A little history
With regard to understanding the concept of crypto cross-border payments, it is necessary to know what are cross border transactions at all.This type of transaction appeared to help people complete financial operations from a distance, meaning that the sender and receiver are in different countries. The sides can be individuals or financial institutions.
In 1872, a major American financial company Western Union launched Wire Transfer. It suggested a method enabling electronic funds transfer from one person or entity to another – on its telegraph network. This innovation was a revolutionary turn point in global economics. Since then, the popularity of cross-border transfers has been growing immensely. The appearance of many e-commerce companies also had a great impact on the market. In 1994 Jeff Bezos founded Amazon, which became a sensation afterward.
Crypto cross-border payments and blockchain technology boom
Crypto cross-border transactions use blockchain technology, thus eliminating the need for banks. Their aim is the same: enabling international transfers between the users.
In 2008, an unknown developer Satoshi Nakamoto built blockchain as a transaction platform for the first cryptocurrency known as Bitcoin. From then on, different cryptocurrencies have been created, with blockchain gaining more and more popularity. Blockchain allows secure and fast fund transfers without any third parties.
Advantages of using blockchain for cross-border payments
Cross-border transactions based on blockchain technology have several advantages over bank transfers. Below are some of them:
1. Time and cost-efficiency
Bank transactions usually involve several steps and intermediaries, which leads to higher transaction costs. Besides, exchange rates can reduce the amount of money that the user originally transfers.
Blockchain offers an alternative to this. As crypto payments don't require any participation of intermediaries, their costs are considerably lower.
Cryptocurrency transfers are more secure than traditional bank payments. The reason is that banks store data in one place. Thus, it becomes more vulnerable to incidents of cyberattacks.
In September 2020, the US Federal agency, the Internal Revenue Service (IRS) was hacked. Hackers stole the personal information of around 104.000 taxpayers. As for blockchain, it is a decentralized database. Decentralization means not storing data in one place but distributing it. Due to this system, it is more difficult to intercept, hack or steal.
3. Record system
In banking systems, it is practically possible to change the data. In blockchain transactions, details are encrypted and hashed, so no one can modify the data.
4. Unlimited amount of sending
Each bank has its rules referring to an allowed transfer sum. Unlike banks, blockchain enables unlimited volume. So, the user can send as many digital assets as he wants.
Although blockchain offers many benefits, there are some challenges for it to face. The main ones are price volatility and transaction costs. The uncertain prices of cryptocurrencies make it harder for traders to accept them as payment without taking on price risks. This refers to consumers as well. However, volatility isn't always a bad thing, and sometimes it can bring profit.
Not always cross-border cryptocurrency transfers are low-cost. The price depends on the digital assets which are involved in the transaction process. For instance, operations with Bitcoin and Ethereum can be expensive, particularly at times of high demand.
Trending: China Issues Digital Yuan WhitepaperCurrently, various platforms are working on the solutions.
How to make a crypto cross-border transaction?
For making an international transaction in crypto, it is necessary to follow these steps:
Change fiat currency into a digital asset. There are various websites and platforms that allow users to do it via bank transfers and credit cards. Among them are Binance, Coinbase, Kraken, Gemini, Changelly, Crypto.com, and many others.
Keep the acquired cryptocurrency in a secure wallet such as Exodus or Ledger.
Transfer the assets to another wallet. Every wallet has an address consisting of different characters.
After receiving the assets, the receipt can convert the crypto to fiat currency and withdraw it. He can also change it for a less volatile digital asset and keep it.
The blockchain industry has been advancing rapidly. People are looking for options for the cheapest, fastest, and most secure international transfers. Crypto transfers are becoming more popular, and they are expected to have a bright future. Many believe that blockchain-based payments will grow into the most common means of international payments in the future.