So, after months of speculation Paypal is getting into the crypto business.
The online payment giant, whose 2019 earnings topped out at $2.5 billion, announced today that it will “enable cryptocurrency as a funding source for digital commerce at its 26 million merchants.” Needless to say the price of bitcoin responded accordingly, rising by over 5% to hit a record high for 2020.
Buying butty just got easier
With the proliferation of P2P marketplaces, swapping platforms, fiat on-ramps, neobanks and finance apps, buying cryptocurrency is pretty easy these days. At the same time, PayPal’s entry into the space is a major boon for the industry given its vast and distributed user base. At present, the platform has around 346 million customers – that’s more than the population of the United States. It also handled over $220 billion in transactions in Q2 of this year. What’s more, the company is pledging to “help facilitate the understanding, redemption and interoperability of these new instruments of exchange.”
Initially, PayPal will give U.S. account-holders the ability to buy, hold and sell a few well-established digital assets such as bitcoin, ethereum, bitcoin cash and litecoin, before expanding the features to Venmo and international markets early next year. Although users will have to instantly convert their crypto into fiat before making purchases, no incremental fees will be charged for doing so. PayPal ostensibly acts as a middleman, facilitating exchanges thanks to its partnership with Paxos Trust Company.
Pros and cons of PayPal’s entrance
So what does PayPal’s announcement signify for the industry at large? In essence, it means that cryptocurrency is even easier to obtain, liquidate, save and spend. Individuals whose interest may have been piqued by bitcoin in the past (such as during the 2017 bull run) but who assumed crypto exchanges were “just for traders” or worried about the steep learning curve awaiting them, are likely to be reassured by the entrance of a major fintech player. In short, it’s a big step towards mass adoption.
Bitcoin and other digital assets will also benefit from superior utility, since they can essentially be used as a medium of exchange at all online vendors accepting PayPal: Samsung, Adidas, Netflix, Nike, Airbnb, eBay and the rest. Spending satoshis online is now a cinch.
Of course, there are downsides. PayPal stressed in its press release that it “intends to work hand-in-hand with regulators, governments and central banks in this quest.” Whatever the opposite of “music to the ears” is, that’s what hardcore bitcoin maximalists are experiencing right about now.
Cypherpunk developer Jameson Lopp piped up on Twitter to advise followers “Don’t let PayPal hold your precious bitcoin.” Hardware wallet Trezor echoed these sentiments with the familiar “Not your keys, not your coins” refrain and wrote a blog noting that PayPal have, in the past, frozen user funds and censored payments that conflicted with its outlook. Do we really want to trust a centralized custodial service with our digital gold?
Well, no, probably not. But think about the first time you bought crypto: was your opsec advanced right out of the gate? Was your first purchase a hardware wallet? PayPal might be nothing more than a gateway, the first step on a user’s crypto journey. As one Twitter user noted, “The people who know nothing about crypto may buy in PayPal but there is a bigger universe outside calling… I just hope they research first.”
Sufficient research supports the viewpoint of another, who remarked that PayPal would “give people the illusion that they own bitcoin. You cannot be part of a new monetary network while still relying on the old one to get access to it.”
A walled garden
Trezor is absolutely right to sound off, but deep down the company will be glad of the opportunity to highlight its value proposition. Which shouldn’t be difficult given PayPal users won’t be permitted to transfer digital assets to other accounts on or off the platform. In other words, moving crypto from PayPal to a secure, noncustodial wallet like Trezor or Ledger simply isn’t possible. Nor is it possible to send tokens to friends or family members, as is feasible with fiat currency on the platform.
PayPal is essentially seeking to become a walled garden: the place to buy and spend your crypto. In this, it is no different to many entities that have gone before, just with more clout. The implications for the industry are sure to be endlessly debated in the days, weeks and months to come. For now, let’s be glad that an easy onramp for 346 million would-be bitcoiners has been created.