While the recent news of PayPal offering crypto services is bullish for Bitcoin (and digital assets as a whole), a deeper look into the details of the announcement reveals key aspects of PayPal’s new services that are bearish to some while leaving others with a bullish sentiment.
Understandably, factors like your level of experience, investing strategy, and even the reason for your entering the cryptosphere will play a major role in determining which side of the fence you’re on. Before we dissect the good, bad, and the ugly, let’s review the finer points that lead us up to this point.
The Genesis of PayPal/Crypto
June 2020 – Rumors of PayPal and Venmo integrating Bitcoin (BTC) and other altcoins begins to swirl. At the time of the reporting, PayPal was very limited and could strictly be used as an alternative method for withdrawing funds from exchanges such as Coinbase. One industry source revealed that “PayPal would be working with multiple exchanges to source liquidity.”
PayPal posted eight engineering positions: four in San Jose and four in Singapore. PayPal listed job openings in preparation for its new Blockchain Research Group.
Read More: PayPal and Venmo Planning to Introduce Bitcoin Purchases? on CryptoBriefing
Another source revealed that PayPal was looking to offer the purchases and sales of digital assets and said the service could be expected” in the next three months, maybe sooner.” PayPal declined to comment.
Oct. 21, 2020 – announced the launch of a new service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal account, and signaled its plans to significantly increase cryptocurrency’s utility by making it available as a funding source for purchases at its 26 million merchants worldwide.
Read More: PayPal Launches New Service Enabling Users to Buy, Hold and Sell Cryptocurrency on PayPal
The Pros
- PayPal’s new cryptocurrency services will allow users around the world to buy Bitcoin, Ethereum, Bitcoin Cash, and Litecoin directly from their PayPal account. Being seen and used across the world by hundreds of millions of users, the exposure of crypto to PayPal’s existing user-base will accelerate mainstream adoption and make cryptocurrencies a conceivable option to digital cash and credit/debit cards in the eyes of those not yet exposed to crypto.
- CEO of Paxos, Charles Cascarilla, “The PayPal global ecosystem has 346 million active accounts (including more than 26 million merchant accounts), and has the potential to significantly influence the size and reach of crypto markets in the years to come.” The visibility of the Bitcoin logo (among other cryptos) will only increase awareness amongst
- In 2021, PayPal plans to expand its crypto service to Venmo and other jurisdictions.
- Paxos will custody the assets as well as provide PayPal with liquidity.
- The service will be enabled for the U.S. customers in the following weeks.
- There will be no fees for buying or selling crypto on PayPal until the end of 2020, and the service will not impose fees for crypto storage.
- This puts the company in a position to promote Bitcoin to those who have never used it before—even if it does not offer a full cryptocurrency experience. This lead some to believe that PayPal may even build their own token shortly. PayPal Might Launch Its Own Crypto In Next 6 to 12 Months: CoinShares CSO
- Not providing the user their own private keys will save users from user-errors which could lead to them somehow losing their digital assets.
- A new participant in crypto will find the brand trust-worthy and may be convinced that cryptocurrencies are now legitimate due to the previous success of PayPal as a payment-processing juggernaut.
- A new participant in crypto will find the ability to recover their login credentials and have the peace of mind knowing that its support team will always be there to assist them, if necessary.
The Cons
- Users WILL NOT have control of the private keys. This almost makes the whole existence of Bitcoin (a truly decentralized digital asset) a moot point – allowing a third-party to be in full-control of the asset seems like a slap in the face of Satoshi Nakamoto and those in the community who got into Bitcoin for this very reason.
- The FAQ pages indicate that users will not be able to send cryptocurrency via PayPal or use cryptocurrency to pay for purchases.
- The service will only be useful for investors who want to buy a cryptocurrency to then sell in the future since investors will not be able to withdraw their cryptocurrency to their private wallets, nor will they be able to deposit cryptocurrency into their accounts.
- “Additionally, the crypto in your account cannot be transferred to other accounts on or off PayPal“. PayPal WILL NOT let users transfer their cryptocurrency into or out of their PayPal accounts.
- These limitations will discourage purchases that are intended to be held in the long-term. A user is essentially betting on the long-term success of PayPal if they plan to HODL via PayPal.
- Not allowing the user to hold their own private keys will discourage many users from ever learning about the proper ways to store, manage, and practicing safety procedures because they will rely on PayPal to do all the work. This could give them a false sense of security if the user mistakingly assumes that
Common Misconceptions
- PayPal and Paxos will allow U.S. users to buy, sell, and hold Bitcoin but PayPal users will not own any crypto assets. This is the biggest drawback that was initially overlooked amid the celebration of the breaking news. It is also the biggest culprit for steering new users towards custodial solutions rather than relying on education and eliminating middlemen and third-parties. The sole purpose of crypto was to empower the user and to give up any reliance on outdated systems that have repeatedly failed due to greed, ego, and power.
- PayPal will own them and provide its users a third-party IOU and custody solutions via Paxos. PayPal users are just taking advantage of the price action and will basically just have temporary placeholders of a real digital asset with many features being excluded compared to holding Bitcoin in a personal wallet, that has its own private keys.
- Users can gain price exposure to these crypto assets and use them to make payments across the PayPal network but PayPal will not allow users to self-custody the crypto that it offers.
Conclusion
Breaking through the traditional payment-processing protocols of these tech-giants that are being forced to adapt to the changing times to remain relevant is a bullish sign that should be celebrated – regardless of the current limitations being placed on its services. This very well could just be what is necessary for the infrastructure to be laid down as the precursor to mass adoption.
Although more fiat on-ramps are necessary to further the advance of digital assets to the mainstream, this falls short when it comes to the expectations imposed by the initial limitations of the services that PayPal will offer with the use of their existing client base of over 350 million users.
Similarly, Robinhood allows users to gain price exposure of its digital assets but its users also cannot send or receive these assets outside the platform – effectively making it much less appealing for the serious investor looking for maximum security while having the least reliance on a centralized third-party. The good news is that RobinHood also plans to allow for more features and fewer restrictions for its users in the future. Square, also took a similar approach during its launch of offering Bitcoin to its users, and eventually, the restriction was removed last year.
Whether you’re for or against the new offering that will be made available to the masses, this undoubtedly marks a significant milestone in cryptocurrency adoption but “Not your keys; not your coins” is a common mantra in the world of cryptocurrency that should never be forgotten – regardless of the situation.