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Inside Bitcoins Remittances and the Developing World

Marc Hochstein, Executive Director of American Banker, was the moderator for the morning keynote “Bitcoin, Remittances and the Developing World” at the New York City Inside Bitcoins conference. Marc was joined by Pelle Braendgaard Co-Founder, mobile Bitcoin wallet Kipochi;  Christian Jacken, Bitcoin Entrepreneur and co-founder Liquid Democracy;  Edan Yago, CEO, Epiphyte; Mary Dent, Founder, dcIQ  and Stephanie Murphy co-host Let's Talk Bitcoin! and COO Fr33 Aid.

It has been 15 years since Japan based NTT DOCOMO launched the first mobile phone internet service. This same year, in 1999, SMS texts could be exchanged between different networks for the very first time. As Christian pointed out, we are now at a point in time that the mobile phone is replacing the laptop. Earlier this year in the Let’s Talk Bitcoin report “CGAP: Bitcoin Not Helping the Poor” I noted that more people have access to mobile phones than working toilets.  

This panel also came together about two weeks after it was announced that the Bitcoin Foundation is in the process of creating a committee for Financial Inclusion which will probably be headed by Bitcoin luminary Andreas M. Antonopoulos, the Chief Security Officer of Blockchain.info and co-host of Let’s Talk Bitcoin.  

The discussion was focused around the transmission of money across borders and how utilizing Bitcoin could potentially be quicker and cheaper and even more easy than through the banking system or companies like Western Union and Moneygram. This panel will look at the possibilities for Blockchain technology to facilitate international remittances from immigrants in the west to their families in the developing world. But, like any payment mechanism using Bitcoin for remittance introduces, it could add an extra layer of foreign exchange risk and operational risk for the recipient.

Edan said that he believed that remittances would not be the driver of Bitcoin adoption because more liquidity is first needed. However, adoption and therefore the velocity of transactions appear to be increasing at an exponential rate as the only barrier to entry for Bitcoin adoption is a text enabled phone. This is hardly a “barrier” as the Vodafone Foundation recently revealed in its report (PDF) “How mobile phones are changing the world – and the challenges facing the next mobile revolution,” that a reliable mobile phone in sub-Saharan Africa has dropped to $10 for a basic 2G handset with voice and data. Pelle mentioned that he was able to buy a mobile phone very cheaply as well ...but in a colored fashion that his purchase had what I will refer to as a tourist “surcharge.” Further it was interesting to note that Edan is working on a free trade zone in the Honduras that would use cryptocurrency as legal tender.

In the Remittance Prices Worldwide site the World Bank notes that “the single most important factor leading to high remittance prices is a lack of transparency in the market.” The panel however focused on whether or not compliance and regulatory costs might undermine the cost advantages of remittances using Bitcoin. Stephanie got back to basics noting that Bitcoin is Peer to Peer and there is nothing stopping individuals from transacting directly with one another {rather than using a value added service that is subject to more regulatory scrutiny).

Blockchain technology is a foundation of transparency and therefore Bitcoin is a natural disrupter for remittances. In regards to regulation in the under-developed world, most panelists seemed to agree that Bitcoin would add a layer of transparency to informal Hawala value transfer networks.  Pelle pointed out that Hawala already works quite well even though there is a push for western style banking.  

Although it may be too early to make a correlation, worldwide remittance prices are at a low according to March 2014 Remittance prices report Analysis of Trends in the Average Total Cost of Migrant Remittance services (PDF):

“In Q1 2014, the Global Average total cost of sending remittances was recorded at 8.36 percent, declining from 8.58 percent in the previous quarter and reaching a new lifetime low.”

These averages are contrasted with outliers in South Africa that are north of 19% according to Remittance Prices website at the World Bank. However, Edan noted that most money is being sent between remittance channels which are cheap.  

The U.S. dollar is the world’s reserve currency and that includes the global citizenry...not just banks. More people use the U.S. dollar outside of the United States than inside. That said, people are more likely to use their local currency than the U.S. Dollar. Keeping this in mind, Edan noted that he didn’t believe that Bitcoin would replace local currencies around the globe.

Mary said that one cannot thrive in the modern world unless you have financial access, access which Bitcoin might be able to provide.

Brian Cohen

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