How Digital Currency Transfers Work, Explained
What is a payment transfer system?
It’s a payment method between individuals.
Say you live abroad and you want to transfer some money back home, also known as remittances; or you want to lend some money to your friend who is in a different city, or any other reason, involving transferring money. What do you do? This is when a payment transfer system comes in handy. There are different ways to do this, from a ‘money wiring office’, to your laptop. Of course, you’ll need to provide contact information about yourself and about the person you’re sending money to: names, cell phone number, email address, bank account number and so on.
Although it looks convenient, this process tends to have difficulties.
What are some problems with traditional transfer systems?
Here are the most common:
- Transaction fees
If you transfer money from one bank account to another bank account it can be pricey, especially depending on the amount of money.
- Exchange rate
Don’t forget that if you send money to another country, there might be different currencies and different exchange rates, that may result in a different amount of money being delivered to the addressee.
From several minutes to several days, you must wait until the transaction is completed.
“No matter where you are, you can get your money in an instance”. This is a general slogan for every relevant marketing campaign. Does it work in real life? Not always. It may seem impossible for people in developed countries, but it’s quite an issue for many geographical regions. Sometimes there are just a few offices you can get your money from, if any.
- Legal issues
You wouldn’t think it’s an issue, but you’d better be careful with federal legislation, as in some countries this type of payment is subject to tax legislation.
How are Blockchain-based transfers better than conventional ones?
Currently, all global currency transfers have quite high commission fees.
Why? For instance, global money transfer systems like MoneyGram or WU have to bear additional transaction costs to maintain offices around the world, due to the significant geographical coverage of their services. The banks, carrying out transfers, also have to pay the costs of the market sub-allocations for conversion. According to a recent World Bank study, this results in the average cost of a transfer being about 5.5 percent of the payment amount (for private clients).
A Blockchain-based transfer system excludes real physical movement of currencies around the world, which allows exceptionally favorable expenses for transactions, speed and maximum reliability of the system’s operation.The use of third-party payment services in the output to the fiat offered by digital currencies exchanges, usually costs the client at least 1.5-2 percent.
Most of the Blockchain services at the moment are focused on solving this issue for corporations, not private individuals. Still, projects like Transmission are devoted to providing a simple way to transfer money in digital currencies for ordinary people.
In other words, how do I benefit?
Here is how.
- Digital currency payment systems exclude costly transactions for clients.
- They offer a quick currency deposit and withdrawal, with minimum commission (no more than one percent of the transferred sum).
- If you make an exchange using the service, it will be done without additional costs for conversion.
- The transfer proceeds immediately, without any delays.
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