How to send money to family and friends abroad with cryptocurrency

Key takeaways

Cryptocurrencies significantly reduce the high fees and lengthy processing times associated with traditional remittance methods, offering near-instant transfers with minimal costs.
Crypto enables seamless international money transfers, especially in regions with limited banking infrastructure or during crises like conflicts or economic instability.
Using blockchain technology, crypto eliminates intermediaries, ensuring faster, securer transfers without delays due to banks or holidays.
To ensure smooth transactions, double-check wallet addresses, use secure platforms, understand blockchain fees, and adhere to local regulations to avoid complications.

On May 22, 2010, Laszlo Hanyecz created a milestone by purchasing two Papa John’s pizzas using Bitcoin, exchanging a total of 10,000 Bitcoins (BTC) valued at only $25 back then for the delivery. At that moment, it was not yet apparent to anyone that cryptocurrency would evolve into an effective method for cross-border financial transactions.

But why is crypto considered for cross-border transactions?

Conventional money transfer methods tend to charge hefty fees and require significant waiting periods for processing. For instance, sending £1,000 from the United Kingdom to Los Angeles using a bank could potentially cost you between £10 and £15 in fees (depending on the specific bank chosen), and the transaction might take several business days to complete – which can be quite inconvenient.

Although financial technology options such as Wise and Revolut have significantly reduced fees (ranging from 1.50 to 4.66 GBP) and sped up transaction times, in many cases individuals continue to encounter obstacles when trying to use these services.

This piece delves into the practice of utilizing digital currencies, such as cryptocurrencies, to facilitate money transfers to loved ones overseas, emphasizing the benefits that come with employing crypto for international transactions.

Why is transferring money abroad expensive?

Transferring money across borders often comes with high costs due to various charges such as transaction fees, fees from intermediary banks, fees from recipient banks, and markups on exchange rates. Typically, your bank alone may charge between 2% and 4% of the total amount being transferred just for these transfer fees.

Moreover, international money transfers frequently travel via systems like SWIFT (Society for Worldwide Interbank Financial Telecommunication), a network that links banks worldwide for communication and financial transactions. Since the funds often pass through numerous banks, usually for currency exchanges or to simplify the transfer, intermediate banks may impose extra fees for processing these transactions.

Prerequisites for sending cryptocurrency

To make a crypto payment, here are the prerequisites you must know:

Understanding cryptocurrency basics: Before sending money, familiarize yourself with the basic terms and processes in crypto, such as major cryptocurrencies like BTC and Ether (ETH), stablecoins such as Tether’s USDt (USDT), wallets, crypto exchanges, transaction fees, block confirmations, etc. Stay informed about the volatility and risks associated with cryptocurrencies.
Setting up a secure crypto wallet: When choosing a cryptocurrency wallet, consider your needs and select a custodial or non-custodial wallet. Managed by third parties, custodial wallets hold your private keys, simplifying use but compromising control. Non-custodial wallets, such as hardware or software wallets, provide complete control over your private keys, prioritizing security while demanding responsible key management.
Choosing the right platform for fiat-to-crypto conversion: Find a platform with a strong reputation, low fees and robust security measures. Verify if it supports your local fiat currency. Complete Know Your Customer (KYC) requirements and any other processes required for completing the registration process.

Did you realize that as of September 10, 2024, the total value of Fiat-supported stablecoins reached a market capitalization of $161.2 billion? However, this figure is lower compared to its peak in 2021 which stood at $181.7 billion.

How to send money abroad using cryptocurrency

To transfer funds internationally via cryptocurrency, simply adhere to the following guidelines. For this demonstration, we will utilize the Binance application.

Step 1: Set up a crypto wallet

As a crypto investor, I always ensure that I select an appropriate exchange or wallet for the digital currency I wish to transfer. For added safety, I take the necessary steps to secure my wallet. This includes setting up a recovery phrase and activating features like two-factor authentication (2FA) to enhance its security.

Step 2: Buy cryptocurrency

To purchase the desired cryptocurrency on the platform, please deposit the required amount of traditional currency (fiat). Some wallets enable you to acquire crypto directly by connecting your fiat account. Keep in mind that there will be exchange fees for converting your fiat into cryptocurrency, so ensure that the cost of these fees is included in the value of the cryptocurrency you buy.

Step 3: Obtain the recipient’s wallet address

Please double-check your provided wallet address to ensure a seamless and mistake-free transaction. Since transactions cannot be reversed once processed, it’s crucial we get this right.

Step 4: Initiate and complete the transaction

Tap the “Withdraw” button.

Copy the recipient’s wallet address, paste it into the address field, and enter the amount you wish to transfer. Review all the transaction details, including the network fee. Opt for higher fees if a faster transaction is required.

Tap “Send.” The platform will ask for a confirmation before sending the amount to the recipient’s address. Funds should arrive in a few minutes.

Step 5: Notify the recipient

Notify the recipient about the successful completion of the transaction, and provide them with the Transaction ID for tracing purposes if needed.

Platforms for crypto transfer

There are various ways or platforms to make a crypto transfer, including:

Crypto exchanges: They allow users to buy, sell and trade cryptocurrencies. They act as intermediaries, providing a secure environment for these transactions. Binance and Coinbase are examples of crypto exchanges.
Peer-to-peer (P2P) platforms: They facilitate direct crypto transactions between individuals. This decentralized approach eliminates the need for intermediaries, offering more control and potential cost savings. Binance P2P is an example of a P2P crypto exchange.
Mobile apps: Mobile apps for crypto remittances leverage blockchain technology to enable fast and affordable international money transfers. These apps streamline the process, making it convenient for users to send and receive funds across borders. Strike and Cash App are examples of mobile apps you can use to remit crypto.

By the way, did you realize that Satoshi Nakamoto carried out the first-ever Bitcoin transaction to Hal Finney on January 12, 2009? That initial transaction of 10 Bitcoins would be valued at over half a million dollars today.

Are crypto cross-border payments really an efficient alternative to traditional transfer methods?

A user’s standpoint offers the most accurate insight into whether cross-border cryptocurrency transactions are more efficient compared to conventional methods, since they utilize both types of services in their role as the ultimate end-users.

Let’s examine several instances to determine the benefits of employing cryptocurrency compared to conventional payment systems instead.

Example 1: How crypto payments outperform Western Union and traditional transfer methods

A Reddit post brought attention to the underestimated aspect of cross-border transactions using cryptocurrencies. A user described their encounter with an international platform, in which they utilized their Ethereum (ETH) address for both verifying their identity and receiving a United States Dollar Coin (USDC) payment.

As an analyst, I can attest that the transaction fee I recently encountered was a minimal $0.008869, and it took only two seconds to settle. This is remarkably different from traditional services like Western Union or wire transfers, which are characterized by intricate procedures, multiple banks across borders, payment networks, and voluminous documentation. In comparison, crypto payments present a far more streamlined and efficient option.

Example 2: Stellar (XLM) became the go-to option for cost-effective remittances

As an analyst, I frequently encounter instances where individuals, like myself, need to send funds back home for various purposes, such as renovations. Unfortunately, when utilizing traditional fiat payment networks, the cost of transferring money can be quite substantial. For instance, when sending $200, a service like Western Union may charge anywhere between $10 and $12 in fees. Additionally, these platforms often capitalize on exchange rate fluctuations during transactions to impose an extra fee of 1% to 2%. This additional cost can really add up over time.

With money transfer services or online banks, you’d typically expect a transaction to be completed within 2-3 business days, with fees ranging from 3% to 5%. Compared to this, transactions on PayPal often incur fees approximately 10%.

As a crypto investor, I discovered that cryptocurrencies like Stellar (XLM) proved to be the most advantageous choice for transactions. Compared to other methods, using Stellar for transactions resulted in minimal fees and significantly faster processing times. Despite factoring in on- and off-ramp costs, the overall expense was still lower compared to alternative options.

Benefits of sending money with crypto

As seen above, using cryptocurrency for money transfers offers many advantages:

Lower fees and faster transfers: Unlike traditional banking systems, which may charge high fees and take days to process, cryptocurrency transactions are completed in minutes for a fraction of the cost.
Avoiding currency exchange hassles: With cryptocurrencies, you can avoid the issues associated with currency exchange. Sending money in crypto eliminates the need to convert between fiat currencies, saving you time and any losses due to unfavorable exchange rates.
No intermediaries or bank delays: Transactions are executed directly between the sender and the recipient via blockchain technology, with no role for banks. This helps you avoid delays due to bank holidays or system downtimes.

How can the recipient cash out the cryptocurrency?

Users of cryptocurrency have the options to withdraw their funds by utilizing a cryptocurrency exchange, a cryptocurrency automated teller machine (ATM), or spend it directly at merchants who accept cryptocurrencies as payment.

If you’ve been given cryptocurrency through an exchange, you can convert it into traditional money (fiat currency) by selling it on the same platform. Keep in mind that you may be charged fees by the crypto exchange for this service. Additionally, remember to factor in the spread – this refers to the gap between the price at which you can buy (ask) and sell (bid) a particular cryptocurrency.

The layout adjusts flexibly based on various elements such as the particular digital currency, the chosen trading site, broker contracts, market fluctuations, liquidity conditions, transaction charges, and the amount of trades being made.

Contrarily, if you’ve obtained cryptocurrency through an exchange, you can quickly convert it into traditional money (fiat currency) within the very same platform.

Using a Crypto Automated Teller Machine (ATM) can make it hassle-free to convert your digital currencies into real money. Should there be a crypto ATM nearby offering support for the cryptocurrency you hold, you’re able to exchange your crypto right at that location.

If fortune smiles upon you and you come across a vendor who takes cryptocurrency as payment, you can easily use your digital coins without the necessity of converting them first.

How do cryptocurrencies solve key challenges in international money transfers?

Cryptocurrencies provide a strong alternative for overcoming difficulties encountered in cross-border transactions using conventional methods.

Overcoming financial exclusion

Employing cryptocurrencies allows for sending payments to relatives and acquaintances residing in areas with insufficient banking facilities, thereby bypassing the issue of financial exclusion. In many regions like parts of Africa and South America, the banking infrastructure is limited, or they encounter difficulties due to sanctions or unstable economies.

In Venezuela, individuals avoid the impact of hyperinflation and sanctions by receiving cryptocurrencies like Bitcoin (BTC) or USD Tether (USDt), ensuring the protection of their value and rapid access to funds. In September 2021, El Salvador legally recognized Bitcoin as a form of currency, with the aim of enhancing the population’s financial services accessibility.

Removing hurdles for the unbanked

Many individuals stay unbanked due to the scarcity of necessary documentation. Since platforms like Wise and Revolut need identity and residence proof for compliance with stringent regulations, it’s hard for people without such documents to access them.

In spite of this, individuals are able to transfer and acquire funds through cryptocurrency platforms, with a focus on decentralized exchanges (DEXs) in particular.

Bringing down delays and costs

Workers who move abroad to places like the United Arab Emirates or Singapore often remit money back to their families in countries such as India, the Philippines, or Nigeria. Traditional methods of sending money take between two to five business days and can charge up to 10% for each transaction.

Overseas workers in countries like UAE or Singapore usually send cash to their families in nations such as India, Philippines, or Nigeria. However, these funds might take a while (2-5 business days) to reach their destination and may cost up to 10% for the transfer.

Conversely, the typical Solana blockchain transaction fee amounts to approximately 0.00025 dollars. It usually takes about five seconds to confirm a transaction.

Sending emergency funds to conflict zones

During disputes similar to those in Ukraine or Afghanistan, it’s common for banks to close or for international money transfer services to stop functioning. In such situations where local banking systems fail, refugees and their families resort to using cryptocurrencies for immediate access to emergency funds.

Providing quick relief during calamities

Vitalik Buterin, a key figure in the creation of Ethereum, played a substantial role in the setup of the India COVID-19 Aid Project, spearheaded by Sandeep Nailwal, the mastermind behind Polygon.

Back in May 2021, he gave away a staggering 50 trillion Shiba Inu (SHIB) coins that were worth an impressive $1.2 billion at the time. Interestingly, Buterin had already donated around $600,000 worth of Ether (ETH) and Maker (MKR) tokens in April.

Setting aside strict capital controls

In times of economic turmoil, countries may enforce tight restrictions on capital movements or even freeze accounts. For example, following the 2009 and 2019 financial crises in Greece and Lebanon, their governments implemented stringent financial policies. Traditional money transfers can become challenging during such situations, but cryptocurrency offers an alternative solution.

Have you heard? By the year 2024, November to be precise, Bitcoin’s market value had surpassed a staggering $2 trillion. This figure outstripped silver’s market cap of $1.7 trillion, thereby positioning Bitcoin as a significant global asset.

Comparing cross-border payment systems: Traditional banks vs. fintech platforms vs. blockchain networks

Each traditional bank, digital financial service providers such as PayPal, and blockchain networks including Ethereum and Tron provide distinct advantages and drawbacks in their respective operations.

Traditional banks provide a reliable, controlled service, yet they can be expensive and slow compared to their counterparts. Conversely, PayPal operates swiftly but comes with notable fees. In contrast, blockchain networks present decentralized, affordable options that boast various transaction speeds and the ability to scale effectively.

Here is a comparative table of cross-border payment systems:

Tips for secure and efficient crypto transfers

Making sure the safety of your cryptocurrency transactions is crucial. Here’s a handy guide to help you maintain the security and smoothness of your crypto transfers:

1. Store your private keys securely, offline if possible.
2. Be cautious when sharing personal information or responding to unsolicited messages regarding your crypto transactions.
3. Double-check the recipient’s wallet address before sending any cryptocurrency.
4. Use strong and unique passwords for all your accounts, and consider enabling two-factor authentication where available.
5. Keep your software updated to protect against known vulnerabilities.
6. Be wary of suspicious links or downloads, especially from untrusted sources.
7. Regularly review the transactions on your wallet for any unusual activity.
8. When in doubt, consult a trusted expert or reputable resource.

Double-check the wallet addresses: Before sending funds, make sure the recipient’s address is correct. Transactions are irreversible, so a single error might result in the loss of your funds.
Use a reputable platform: To transfer crypto, use an established platform such as Binance or Coinbase. These platforms provide safe infrastructure while reducing the risk of fraud or technical concerns.
Enable 2FA: Enabling 2FA on your wallet and exchange adds extra security and lowers the possibility of illegal access to your account.
Consider network fees and speed: Understand various blockchains’ costs and transfer speeds. For example, Bitcoin will take longer to execute transactions and charge higher costs than a later-generation blockchain such as Solana or Polygon.
Secure your wallet: Whether you are using hot wallets or cold wallets, ensure that your wallet software is updated on a regular basis to avoid vulnerabilities.

Common challenges in crypto transfer and how to overcome them

If you are new to crypto payments, you could face issues, including:

Network congestion and delays: Issues such as network congestion and delays occur during peak transaction demand, resulting in delayed processing times. To mitigate this, you could prioritize transactions with greater gas prices, resulting in faster confirmations during peak periods.
Volatility: Cryptocurrency volatility diminishes the value of payments in transit. To steer clear of volatility and ensure consistency of value, you can use stablecoins such as USDt or USDC.
Wallet address errors: If you mistakenly put in the wrong address, it might result in permanent losses. Always double-check the recipient’s address or use QR codes to ensure accuracy.
Regulatory hurdles: If you are unaware of the regulatory environment in your jurisdiction, you may face unexpected hurdles when sending. To avoid problems, keep informed about local regulations and adhere to them.

Actively managing your cryptocurrency transfers to loved ones will result in a more seamless, secure, and reliable experience. Minor precautions like fine-tuning gas charges, opting for stablecoins, and thorough verification can prevent issues and guarantee that the funds arrive successfully.

Are there tax implications for sending cryptocurrency abroad?

Transferring cryptocurrency to another country could lead to tax implications, as each nation may have different rules. For instance, in the U.S., the Internal Revenue Service (IRS) treats cryptocurrencies like property. So, moving funds might trigger capital gains tax if the value has risen since purchase.

In the UK, His Majesty’s Revenue and Customs (HMRC) considers these types of transactions to be taxable when the profits or gains surpass the annual exemption limit set by them.

As a researcher studying global cryptocurrency regulations, I’ve noticed an interesting contrast among three countries: Japan, Singapore, and the United Arab Emirates (UAE). In Japan, I find that cryptocurrency gains are treated as miscellaneous income and taxed at a progressive rate. This means that the more profit I make from my crypto investments, the higher the percentage of those profits I’ll pay in taxes.

On the other hand, Singapore doesn’t impose capital gains tax on cryptocurrencies, but it does keep a close eye on businesses dealing with cryptos. So, if you’re running a crypto-related enterprise there, you might still owe some taxes.

Lastly, the UAE stands out as a crypto-friendly nation since it doesn’t levy any personal income tax, making it an appealing destination for individuals looking to invest in and work with cryptocurrencies.

No matter where you are, maintaining precise transaction records is essential for meeting regulations. It’s wise to check the local tax guidelines or consult with a tax expert to make sure your reports are correct and to prevent any potential penalties.

2025-01-07 12:29