9 Comments

Summary:

Using Bitcoin for sending money between countries offers startups an opportunity to build a new business, but the geographic market matters. Find out where you should build.

bitcoin

One of the key advantages of Bitcoin as a payments mechanism is that it is free. This is one of the reasons that international remittance is often brought up as a potential key early adopter use case for Bitcoin. According to the World Bank’s research, the worldwide average cost of remittance is about 8.85 percent of the $514 billion sent each year. Taking that price to zero, or close to zero, is a big savings for immigrants sending money home, and one of the opportunities that many have identified as an opportunity for Bitcoin startups.

Bitcoin works great for moving money across borders because it is fast and free. Since most remittance starts in the U.S., Europe or other developed countries, it is reasonably easy to initiate a Bitcoin remittance. Although there is some initial friction in setting up an account with an exchange, it is relatively easy to buy bitcoins with U.S. Dollars or Euros or Yen. The friction is mostly for Know Your Customer (KYC) and other anti money laundering procedures, but is a one-time process. Since most remittance is done on a repetitive basis, that friction shouldn’t be a major impediment to adoption.

bitcoinliew

The problems arise in turning the Bitcoins back into money on the recipient’s end. The biggest recipient countries for remittance flows are Mexico, India and China. Two of these, Mexico and India, have barely any activity in their local Bitcoin ecosystems. Bitcoincharts.com lists no market volume data for either BTC:MXN or BTC:INR marketplaces. But without demand for Bitcoin in pesos or rupees, there is no way for Bitcoin holders in these countries to change into the local fiat currency. This effectively makes any sort of scale remittance business impossible.

China is a different story. China has become one of the geographic hotspots for Bitcoin in the last few months, and BTC China is now the third largest Bitcoin exchange in the world. The opportunity for remittance to China is quite real. It is a single market with the combination of large remittance inflow ($12 billion from the U.S. to China alone) and significant domestic demand for Bitcoin. New remittance startups using Bitcoin would be well advised to focus their efforts on the US- China corridor first.

Argentina’s love affair with Bitcoin is also well documented, and would be another prime recipient for remittance, but the U.S.-Argentina corridor isn’t a very big one.

China and Argentina are ready. But on a worldwide basis, despite the technical suitability for Bitcoin to disrupt remittance, most recipient countries don’t have enough local demand for Bitcoin to sustain a meaningful remittance business. For that we’ll have to wait until the local demand for Bitcoin grows as it has in early adopter countries.

Jeremy Liew is a partner at Lightspeed Venture Partners. Follow him on Twitter at @jeremysliew

  1. To create bitcoins we do need fast computers. This is surely the future!

    Share
  2. Singularity economics right here. A currency based on computer metrics, Moore’s Law, Koomey’s Law, etc. This is a significant divergance from 20th century economics.

    Also, holy cow @ US -> Mexico.

    Share
  3. “The world is not (yet) ready for Bitcoin.” #FIFY

    Share
  4. There have been many news stories and hype about Bitcoin but it is still in its experimental stages and the program is still considered “beta” (the current version is “0.8.”). It is probably a good thing that it is not yet a remittance replacement. It is probably best that Bitcoin continue on its steady but linear increase and not have an exponential increase.

    Share
  5. @Milly, Nope, sorry bitcoin’s no beta, this ain’t no test. Its growing faster and is more exciting than any currency on the planet, five years running.

    As per remittances, give it time, give it time. Bitcoin is young but it is REALLY growing. And I can tell you first hand that it is a dream for sending remittances to Uganda and Egypt. I’ve done both.

    Share
  6. all ways of obtaining BC have slowed considerably.. This drives up demand and value/cost of BC. I sense a conspiracy among BC vendors whose own reserves increase in value by the day. hmmmm

    Share
  7. There is another think to consider, apart from demand. The value of Bitcoin in local exchange. That is I buy BTC with USD and send BTC to Mexico. Recipient changes BTC to pesos. So after this is done, there is certain implicit exchange rate USD – MXN using BTC. And how does this compare to receiving USD and changing tham to MXN, of course taking to account the fee of the Wester Union etc. And in markets with low demand the price of BTC seems to be worse. So that creates some kind of vicious circle. Because comparing the implicit exchange rates using different chanels may put Bitcoin in disadvantage. So some Mexicans in USA prefer to send a debit / credit card to their family in Mexico and just recharge it every so often. There are zero fees and preferential exchange rate. People are smart and always go for cheaper way … The disadvantage is that in may poor areas which receive remitances you can not pay with plasic :-o.

    Share
  8. There is another think to consider, apart from demand. The value of Bitcoin in local exchange. That is I buy BTC with USD and send BTC to Mexico. Recipient changes BTC to pesos. So after this is done, there is certain implicit exchange rate USD – MXN using BTC. And how does this compare to receiving USD and changing tham to MXN, of course taking to account the fee of the Wester Union etc. And in markets with low demand the price of BTC seems to be worse. So that creates some kind of vicious circle. Because comparing the implicit exchange rates using different chanels may put Bitcoin in disadvantage. So some Mexicans in USA prefer to send a debit / credit card to their family in Mexico and just recharge it every so often. There are zero fees and preferential exchange rate. People are smart and always go for cheaper way … The disadvantage is that in may poor areas which receive remitances you can not pay with plasic :-o.

    Share
  9. Bitcoin is ready for the prime time. For example, you can buy physical gold and silver with BTC on many websites. We are talking about converting Bitcoin, a digital currency, into tangible assets.

    I would consider this “Prime Time”.

    If you want a real world example, check out our selection of precious metals at AK Coins. We have up to the minute pricing and accept BTC 24 hours per day.

    http://www.akcoins.com

    Cheers!

    Share

Comments have been disabled for this post