Editor’s note: Florian Graillot is a VC investor at AXA Strategic Ventures.
Bitcoin’s most disrupting feature is its decentralized architecture. Indeed, bitcoin relies on a P2P network of computers to proceed money transfers. Each part of the network works to create new bitcoins (‘mining’), keep the network alive and validate transactions.
All the transactions are registered in the blockchain that is used to validate a transaction using cryptography technology: it ensures that you can’t use a bitcoin you don’t own or you don’t use the same bitcoin more than once. This last action previously required a third party, but with bitcoin this is not the case anymore: the network replaces financial institutions and banks.
Then, money transfers are almost in real time as the network is responsible for validating transactions. Currently you need only 10 minutes to get your money transfer approved.
As there is no third party the transfer is almost free. Miners are the only ones to be rewarded to issue new bitcoins. They also collect fees to integrate a new transaction into the blockchain, then validate a transfer. Currently a typical fee costs 0.0001 bitcoin (BTC) per transaction.
The remittance market is huge and moving swiftly to digital
Remittance was a $582 billion market in 2014 according to the World Bank. Most of all it is dominated by transfers from developed countries to developing ones. In 2014, China received $64 billion through remittance and India $71 billion. Philippines received $25 billion, Mexico $22 billion, Nigeria $21 billion, Egypt $17 billion and Vietnam $11 billion in 2013.
So far most transactions are made through brick and mortar networks; in 2014 only 5% were digital transactions. These networks like Western Union or MoneyGram charge high fees to finance their deep local presence worldwide. A typical money transfer costs up to 10% fees.
But as mobile phones are spreading across the world, even in emerging countries, money transfers are shifting to digital. And mobile/digital remittance services are booming as they offer reduced fees mainly thanks to lower-fixed costs (maintaining a mobile app is much cheaper than operating a retail network).
Most of the digital remittance operators claim they are at least 45% cheaper than physical networks. Some of these new companies are operating under a P2P model: connecting buyers and sellers to arrange currency exchanges.
Bitcoin allows several operating models
Even through digital, remittance remains deeply dependent on third parties: banks are still validating money transfers from senders to the remittance operator and again to recipients.
Then Bitcoin could even lower fees thanks to its decentralized network and through three different operating models that could be shaped:
- Full bitcoin: The sender owns bitcoins he sends to the recipient who can directly use them. This requires the owner to get bitcoin, which is easy in developed countries thanks to e-wallets and exchange platforms like Coinbase in the U.S. But it also requires the recipient either to be able to exchange them in fiat currency or to use bitcoins to pay for goods or services which is not that easy so far.
- From bitcoin to fiat currency
via techcrunch.com
An excellent article about #Bitcoin from @fGraillot at @AXAVentures