On November 28, a judge in Canada approved the distribution of $15.1 million to the families affected by the tragic bus crash occurred in Tisdale, Canada. But, around 2.9 percent of the payment was used to cover transaction fees, demonstrating the merit of transactions using crypto.
PayPal and other widely utilized payment processors require 2.9 percent of a payment as a base transaction fee. As such, when Justice Neil Gabrielson accepted the recommendation of the advisory committee for the Humboldt Broncos Memorial Fund to pay out $15.1 million to the families affected by the accident, more than $480,000 of the payment was said to be paid as the fee of the transaction.
Importance of Crypto
The fundraising was conducted on GoFundMe, a for-profit crowdfunding platform that allows people to raise money for events or initiatives.
As a centralized platform, GoFundMe relies on payment processors to accept and disburse payments. Processors like Visa and PayPal receive a significant chunk of the payments as fees, reducing the amount of money disbursed to the users on the platform.
Most GoFundMe initiatives include unfortunate and unforeseen events that require families to obtain enough funds to cover medical bills or to cover unexpected costs.
When the transaction fees of all payment processors involved in the process are added up, with PayPal alone charging 2.9 percent, which can get higher for cross-border or international payments, it can rise up to around five to six percent.
Cryptocurrencies like Bitcoin, which run on decentralized protocols, have the ability to process payments at extremely low costs. Last month, Binance, the world’s largest cryptocurrency exchange, processed $600 million with a $7 transaction fee.
Currently, as with any asset class at its infancy, cryptocurrencies are wildly volatile, and in highly volatile periods, digital assets can record anywhere from 10 percent to 20 percent declines or increases in value within a 24-hour span.
For initiatives like the memorial fund of Humboldt Broncos, stablecoins could be utilized to ensure that the fund raised to help the families of the individuals affected by the accident can receive the money without being affected by the volatility of the asset class.
Not Ready Yet
Cryptocurrencies are not ready yet to handle large fundraising initiatives due to its low merchant adoption and lack of liquidity. It is not easy for individuals to liquidate digital assets into other forms of money like fiat to cover immediate expenses.
But, as cryptocurrencies achieve mainstream adoption and awareness, this technology could provide significantly more efficient alternatives to centralized payment processors that, by default, receive a relatively large portion of the payment as transaction fees which could be disbursed to the operators of fundraising initiatives and maximize the funds they can receive.
For large-scale payments, especially if banks and financial institutions are involved, it could become more impractical apart from the transaction fees as individuals that wish to process large transactions are often required to submit relevant documents and information to have the payments approved by a third party.