What makes crypto borderless?
The transformative power of cryptocurrency isn't limited to its ability to circumvent the banking system, or provide people with a means of transacting value 24/7.
It also extends to its borderless infrastructure, which allows anyone to send value fast and efficiently around the world — without any centralized intermediary involved.
You might be thinking — how fast?
When compared to traditional overseas payments, cryptocurrency payments are lightning fast.
Instead of taking one to five business days to process, most cryptocurrency solutions can process transfers in less than five minutes.
There are also no additional fees or exchange rate charges involved when sending cryptocurrency overseas.
Cryptocurrency fees typically range from a few dollars to fractions of a cent, depending on factors such as how busy the network is.
By comparison, most banks charge anywhere from 0.5%-4% to send overseas payments. This does not include exchange rate margins (between 1-5%), additional fees charged to recipients when receiving the payment and other hidden costs.
For the average person who rarely sends overseas payments, it's easy to overlook the significance of these improvements. But for the tens of millions of people that rely on global remittance payments to support their families back home, the marked efficiency and cost-effectiveness of cryptocurrency payments is life-changing.
Kraken let's you access the borderless world of cryptocurrency. See what crypto can be by signing up for your Kraken account today — or keep reading to learn more.
What does borderless mean, exactly?
It was built from the start to be globally accepted — and anyone is free to transact it with other people around the world.
In other words, one Bitcoin in the United States equals one Bitcoin in Argentina or anywhere else in the world. It's a universal currency that holds the same value no matter which country it's used in.
Let's think about traditional government-issued currencies for a moment. The paper bills you might have in your wallet right now can only be used in specific countries. By design, these fiat currencies are not borderless. They must be exchanged for other currencies.
For example, you wouldn't be able to visit a shop in Scotland and pay using Malaysian Ringgits, even if you offered the correct equivalent amount. Similarly, a person wouldn't transfer Japanese Yen to friends in Australia. The money would be useless in that part of the world without exchanging it for the local currency.
Cryptocurrency offers a unique alternative. Many vendors all over the world now accept cryptocurrency payments. This adoption allows crypto holders to spend their Bitcoin, Solana or whichever digital asset their country supports, without needing to exchange it.
While overall adoption remains relatively low, expert reports anticipate adoption to rise significantly over the next decade.
How do crypto payments compare to traditional remittance payments?
Traditional remittance payments
- Remittance payments can take between one to five business days to process.
- In Q1 2022, payments cost on average between 3-7% of the total transaction across multiple services (post offices, banks, mobile operators, and money transfer operators).
- Banks charged people on average 10.92% to send remittance payments in 2022.
- Remittance payments can be subject to hidden exchange rate fees.
- Remittance platforms and banks require workers to provide documentation and create accounts before sending payments.
- Payments can take between five minutes and a few seconds to process (depending on the blockchain network).
- Transaction fees can range between a few dollars to fractions of a cent (depending on the blockchain network).
- Crypto payments are not subject to exchange rate changes.
- No documentation or account is required to send or receive crypto payments peer-to-peer. All users need to do is simply download crypto wallet software.
Why is it important that crypto is borderless?
The global accessibility of crypto makes it an ideal solution for those seeking to transfer value overseas — whether for remittance or humanitarian aid purposes.
As we've already seen, traditional payment options for global remittance workers incur high fees, take days to process, and are subject to volatile exchange rates. This means banks and other services like money transfer operators (MTOs) take a large percentage of the transfer and less value reaches the people who need it most.
According to recent data, the average cost of remitting $200 across all global regions (i.e. East Asia and Pacific, Europe, Latin America, etc) ranged between 4.05% and 7.84%. This figure does not include hidden costs like exchange rate charges. These costs are more than double the target set by the United Nations' Sustainable Development Goals.
As an example, it can cost up to $15.68 to send $200, excluding exchange rate charges (which can amount to an additional 5%) and recipient fees (which can vary significantly depending on the recipient's bank).
Cryptocurrencies remove the costly middlemen from this process and enable people to send value directly to their loved ones. This wouldn't be possible if it wasn't for the borderless nature of cryptocurrencies.
During humanitarian crises, cryptocurrency has proven to be a highly effective system for donating value directly to those in need. In 2018, Reddit users collectively sent cryptocurrency to a Venezuelan citizen seeking help to buy food and medicine for his local village. At that time, the country's annual inflation rate hit 80,000% — making necessities virtually impossible to afford.
The fast, direct, and borderless nature of cryptocurrencies allowed people to quickly respond to this crisis, and many others like it. These examples illustrate the immense significance of being able to send cryptocurrency fast and cost-effectively to anyone around the world.
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