Moving money efficiently is one of the cornerstones of global capitalism. At a more mundane level, many livelihoods rely on cheap, fast, cross-border money flow: remote workers, freelancers, or remittance-dependant populations. The world Bank estimated the latter at US$ 702 billion in 2020, down from 2019’s record US$ 720 billion. Still according to the Washington D.C.-based institution, the money transfer gatekeepers commissions on that amount totaled 6.38% on average, a sum close to US$ 45 billion last year. The gatekeepers are banks, post offices, Money Transfer Operators (such as Moneygram or Western Union), or mobile phone operators, grossly ordered here from slow and expensive to fast and relatively cheap. There is a lot of hype right now about how cryptos could change the whole money-sending status quo, especially since El Salvador adopted BTC as a legal tender on September, 7, and launched the Chivo app, powered by BitGo, that moves BTC and US$ instantly and cost-free. Are cryptos already the best way to send money in a fast, reliable, and cheap way, even for those not living in El Salvador? Let’s take a look…
Law of the Fee: Miner’s Keeper
First, it’s important to understand that most cryptos transactions bear inherent costs, by design. They exist to reward the miners for producing and/or validating new blocks that store settlements on the chain. They are called withdrawal fees, (gas fees in the Ethereum chain). Those rewards are not fixed, they’re proposed by the transaction initiator, and miners will of course process the higher rewards first. In Bitcoin’s case, a 1 MB block is created every 10 minutes, holding on average around 1.500 transactions. If there is a lot of activity in the network, the fees will go up. A good tool to check the current fees on the BTC network is mempool, which gives their values in real-time for low, medium, or high priority, in US$ or in satoshis (1 hundred millionth BTC) per byte (sat/byte), as seen below.
As you can see, the fees are currently low, under 1 US$. Ain’t that great? It means that I could send, say a hundred US$, to the other side of the world for under a buck, doesn’t it? Well, you could… It depends on where do you store your coins. If in a wallet, then, yes. You could even play with the fees if the transaction is not that urgent, and set a low sat/bytes figure, paying less than 20 cents. But if your coins are in what is called a centralized exchange, (such as crypto.com, Gemini, Binance), the same operation could cost you a flat fee of around US$ 20, according to withdrawalfees.com. Why this difference? We can think of several reasons: first exchanges are strictly regulated in most countries and subject to KYC norms, which increases costs, second they make life easier for new coiners, assuming the custody and security of their assets (some better than others), and finally, they’d rather keep your funds in the house.
Note that a few exchanges offer cheap, under US$ 5 fees, so the distinction between them and wallets doesn’t apply in all cases. Another thing to keep in mind is that fees can be as volatile as the coin’s value. Cheap today, who knows tomorrow? So in case you send money regularly, BTC is probably not the best option. What about Ether? Nope, Ether transaction costs (called gas fees, and expressed in gwei, or 1 hundredth million Ether) follow at this moment more or less the same pattern as BTC’s. The official fees are around 3 US$ if you send from a custodial wallet, and average US$ 24 using exchanges.
Forkin’ it out
Fortunately, there are other network/blockchains that offer coins and tokens with zero or low (under US$ 2) associated fees and fast execution time, already widely supported by the main wallets or exchanges. Among them, we can find 1 early (2011) BTC spinoff, Litecoin (average fee: US$ 1.16), a 2014 BTC altcoin, Dash (US$ 1.80), and 2 BTC forks: Bitcoin Cash (US$ 1.92) & Bitcoin SV (US$ 1.21) (technically the later is a fork of the former). We can add XRP (US$ 0.84), the native currency of big fintech Ripple’s blockchain, and XLM (US$ 0.39), the native cryptocurrency of the Stellar blockchain, launched by Ripple co-founder Jed McCaleb.
you’ll be charged less than 1 US$. If you don’t own BTCs and live in the US (outside of Hawaii and New York), check out the Strike app. Available on the Play or App Store, it lets you link a bank account to transfer funds to the app, buy BTC (for a few pennies) and send the desired amount to the receiver’s address. The whole setup takes under 10 minutes. Alternatively, use one of the coins we’ve outlined above: most exchange platforms charge 0.3% for an instant buy. Get the receiver coin’s address and send the funds. The cost will depend on the charge applied by the exchange for the chosen crypto; as we’ve already seen, you shouldn’t pay more than 2 US$, and in many cases, you can expect to pay even much less than that.
Expect this panorama to change quickly in the near future, notably with the Lightning Network, a fast layer (25 million transactions/second and increasing) of interconnected nodes that validate off-chain transactions enforced by smart contracts, and built on top of the bitcoin blockchain, if that makes sense to you. Broadly speaking, the nodes in the network sign off transactions without broadcasting them to the blockchain, avoiding the mining fees and speed limitations that otherwise would apply for each transaction. To sum it up, we think cryptos are already a valid way to send money quickly and cheaply, with a bit of due diligence work upfront. And this is just the beginning…
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By Obo Khan @cryptotravelmagazine.com