The growth of cryptocurrencies, primarily bitcoin, has attracted hype and skepticism in equal measure. But while a lot of attention has been paid to the volatility of the market; the practical uses of this new form of exchange remains appropriately cryptic to most. 
Here we’ll take a look at the promise of cryptocurrency; and also look at how it is already changing cross-border money transfer – we’ll also examine some drawbacks.
The pitch
Cryptocurrencies are based on a simple premise: coins are essentially “mined” by solving a mathematical problem. Other computers, which together form part of a so-called “blockchain ecosystem,” then verify that the “solver” is truthful. Blockchains form the foundation of virtually all cryptocurrencies, and crucially they cannot be fooled. In other words, counterfeiting is essentially impossible.
Moreover, the supply of blockchain backed currencies is scarce by design; new currency can only be created by solving a particularly tough mathematical problem. Again, this differs from existing printed money, which is created at whim by central banks.
The promise
In spite of periodic spasms of media attention, it is observable reality that everyday use of cryptocurrency is still extremely limited. The promise of a blockchain-backed currency that fulfills the role cash does isn’t yet fully fleshed out, but the basic building-blocks are starting to emerge.
Within western countries, there are presently a handful of major retailers, primarily online, who will accept bitcoin transactions. However, there are signs that the late 2017 volatility of the market has tempered the retailers enthusiasm for cryptocurrency, particularly those in China.
To cement this point, leaked documents revealed that the Chinese government is planning to shut down all access to international bitcoin markets over the next year. This doesn’t mean the state doesn’t see a place for cryptocurrencies in its money supply though. Instead of relying on private initiatives, China is toying with the idea of a state-backed cryptocurrency to replace them. The South Korean government too has been grappling with a number of options, “ranging from an outright ban… to bringing the institutions that handle the currency into the system.”
In all likelihood, it is the latter option that will prevail. Governments will attempt to build an official cryptocurrency infrastructure along which they can align related institutions like exchanges. Yao Qian, the director of the People’s Bank of China’s Digital Currency Research Institute, spoke in November 2017 of the urgency to put official systems into place as soon as possible. He underscores the urgent need to “speed up” the creation of a “central bank-issued electronic currency” to create an officially sanctioned system which commands trust.
This isn’t to put a damper on the recent achievements of blockchain-based currencies. The reality is that a proper regulatory framework is necessary to give both consumers and businesses enough confidence to make widespread use of it. For now the practical uses of cryptocurrencies are limited, so don’t make that savings-account transfer into a bitcoin wallet just yet.
Transferring money
While we may not be using cryptocurrencies to buy our breakfast within the next few years, the cross-border money transfer industry is already being disrupted by blockchain focused start-ups. Such solutions offer two strongly marketed advantages above traditional cross-border solutions: One, they are quicker and two, they are cheaper.
The Philippines, which relies heavily on remittances from its expatriates abroad (the total revenue from remittances was valued at $33 billion in 2017), is a good illustration of this. The value of remittances is high enough that the country has seen huge growth in people using blockchain technology to send money back home. This has been accompanied by growth in cryptocurrencies specifically aimed at targeting this market, such as coins.ph.
Another example of the influence blockchain technology is exerting on this space is Ripple. This “frictionless” settlement and exchange system allows users to exchange virtually any form of currency.
Increasingly, it is being used by banks and other financial institutions. Most recently, Western Union, the world’s largest money transfer company announced that it is testing both the Ripple platform and its native cryptocurrency, XRP, to form part of its settlement-side system. Ripple is probably one of the most dependable, trusted names in blockchain and cryptocurrency. If you’re planning to regularly perform cross-border money transfers while overseas, you could do a lot worse than look into this particular solution.
The future
As mentioned, the next year will prove crucial for the future of cryptocurrencies. We’ll see the emergence of a basic regulatory framework to be put in place, and probably more official communication about what sort of state-backed cryptocurrencies governments have in mind.
Established and new fintech companies are already dreaming up imaginative solutions with blockchain technologies in mind. It will be interesting to see moving forward how more effectively regulated marketplaces disrupt industries like forex and retail; and in turn how this will affect those of us who relocate overseas.
Digital forms of currency obviously have a way to go before we’re using them instead of foreign exchange when we go abroad. That said, don’t underestimate its disruptive power; we may be seeing physical premises for Ripple and other blockchain services sooner than you think!
If you'd like advice about foreign exchange rates, setting up a new account overseas or anything related to how relocations and finance intersect, then one of our consultants will be happy to help, simply get in touch with one of our over 50 international offices.