The revelation that the dollar is not backed by gold may spark a question: what, if not gold, is the dollar backed by? Posed in other terms: what gives the dollar value, exactly?

What Gives the U.S. Dollar Value

The answer to what gives the U.S. dollar value today is: the “full faith and credit” of the United States government. Investopedia explains that this “faith” and “credit” backing is “an unsecured method of backing debt based on trust and reputation”. The U.S. dollar was not always a faith- or credit-backed currency, but instead a gold-backed currency.

The Congressional Research Service (CRS) notes that the U.S. dollar has been “on a metallic standard of one sort or another” throughout the majority of American history. Understanding the history and logic of installing gold as a source of value for paper dollars underscores why some continue to call for a return to a commodity-backed American (and, in some cases, global) currency.

The American Numismatic Society (ANS) explains that the earliest forms of currency in America all deteriorated in value because they were not backed by gold or another commodity. While fiat paper currencies like the Continental Currency served a purpose for a time, with no real backing of intrinsic value these mediums of exchange ultimately became worthless. 

The Library of Economics and Liberty traces the roots of an American currency backed by a single metal, gold, to 1834 (though some cite 1879 as the official beginnings of the U.S. gold standard). From 1834 until the abolition of the gold standard, paper money was in most cases “not gold, but promise(d) to pay gold”. This is the crux of the gold standard: paper money’s worth was the promise that it could be exchanged at any time for gold, a commodity with intrinsic value. 

The gold standard was formalized with the Gold Standard Act of 1900, and this nationally-recognized gold standard would last until 1933. It was then that president Franklin D. Roosevelt (with the backing of Congress) discontinued creditors’ ability to demand payment for debts in gold, therefore discontinuing the gold standard as Americans knew it.

From a practical perspective, “creditors” included the average American, who was no longer permitted to receive gold from banks in exchange for their paper dollars—FDR forbade banks to make such exchanges, and went a step further when he ordered citizens to turn in to the Fed “all gold coins and gold certificates in denominations of more than $100…for other money”, as History explains.

This death knell for the gold standard was the rebirth of fiat currency in America. As with previous American fiat money, inflation and devaluation of the dollar has become a fact of life. As a consequence, some have put their faith not in the full faith and credit backing the U.S. dollar, but instead in alternative currencies with a more identifiable source of value.

What Gives Bitcoin and Cryptocurrency Value?

The features that give Bitcoin and other cryptocurrencies their value can be explained through juxtaposition with fiat currency’s limitations. 

Some historical causes of fiat currencies’ collapse include:

• The widely-held belief that a currency does not have the value necessary to purchase goods or services, which may be sparked by:
  • Economic stagnation
  • Perception that a currency is artificially overvalued
  • Rapid printing of money
• Loss of faith in government institutions and policymakers by those who provide real value to an economy (business owners, owners of real assets, those who facilitate productivity) 

The value of the U.S. dollar derives not just from American consumers’ continued faith in and reliance on the dollar, but also from other nations’ willingness to accept the dollar as a form of payment and reserve currency.

And therein lies the weakness of the fiat U.S. dollar: the dollar’s value is hyper-dependent on the actions and perceptions of humans. If you haven’t noticed, humans as a whole can be fickle and prone to irrationality, though some would argue it is rational to doubt the real value of the debt-laden U.S. dollar.

Advocates of cryptocurrencies believe that digital currencies are less vulnerable to the whims of policymakers, the Federal Reserve, and consumer attitudes and beliefs. They believe this, in part, because:

• Cryptocurrencies are generally finite and relatively scarce, and cannot be mass-produced as fiat money can be (which is generally cited as a cause for currency devaluation)
• Cryptocurrencies are not subject to certain human-controlled phenomena that, while not technically the printing of new money, can alter money’s value—think fractional reserve banking
• Cryptocurrencies are not subject to the specter of massive, ever-growing debt which looms over the U.S. dollar and many other national currencies
• Cryptocurrencies do not require third-party intervention (think banks) to be sent from one user to another as a real mechanism of value exchange

Critics may point to fluctuations in cryptocurrency prices as an indication that they are intrinsically volatile. However, the limited supply of cryptocurrency insulates it from the complete devaluation that has demolished countless fiat currencies over the course of history. This value floor has led some to liken cryptocurrency to “digital gold”.

A Time for Cryptocurrency

History has proven time and again the extreme volatility of fiat currency, from Colonial times to Weimar Germany and modern Zimbabwe. Despite perceptions to the contrary, the U.S. dollar is not immune to the inherent flaws of all fiat currencies—insurmountable debt and ceaseless deficit spending only raise the stakes of the dollar’s potential collapse.

2020 is, more than any other period in recent history, a time to consider cryptocurrency as a rebirth of the gold standard—a value-backed medium of exchange built for the digital age.

Did we get you interested in cryptocurrencies? Why don’t you start mining them with us? Create your free dashboard, and buy some hashpower! Sign up now!

If the results of our survey How Well Do Americans Understand Money? (which touched on some gold-related topics) is any indication, then the likely answer is that the average person actually knows very little about the California Gold Rush. Aside from, you know, that there was gold, that it was found out West, and that there was a massive rush to get to it.

Even if you fancy yourself a Gold Rush aficionado, let’s see if you were previously aware of these tidbits about the race for gold-encrusted riches that began in 1849.

California Wasn’t First

That is, California was not the first state in America to serve as home to a Gold Rush. That honor belongs to North Carolina, specifically a place called Cabarrus County. It was there in 1799 that a twelve-year-old boy named Conrad Reed found a 17-pound gold nugget in Little Meadow Creek, according to historical accounts.

News of Conrad’s discovery quickly spread through word-of-mouth, and the secret that North Carolina had some damn big gold nuggets in its waters was out. By the 1820s, gold miners had flocked to North Carolina in droves, and this Carolina Gold Rush would serve as a sign of things to come for California a few decades later.

The rush to California in 1849 is considered the largest mass migration in American history

In fact, it is considered to be the largest mass migration not just in American history, but in the history of the Western Hemisphere. It is estimated that approximately 300,000 people moved to California during the Gold Rush, which is defined by some as the years between 1848 and 1857 (or 1855, depending on your source). There was no single demographic that migrated to California in search of gold, as 49ers came from as far as Europe, China, and even Australia with money on their minds.

The Gold Rush was an accelerant in the development of Northern California’s infrastructure

The influx of migrants into California in 1848 and beyond led to the creation of infrastructure that did not previously exist in the region. The construction of roads, functional waterways, and entire towns was a necessity for the new residents of California, who needed to transport their materials and gold and yearned for the necessities (and luxuries) of civilized life.

The term “boomtown” was assigned to the towns in the Sierra Nevadas essentially founded by gold-seekers. Railroads soon connected the boomtowns, which quickly became peppered with banks, churches, and in most, bars and brothels. Towns and companies that we recognize today, including Levi Strauss and Wells Fargo, emerged because of the needs of gold seekers.

The Gold Rush was dominated by men

Without getting into the issue of equality or reasoning, I’ll just state a fact: the California Gold Rush was a male-dominated phenomenon. Some figures state that as many as 92 percent of gold prospectors in California in 1852 were men.

Women sometimes came along for the trip, but often found employment in the budding towns that emerged around the gold prospecting industry. These were rugged times out West, and mining for gold was a particularly arduous undertaking. For this reason as well as the less-than-progressive views on gender equality at the time, the California Gold Rush was almost exclusively a boy’s club.

If you wanted the gold, you had to pay

The saying ‘it takes money to make money’ certainly applied to those seeking to hit it rich during the California Gold Rush. The equipment required to search for gold wasn’t particularly costly, at least when viewed in a vacuum. Food in most boomtowns was not considered gourmet by any stretch of the imagination, nor were the living quarters offered to prospectors. 

The issue for miners is that most of them arrived in Northern California practically, if not completely, destitute. Shrewd, opportunistic business owners in geographically isolated boomtowns knew that they had a captive consumer base of prospectors who they could gouge with prices that would be considered exorbitant in virtually any other part of the country.

For reference, boomtown residents may have paid around $280 for a pound of beef, when adjusted for inflation. How does $700 for a pound of cheese strike you? Need a shovel? You best be ready to fork over $1,000 or more.

Down-on-their-luck prospectors may not have expected the prices of the rich and famous when they showed up in boomtowns looking for gold, but that’s what they got.

Those who traded often made out better financially than the people doing the actual work

Perhaps this is a lesson that can be applied today — not that exploitation is something to aspire to, but instead, that opportunity may not always lie in the seemingly obvious business venture. It may lie in the venture adjacent to the obvious one.

When new industries emerge, there are almost always complimentary industries that emerge alongside them. The rise of legal cannabis has bred other potentially lucrative sectors, including banking solutions for dispensary owners and cannabis-focused lawyers. When cryptocurrencies were created, those who were able to provide secure wallets for crypto owners made out handsomely. 

And when the California Gold Rush led hundreds of thousands of hopeful miners to a region that was once a sparsely-populated outpost, those who recognized the void in the consumer service sector made out like bandits. Or, perhaps more aptly, like the most successful gold miners their businesses served. 

Gold’s appeal has not diminished over the centuries, nor has its store of value. It is about to be the year 2020, and yet there is arguably no safer way to preserve your wealth than to buy gold. Yet, there is still some misunderstanding about gold by the general public, as evidenced by our recent survey How Well Do Americans Understand Money?

One question that could stand for further clarification is a central one: why is gold valuable?

Gold is valuable because of its natural qualities

That is, gold is intrinsically valuable. Something with intrinsic value is valuable because of the way that it is. Gold is a metal that is durable, dense, and yet can be fashioned into practically any shape because of its malleability. So, let’s say that you had to go on the lamb or run from an invading army. Let’s also say that you need to hide your wealth for an indeterminate period of time.

Paper money can be buried, but you run the risk of it disintegrating over time. Coins are generally not valuable enough to be worth storing in such a scenario (unless they are gold, of course). Contrarily, gold could be buried, stored under water, or hidden practically anywhere without risk of degradation. You could even melt gold down and fashion it in a way that makes it easier to hide. Granted, this is not a scenario that most people are going to face, but it speaks to gold’s long-term value as a means of wealth preservation. Put it this way: if you were going to bury a time capsule for your great-great-great-great grandchildren and had to pick a means of storage, gold would not be a bad choice.

Who knows what value your paper money will have over a hundred years from now, if the bills even hold up physically. When your progeny open the time capsule, a gold brick will still be a gold brick, and it will still have value. This unchanging nature both in terms of physical integrity and value is a major reason why gold is valuable.

Gold is valuable because it is scarce

The value in anything lies in part in its scarcity. Whether it is food on a desert island, a limited edition pair of Jordan sneakers, or tickets to the Super Bowl, the less of a desirable object that exists, the more people are generally willing to pay for it. Gold is a finite resource. It is not cheap to extract from the earth, and much of the gold that exists as a readily purchasable asset is held by those with no intention of giving it up. Their logic: why would I give up my gold? For what? In fact, the governments of the world maintain most of the gold supply in their reserves. This is a smart move, as it ensures a level of control over their national currency’s value (which we will get to later) and also restricts the flow of gold in the private economy, which provides a floor for the price of gold by ensuring a restricted supply.

Mining gold is also expensive, especially at this point in time when most near-surface gold has been mined. This means that the supply of purchasable gold, while always increasing, is unlikely to jump in a way that materially impacts supply. So, the amount of gold that is actively available for purchase today is only a fraction of the gold in existence. And because gold is a universally-accepted commodity with intrinsic value, it maintains a baseline demand over time. To reiterate: scarcity plus desirability equals value. Gold is scarce, it is desirable as a store of value, and thus it is valuable. 

You know what is not scarce? Paper money, which is a fiat currency backed by nothing of tangible value.

Gold is valuable because it is recession and depression-proof

Gold is a time-tested store of value that only becomes more valuable during severe economic downturns. Conversely, paper money could theoretically become valueless, depending on the severity of the downturn. History has shown us that this is a distinct possibility. See: the United States of American circa 1929, Germany circa 1914, and Zimbabwe circa 2019 as examples of how an economic downturn can ravish the value of a national currency, to the point where it is more useful as kindling for a bonfire than as a way to buy food or medicine.

In strong economic times, sellers follow the government’s lead, accepting paper money and coins in exchange for essential and non-essential items alike — milk, medicine, meat, even Mercedes-Benzes. But when the economic stuff hits the fan, the purchasing power of a dollar declines rapidly, as consumer confidence in an entire economic framework diminishes and, if inflation cannot be stopped, collapses. In these times, the wise hold onto what they know to be valuable: gold. Its scarcity, density, and time-tested desirability as an asset with real value makes it even more valuable as the value of a paper currency crumbles.

This is why American President Franklin D. Roosevelt decreed a mandatory buyback of gold in April 1933 amidst the Great Depression. Executive Order 6102 essentially made it illegal for private American citizens to own any significant amount of gold. The ostensible purpose of this decree was to reverse inflation and restore confidence in the U.S. dollar, but its net effect was the U.S. government taking control of the vast majority of the national gold supply (shout out Fort Knox).

And yet, we’ve since abandoned the gold standard, print money like there is no tomorrow, and remain as vulnerable as ever to recessions, all while the purchasing power of the dollar declines each year. 

Check out our “Money Talks” series, to learn more about the financial system!

We should not forget the critical role that gold played in the growth of the American economy, providing peace of mind to American citizens and non-citizens alike that their money could be exchanged for gold at any time. By this same (golden?) token, Americans knew that their ability to exchange dollars for gold gave their money real value.

Today we are off of the gold standard, and the purchasing power of the dollar declines each year as a consequence. Gold was once a placeholder of our dollars’ value, and that role was an invaluable, if underappreciated, one. So although our currency’s marriage to gold has ended, there’s no reason to forget what a great relationship our dollars once shared with gold. Call them the golden years, if you will.

As a tribute to those golden years, here are 10 facts about gold that I hope will pique your interest. 

1. Gold is a transcontinental element

There are several reasons why gold was a logical choice as the metal to back currencies around the globe. For one, everyone recognizes that gold is valuable, and therefore there is little dispute over its validity as a store of value. In addition, gold has been found on every continent on the planet aside from Antarctica.

So gold is not only intrinsically valuable, but it also holds a status of reverence in virtually every nook and cranny of the world. As a result, gold eventually became the standard of value for most currencies in the developed world at one point in history.

2. Most of the gold on earth came from meteorites

Most scientists agree that most precious metals, gold included, were carried to earth by meteorites approximately 3.9 billion years ago. The theory goes that, around 4.55 billion years ago, iron and other precious metals on earth sunk inward, ultimately forming the earth’s core. So, gold and other precious metals that can be mined from the earth’s surface are most likely the result of meteorites that crashed the earth party long after the core was already formed.

3. Gold is edible (with certain caveats)

The first caveat being: please don’t try to bite into a brick of gold. That’s not going to end well.

You can bite gold flake, which is edible, whether you prefer it floating in your vodka or as sushi paper. There are some conditions, including that edible gold must be 23 or 24 carats, with each leaf being at least 90% pure gold with the remaining 10 percent being some other metal that is safe to consume. Edible gold is referred to as E-175 and has passed safety tests in both Europe and the US. Edible gold is not the same type of gold you’ll find in jewelry, which contains other likely-toxic metals.

4. Treat your body well, it is precious (gold, that is)

That’s right, the human body (even yours) contains trace elements of gold. Biologists believe that each human body contains about .2 milligrams of gold, though it can be almost impossible to pinpoint where the gold lies within a given body. But hey, next time you go to sell an organ, why not try to fetch an extra buck or two by mentioning that your kidney may come with gold included?

5. Gold is the Mr. Fantastic of elements

That is, gold will bend, stretch, flatten, or transform into any shape that you need it to. It is the most malleable element known to man, as its bonds can be fairly easily broken, allowing gold to transform from a solid to liquid state quite easily compared with other metals. Yet even after changing form, gold maintains strength, as it is thought that a gold thread can stretch as far as five miles without breaking.

6. Turn water into gold, all you need is an earthquake

Ask yourself: have you been letting earthquakes go to waste? If you don’t emerge from your next ‘quake with at least a trace amount of gold, you are doing it all wrong.

A study published in 2013 found that the combination of pressure, temperature, and reactive elements inside of faults during earthquakes may result in gold and other elements being deposited after water vaporizes. Good luck getting your hands on it!

7. Looking for gold? Find some eucalyptus leaves

It turns out that those cute koalas you see on the National Geographic Channel have been steadily depleting the earth’s gold supply. Well, it’s probably not a loss when you consider the circle of life, but it is true that the koala’s favorite snack, eucalyptus leaves, may contain gold.

Some believe that eucalyptus leaves containing gold could be a sign of mineral deposits below. Find the golden leaves, find the gold…

8. Gold is valuable, but there’s not that much of it

In fact, according to a calculation published in Forbes, all of the gold ever mined would fit in approximately 3.27 Olympic-sized swimming pools. 

9. Scuba diving can be lucrative, but probably not if you’re out for gold

By some estimates, ocean water contains 20 million tons of gold, though it is so diluted that you can hardly bank on collecting any of it. To be clear: the gold is in the water. 

If you were somehow able to vaporize the oceans’ waters and collect the remnants of gold dust, you would be in for a $771 trillion payday. 

10. Witwatersrand, South Africa: Home of Gold

It is estimated that nearly half of all of the gold ever mined comes from a region in South Africa called the Witwatersrand Basin. An estimated 2 billion ounces of gold have been mined from the basin in the past 100 years or so, and estimates peg the remaining gold in the basin at more than a billion ounces.

What are you waiting for? Get digging!
In the mood for cryptocurrencies instead? Try mining Bitcoin! You’ll only need an internet connection and us.

The relationship between Bitcoin and gold is one that we believe the general public is not intimately familiar with. In our recently-issued survey titled How Well Do Americans Understand Money?, a substantial portion of respondents did not realize that gold is no longer the commodity-backing for the U.S. dollar. So it doesn’t seem like a stretch to assume the average American is less than familiar with the comparative relationship between gold and Bitcoin. Why would they be?

As a company on the front lines of Bitcoin extraction, we at Genesis Mining fancy ourselves crypto enthusiasts, and that may even be stating things a bit lightly. It’s our job to understand not just the role of cryptocurrency in today’s economic climate, but also what it could be in the future.

To understand Bitcoin’s unrealized potential, we can start with the similarities and differences between Bitcoin and gold, a resource that was once a fundamental element of the global economy.

Similarity: Like Gold, Bitcoin Is A Scarce Resource

One of the more obvious similarities between gold and Bitcoin is that they are both fixed in their total amount, though not in precisely the same manner. While the amount of gold in circulation grows each time more is mined, it does not grow in any way that materially impacts the price of the asset, as other factors pertaining to gold (a crash in the stock market, for example) could.

Bitcoin is an even stronger example of scarcity than gold. When Bitcoin was created in 2009, a limit on the number of Bitcoins that may ever been mined was set at 21 million. This hard cap established a definable scarcity that ensures that supply-driven hyperinflation never drives Bitcoin’s value near zero. 

Paper money, a form of fiat currency, stands as a counterexample to these scarce resources. The U.S. dollar and many other national currencies were once made scarce by their status as a commodity currency. That is, they were backed by a finite resource, typically gold. Commodity backing meant that a government had to be able to redeem all of the paper money in circulation for its equivalent in gold at any given moment. This necessity limited the amount of paper money that could be printed.

However, the abandonment of the gold standard has essentially annihilated the scarcity of paper currency. This has led to hyperinflation, artificial conceptions of wealth and value, and the continued diminishment of the dollar’s purchasing power.

Hence why cryptocurrency advocates see Bitcoin as the scarce, intrinsically valuable alternative to fiat currency. 

Difference: Bitcoin Is Readily Exchangeable For Goods, Services, And Cash

One gripe with Bitcoin, especially by those who have not truly attempted to use Bitcoin as a means of exchange, is that it is simply not as real-world-ready as the U.S. dollar in its many forms. For example, your local gas station is probably not ready to accept your Bitcoin in exchange for petrol. And while these statements may be largely  true as of now, it is not crazy to envision a day when most card readers and online merchants accept Bitcoin debit cards. It is not a pipe dream to think that Bitcoin could be as readily-usable as a means of exchange as the U.S. dollar.

You could not make the same claim about gold, which is far less liquid than the highly-digitized mechanisms that power cryptocurrency. If gold were to replace the U.S. dollar, it would have done so long ago. One of the reasons why gold was the commodity backing for national currency, and not the currency itself, is that gold is simply not a practical tool for purchasing and selling goods and services.

Gold bars are heavy. They can’t be easily broken down (as you could make change for a dollar) or transferred through digital means (as you could exchange funds via debit card, or a Bitcoin wallet). The price of gold is always fluctuating, so even open-minded merchants are hesitant to accept gold as payment unless they receive an amount far above the value of good or service they are selling. 

Contrarily, Bitcoin is digital. Just as you can access your U.S. dollars through digital means (debit card, wire transfer, etc.), owners of Bitcoin send digital funds on a daily basis through similar modes. Merchants that have the available infrastructure can accept payment via a Bitcoin debit card just as they can a debit card from Bank of America or Chase.

This real-world, day-to-day utility — even though it has not quite been realized at scale because of minor-yet-real barriers to adoption — is what separates Bitcoin’s potential from the limitations inherent to gold. This difference is critical, and it is why Bitcoin advocates believe that it can one day become a widely-used currency, rather than just the anchor for paper currency, as gold once was.

Gold and Bitcoin Are Alike, Yet Critically Different

Gold and Bitcoin both fluctuate in value. They are both intrinsically valuable, gold because of its physical properties, Bitcoin because of the nodes/users backing it). They can both be traded for paper currency, and their scarcity gives each a measure of intrinsic value that fiat currency — U.S. dollars, Euros, and virtually every other national  currency used today — does not have. In these ways, Bitcoin and gold are similar.

But gold is largely a store of value, not a practical means of exchange. Bitcoin does not have intrinsically limiting properties such as weight and indivisibility —  limitations that gold does have  — stunting its potential to become a widely-used means of exchange. 

The fundamentals are there for Bitcoin to become the means of exchange its advocates know it can be. 

Dear world, the ball is in your court now.

With that said, remittance is essentially a fancy way of saying “sending or receiving money from friends or family in another country.” Let’s dive a bit deeper into remittance, including how the remittance industry makes it’s money and how blockchain-powered alternatives could save money for those who depend on remittance the most: immigrants.

What Is Remittance?

The term ‘remit’ means ‘to send back’, and it is the stem of the word remittance, which generally refers to the act of sending or receiving money from someone in another country. Following this logic, remittances are the funds being sent and received in a given transaction. Though the definition does not suggest this, the term remittance most often applies to international transfers.

What Does The Remittance Industry Look Like?

Remittance is an essential process, as sending money through the mail is foolhardy while checks can be easily lost in the mail and are simply not practical for most international transfers. There is an entire industry that makes its money from others’ need to send and receive money electronically, often to family members in underdeveloped nations.

As you may suspect, the institutions facilitating remittance payments (with fees charged for each transaction, of course) are the usual suspects — banks and credit unions, primarily, as well as money transfer operators (MTOs) such as Western Union that specialize in cross-border payments.

These institutions take on the cost of verifying the sending and receiving parties’ identities and ensuring that transfers abide by all relevant international regulations, and they take a substantial cut of each transfer in exchange for their services. As of Q3 2019, the average percentage cut taken from each remittance transaction was 6.84%.

The percentage fee that a financial institution can take from any remittance transaction is determined largely by market forces, and these fees can add up to substantial revenue over time. As migration trends increase and sending money across borders becomes increasingly prevalent, newer players in the remittance industry such as TransferWise will continue to emerge to claim their cut.

Who Funds The Remittance Industry? (Immigrants)

To put it frankly, the market for remittances is booming. But a closer examination of the groups that are generating the majority of remittances means shining a critical light on the industry as a whole.

According to the World Bank, the total number of remittances sent in 2018 reached a record high of $689 billion, which was a $56 billion increase from 2017. The World Bank also notes that the vast majority of those remittances — $529 billion, to be precise — were sent to low- and middle-income nations.

This statistic hits on what can be perceived as a harsh reality of the remittance industry: immigrants sending money back to their often-impoverished relatives back home are the money-making mechanism for institutions that provide remittance services.

Do these institutions provide an essential service that, overall, provides a net good to the world? Sure. Are all of those institutions ethical in their practices? Surely not.

As an example, consider that immigrants of Sub-Saharan African origin sent a record number of

remittances to their homelands in 2017. Now consider that Sub-Saharan Africa remains the most expensive region in the world to send remittances to, with an average percentage of more than 9 percent taken out of each transaction by financial institutions that process the payments.

Some look at that statistic and assume the best: maybe it is more expensive for remittance processors to process payments in that region of the world, and therefore the higher percentage fee is justified.

Others see such figures and reach another conclusion: that remittance payment processors see prime opportunity to exploit a demographic of immigrants who desperately need to send money home to a largely-impoverished region, and will pay any price to do so.

Regardless of the tint of the lens through which you are inclined to view the remittance industry’s reliance on immigrants, you have to wonder whether there is a more affordable, and in turn ethical, way to send money across borders.

Blockchain As A Disruptor In The Remittance Space

Blockchain is the technology that underpins cryptocurrency, and some see it as a potential market disruptor within the remittance space. The vision: to provide secure remittance transactions at a fraction of the price with unrivaled speed, primarily in service of immigrants who cannot afford to be dishing out even five percent of each payment to financial institutions.

Some early returns suggest that blockchain channels could provide immense improvements in terms of speed of transaction and the cost of sending remittances. According to a BlockData report, blockchain-powered remittance channels settled payments 388 times faster than traditional, non-blockchain channels.

Though it will take time and significant investment to create market-ready remittance channels to compete with the Western Unions of the world, several startups have raised significant funding towards this goal of a robust, blockchain-powered remittance payment network accessible to the average immigrant or anyone else who needs to send money to friends or family in another country.

Want to own some cryptocurrencies? Start mining in the cloud now!

You can get your first cryptocurrency by mining in the cloud. Here are the whys and hows.

To understand why cryptocurrencies are a serious, more consumer-friendly alternative to traditional wire transfers, you will first have to understand how the wire transfer process works and why it’s inherently slanted towards the banks.

If our recently-issued survey How Well Do Americans Understand Money? is any indication, the average person probably doesn’t understand why wire transfers — and many other elements of traditional banking, for that matter — are designed to favor the financial institution and screw you, the consumer.

What Is A Wire Transfer?

Wire transfer refers to the process of transferring money from one bank to another. Wire transfers have become less and less common as less expensive alternatives have emerged.
When you need to send money to a friend and don’t have cash on hand, odds are that you’re not logging onto your bank’s website and initiating a wire transfer — you’re probably using your app of choice, whether it is Venmo or the Cash App, to transfer funds instantaneously.

But wire transfers still serve a purpose, namely high-value transfers required for purposes such as buying a home, a boat, a car, a work of art, or any other transaction where security is of the utmost. If you find yourself beginning to transfer any significant amount of money over Venmo, pease think again. For these high-value transfers, wire transfers are a logical choice. Wire transfers offer a few benefits that are worth noting.

The Benefits of Wiring Money

1. Security

When you initiate a wire transfer, banks or credit unions exchange money directly through the SWIFT network or a similar alternative. This direct, bank-to-bank pathway for your money limits the number of avenues for the transaction to go haywire. In this sense, wire transfers are inherently secure, certainly more so than transferring money through the many run-of-the-mill apps that offer little clarity into how your money is being handled, and even less insight into what they will do to retrieve your money should it end up in the wrong hands.

2. Speed

Wire transfers are also considered to be as immediate as any transfer of funds can be. If you’re in a pinch and don’t have time to spare, then a wire transfer will generally get the job done. In the US, transferring funds via wire transfer can typically be completed in a day or two, and international transfers may tack on a day or two to the timeframe.

Once the wire transfer is complete, there are usually no further holds placed on the funds, so that the recipient can access them straight away. This is an especially valuable aspect of wire transfers for those in industries where liquidity is of the utmost importance.

3. Fraud Protection

Much of the security of wire transfers lie in the process necessary to open a bank account. While proxy accounts and identity theft remain issues that allow nefarious characters to open bank accounts, you are generally safe assuming that the name on a bank account is, in fact, the person that you are wiring money to. Such assumptions about other near-instant money transfer services — Venmo being one example — are not so safe.

Federal regulations provide stringent oversight of who can open a bank account, and it includes strong identity verification measures. Your bank will also work with you if something does go wrong to ensure that your money does not end up with an unintended party. This legitimacy is certainly a benefit of wiring money through a bank.

With this said, do your due diligence when wiring money, taking your own steps to verify the identity of the party that you are sending money to. Wire transfer scams are real, even if they are less common than, say, Venmo scams.

The Downside Of Wiring Money: Fees, Fees, Fees. Did I Mention the Fees?

Not sure if you have heard this mentioned lately, but wiring money is going to cost you, and the cost comes in the form of (you guessed it) fees. Fees vary on a bank-by-bank basis. Many banks will charge you not only for sending money (outgoing), but receiving it too (incoming). NerdWallet lists the median wire transfer fees charged by American banks as $15 for domestic incoming transfers, $25 for domestic outgoing transfers, $15 for international incoming transfers, and $45 for domestic outgoing transfers.

These fees don’t seem exorbitant, especially for those who are sending or receiving sizable amounts. But you may be hit by lots of them. Additional fees may increase the cost of wiring money. Banks may charge an additional cost for exchanging currencies on international transfers. You may be charged more depending on the mode you use to initiate the transfer. For those who rely on wiring regularly enough, these additional costs add up quickly. And don’t be surprised if these aren’t the only fees you are charged when you wire money, as fees can be insidious by nature.

Cryptocurrency As An Alternative Means Of Wiring Money

Some have come to view cryptocurrency as an alternative to wire transfers, even if they aren’t inclined to use crypto for most other transactions. Depending on the service/wallet that you use, it can be cheaper to send money using cryptocurrency than wire transfer. If you are able to familiarize yourself with the process of converting your money to Bitcoin or another cryptocurrency and sending the money to the recipient via crypto wallets, then you could save significant money over the long-term.

You can learn more about this process in this Hackernoon article. If you’d like to finally get your first cryptocurrency, just go ahead and sign up. You can start mining with just a few clicks.

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