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For a long time, I have been a customer of the ING bank, the biggest bank in the Netherlands by market cap and an established and trusted bank among many Dutch citizens. I mostly send money from and to other bank accounts in my own country or other European countries that are part of SEPA, meaning that I do not have to pay any transaction costs (at least, under 100000 euros). However, I recently tried sending some money to a friend living in the United States. There are multiple ways to send this money to the United States. Whilst exchange fees definitely also played a role in the amount that my friend would receive, I came up with a few practical ways to send this money and naturally decided to compare the transfer fees of these ways: My bank charged 9 euros for a transfer to the US, Western Union charged 3.90 euros and the cheapest option I could find, TransferWise (recently renamed to just ‘Wise’), charged 1.65 euros for a 100 US dollar transfer.
Then, I realized he had a Bitcoin account. Whilst direct transfers instead of depending on a bank or other service would seemingly make the process much cheaper, to no avail. Over Binance, the cost to send some of my money over to my friend’s Bitcoin account was a staggering 0.00055BTC, as of current close to 19 US dollars. Thus, this transfer would have been close to twice as expensive as my bank, and close to 10 times as expensive as financial service companies dedicated to transferring money long-distance. Never mind the fact that this is the same fee for every transfer, and that transferring Bitcoin to another European would still be 19 US dollars versus it being free through the SEPA banking system.
The reason behind this is, of course, the blockchain getting absolutely clogged. With the growing attention to cryptocurrency over the last few years despite the miners, whom verify transactions on Bitcoin’s blockchain, only being able to confirm 4.6 transactions per second (compared to VISA currently confirming 1736 transactions per second on an average day), supply for transfers is low and demand for them is high and constantly rising; thus, the market takes into effect; the average price for transfers has risen 407% over the past year, and is currently averaging between 11 and 12 US dollars despite the bearish market at the moment. This also has potential to become an issue for other cryptocurrencies that are rising in the amount of transactions; Ethereum, after all, is currently averaging an 8 US dollar mining fee with a potential to grow further as transactions rise.
This makes traditional cryptocurrencies such as Bitcoin very uncompetitive in regards to transferring money, which could pose a credible threat to Bitcoin’s growth as a whole. With PayPal, for instance, wanting to “put the ‘currency’ back into cryptocurrency”, one could wonder if regular consumers will want to transfer money through crypto using PayPal if sending 100 euros to the US would cost one-third using it’s regular service as opposed to sending this over crypto.
The question that is left is: Is there a crypto that is able to compete with regular financial institutions in regards to transaction prices? Well, there is: Polkadot. With a speed of 1000 transactions through the usage of multiple ‘parathreads’ or blockchains combined into one 'parachain' to confirm transactions, it seemingly is able to catch up with other transaction providers such as VISA. And with the ability to open even more of these blockchains should the currency scale further, it seems that Polkadot is able to scale up transaction speeds and is thus able to keep transaction costs considerably low; implying that, unlike Bitcoin, Polkadot can in fact compete with regular payment providers.
As the usage of cryptocurrencies in regular transactions grows more common and more transactions start to take place on major cryptocurrencies, the inherent issue of cryptocurrencies not employing such methods will start to show, even to major investors. For, if cryptocurrencies such as Bitcoin will want to be taken seriously as a means of transacting wealth, costs of transacting such as those of Bitcoin will have to keep up with prices offered by other financial firms. And whilst Bitcoin simply can’t, Polkadot definitely will.
