What are remittances?
A remittance refers to the transfer of money from one party to another. While various payments fall under the category of remittances, the term is often used specifically for funds sent by migrant workers to their families and friends in their home country. These remittances can take the form of cash or non-cash goods such as clothing, electronics, or medicine, commonly known as in-kind remittances.
How do remittances work?
Remittances come in various forms, but they typically involve three parties:
- Sender: The individual who initiates the transfer of funds to a family member, friend, or business.
- Recipient: The person or entity that receives the payment from the sender.
- Remittance service provider: A third-party payment network that facilitates, verifies, and authorizes the money transfer.
The proliferation of digital technology has led to the rise of electronic remittance providers. This growth has been fueled by advancements in digital infrastructure and connectivity.
Cryptocurrencies, such as Bitcoin, have also gained popularity as a means of remittance. With a mobile device and a self-custodial wallet that enables users to manage their crypto assets, individuals can engage in peer-to-peer (P2P) transactions using various digital currencies. The process of sending a cryptocurrency remittance is similar to that of a traditional fiat remittance, except cryptocurrencies leverage decentralized blockchains to record and validate transactions on a distributed ledger, as opposed to relying on centralized financial institutions and payment rails.
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