When you want to make a transaction overseas in a conventional way using FIAT currency, a charge of 10% of the amount sent goes to third party services which you are using. The problem here is that beneficiary receives only 90% of the amount you send. If the amount is of moderate size, the 10% loss seems significant. To avoid this, one can transfer the amount via Cryptocurrencies. Cryptocurrencies are borderless. No matter to whom you transform, there is a small miner’s fee, which is kind of negligible if the amount size is moderate. So, I preferred to do an overseas transaction via Litecoin, an altcoin where miner’s fee is less. But I missed one point - Volatility of Crypto.

Crypto is highly volatile. Though I was aware of it, I didn’t consider it much as a serious issue till recently. I made the Litecoin transaction. And within 30 minutes, the value of coin fell by 5%. And in crypto space, this is a very common thing. You shouldn’t be surprised if its value have fallen down more. But this is ridiculous, because it depends on when the beneficiary chooses to convert his Litecoins to FIAT. Suppose due to some misfortune, if the person decides to convert his/her coins urgently and he/she finds that value of Litecoin is down by large percent. It is a huge loss right! The beneficiary receives only a fraction of the amount that I had sent him/her. But there are 2 sides to a coin, the beneficiary can withdraw the coins when the value of Litecoin is high! This is really amazing. The beneficiary has received more than what I could give.

But the problem here is, uncertainty. You don’t know when a coin rises or falls, you don’t know how large the fluctuation will be, you don’t know when the beneficiary wants to convert his/her coins to FIAT. To avoid this uncertainty, better make a FIAT transaction via a third party service, the 10% of the amount goes to third party service. But the good part is you can be sure that the beneficiary will receive nearly 90% of the amount that you had sent. Yes, there are fluctuations, but they are not as bad as crypto.

Better Option

There is an other way around. One can transfer via crypto only using coins whose value are backed to a stable coin. For example, the BUSD coin is backed to a US Dollar. There is no processing fee that goes to third party service except the negligible miner’s fee. The volatility is almost absent.

About Me

I am a huge fan of Decentralisation. I personally have read a lot about Bitcoin and its technicalities(I even wrote a blog explaining Proof of Work). I also have a basic understanding of the economic principles of currencies. But there are some facts that upset me about Bitcoin/Cyrptocurrencies like

  • Carbon Footprint: The damage Proof of Work is doing to the environment. Theoretically, Proof of work protochol is an ingenious idea. But mining Bitcoin consumes electricity compared to the electricity used by an entire Nation like Netherlands.

  • Centralized organizations built around Cryptocurrencies: Their popularity makes feel that it defeats the purpose of a decentralized currency. If people are handing over their wallets, primary keys to a single organization, how is it different from a FIAT bank? Have we not learned from the Mt. Gox disaster

  • Market manipulation and Volatility: I have ranted enough about Volatility. There is enough evidence that Cartels manipulate Cryptocurrencies.

    Cryptocurrencies are amazing because they have no entry barrier. Anyone with a smart phone can exchange value with cryptocurrencies. Startups that involve money transactions can grow rapidly as they don’t have to deal with Government authorities(Jack Dorsey about the same in Lex’s Podcast). But there are still some issues that need to be addressed in a p2p currency. I was really impressed with Facebook Libra(now Diem). Both the economic design and technical design seemed promising. But since it was Facebook, who was trying to do it, US Government didn’t let allow them to continue the project. Sadly, they also lost some companies that were supporting them.

    I always am excited about the question - what will be the future of money? When I heard about El Salvador adopting Bitcoin, I felt that more interesting events in future will unfold the answer. Let’s see!