isabella's reporting, concerns about volatility risk and ease of adoption abound.
On one hand, crypto skeptics question the ability of users in developing countries to set up a crypto wallet or understand the risks involved. While technological literacy and access are important considerations, this sort of criticism often betrays a thin veneer of Eurocentric paternalism. People receiving remittances in the Philippines, in Central America, or in sub-Saharan Africa are far more sophisticated than commentators give them credit for. Chainanalysis' Global Crypto Adoption Index, which aims to provide an objective measure of which countries have the highest levels of cryptocurrency adoption, ranked Kenya, Nigeria, and Venezuela above the United States. Vietnam placed at the top, driven like other emerging markets by peer-to-peer crypto activity.
Many crypto users in these countries accept and comprehend quite well the technological novelty and risks of participating in the decentralized economy. The strength of the dollar makes it easy for those of us in the United States to overlook why the global underbanked would look to crypto despite the inherent volatility of cryptocurrencies prone to speculation. Certainly, in between sending a remittance in Bitcoin and the recipient picking up their phone later in the day, the value will have fluctuated unpredictably based on the intraday whims of the Bitcoin trading market. Yet, for those staring down record hyperinflation and currency devaluation against a strong dollar, this volatility is preferable to that of the Chilean and Argentine peso. Between Bitcoin and the Zimbabwean dollar, which is sounder money? (Regardless, remitting in stablecoins side steps this problem altogether.)
At the same time, locals such as Manuel and Elvis in El Salvador are right to express wariness in trusting a new, unfamiliar technology when they know that Western Union works. There is no number to call, no recourse if money is sent to the wrong or nonexistent crypto address. Technologies follow an adoption curve model that is explained more by sociology than technology. Crypto remittances are not destined to eliminate traditional money transfer services just because the technology is shinier. However, that doesn't mean technology can't be better designed to solve real-life problems and encourage broader adoption.
The Celo ecosystem is a notable example of how user-friendly decentralized finance addresses the twin concerns of volatility and ease of use. Instead of worrying about typing out or copying and pasting long, unintelligible public keys, users use phone numbers to find people (as with Venmo or Cash App). Transacting in Celo dollar (cUSD) stablecoins pegged to the US dollar removes the volatility aspect of crypto remittances denominated in Bitcoin or Ethereum.
In a pilot program by Mercy Corps, digital microwork gig workers in Kenya received cross-border cUSD payments in real time through the Valora Celo wallet, from which they could seamlessly convert through the Kotani Pay off-ramp in exchange for Kenyan shillings through the M-Pesa network, all for transaction costs less than a fraction of a cent.
Celo and Valora are central to the story of the Nagbacalan Loom Weavers Cooperative in the Philippines. The beneficiaries of a universal basic income project, the weavers weathered the pandemic with the help of a weekly cUSD payments made to their Valora wallets. Not long after, they cut out the middlemen selling their products abroad by setting up an online store taking Celo dollars as a payment method.
Remittance by crypto is all about cutting out the middlemen, giving the likes of Western Union long overdue competition. Crypto remittances will not replace MoneyGram anytime soon, but it gives its users across borders options. Such options hint at the potential of giving people alternatives to legacy, closed proprietary services controlled by monopolistic, anti-competitive corporate gatekeepers. In their place, a more open, connected world is possible.