Every year, billions of dollars are sent to businesses and individuals globally. Due to the rise of digital currencies and their effectiveness as a digital asset, cryptocurrencies are turning into a viable means of transferring money.
Virtual currencies have inherent advantages. Sending money through cryptocurrencies like Bitcoin is more secure, can be done faster and over international borders with ease, and is far cheaper than fiat currencies.
The digital currency landscape is constantly changing, and many tokens are already being used as a form of investment or as a medium of exchange. Here’s how crypto can support money transfers:
What is Crypto?
Crypto, which is short for cryptocurrency, is a type of virtual currency secured by cryptography technology. Through secure algorithms and a vast network known as the blockchain, crypto is one of the most secure ways of sending money online while reducing the risks of double spending and counterfeit spending.
Crypto’s methodology also takes away a lot of the control from centralized banks. Crypto is based on blockchain technology which uses Proof of Stake (PoS) smart contract technology or Proof Work (PoW) mining technology to validate and confirm transactions. Therefore, whenever a transaction is made, it is securely posted to a public blockchain address which a global network of users can independently verify.
Because of its decentralized nature, crypto has the potential to transform how we perform online transactions and send money. In fact, crypto has taken off to sell artwork and other creative assets while maintaining creative rights.
What About Stablecoin?
Stablecoin is a type of cryptocurrency that is designed for everyday use. Stablecoin is a digital asset, like the USDC and Sila token, which is pegged to a reserve asset or stable asset. Stablecoin can be pegged to another cryptocurrency, like Bitcoin, gold, or a fiat currency. It can also be modified by an algorithm to remain stable. Therefore, stablecoin has more uses in everyday life because a reserve asset can back it.
Stablecoins are attempting to be a fiat coin because it is backed 1:1 by an asset held in a regulated financial institution. Therefore, it is a powerful solution for international money transfers.
While stablecoin and cryptocurrency are not yet perfected, they can be transferred to other users. The more digital wallets that accept crypto-like stablecoin, then the more uses there will be.
Ways Crypto Can Support Money Transfers
Cryptocurrencies like Bitcoin are changing how money transfers are sent. Bitcoin eliminates the need for any intermediary to approve the transaction made between peers (P2P), consumers (B2C), and businesses (B2B). This means that transactions can be made with lower approval fees, quicker processing times, and more options for receiving what.
Blockchain technology drastically reduces the costs and time associated with clearing transactions and settling payments. Through smart contract technology, payments can be settled almost automatically, bringing us far closer to real-time transactions than what was previously possible through financial institutions.
With blockchain, companies have near-immediate access to the funds. This means that donations, for example, can be made to a company, and they will have access to those donations that same day.
While other P2P and digital wallet technologies allow this type of immediacy, they also restrict users in terms of how quickly the money can be posted to a bank account, and they also charge a large range of fees. These digital wallets may not be as secure, either, and they may have limitations on how much money can be transferred to a certain person or business in a day.
Uses of Blockchain Technology for Money Transfers
Money sent through bank transfers is usually sent through that method because of the security of the system. Banks allow Automated Clearing House (ACH) payments to move through the financial institution through the ACH Network and to be approved.
However, crypto is extremely secure because the network verifies online payment, private keys, and public keys.
Crypto uses tokenization to strengthen the structure of capital markets. It can tokenize securities, like stocks, bonds, and alternative assets, making investing and controlling your investments more reasonable. Blockchain can also make it easier for people with bad credit to get a hold of credits and loans. Blockchain can make borrowing money safer and more accessible while also providing lower interest rates.
The Versatility of Blockchain for International Payments
While there are means of sending money internationally right now, money transfers are severely restricted by fees. Many digital transfers charge a percentage (as much as 7%) for transactions. These bank transfers might not be immediate, taking up to 3 to 5 business days to get into your bank account.
In countries with poor infrastructure, this means that money could take weeks (if at all) to transfer. However, by allowing blockchain transactions, more people can access funds. Blockchain can be integrated into digital wallets like the Sila digital wallet, which can also be created as a white label digital wallet API. This can open up doors (virtually and physically) for more people to have access to money.