ProBeat: PayPal will boost cryptocurrencies while undermining their ethos

PayPal is joining the cryptocurrency market “in the coming weeks.” The digital wallet company will let U.S. customers buy, sell, and hold Bitcoin, Ethereum, Bitcoin Cash, and Litecoin directly in their account. In early 2021, PayPal promises they will be able to use their cryptocurrency holdings to pay at the 26 million merchants on its network. In the first half of 2021, PayPal plans to expand the features to Venmo and select international markets.

This is the most bullish news we have seen in the cryptocurrency space to date. PayPal is the biggest company yet to support buying and selling cryptocurrencies. Not only that, but PayPal wants its customers to actually buy goods and services using Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. That’s a huge green light. PayPal has 305 million active accounts in 202 markets — the potential increase in cryptocurrency adoption here is massive.

Ethos

Unsurprisingly, PayPal wants to make money every time you buy or sell cryptocurrencies. From the press release: “There are no service fees when buying or selling cryptocurrency through December 31, 2020, and there are no fees for holding cryptocurrency in a PayPal account.” PayPal is a business, after all. And yet, these answers from the PayPal FAQ page should give every cryptocurrency supporter pause:

Can I transfer Crypto into and out of PayPal?

Currently, you can only hold the Cryptocurrencies that you buy on PayPal in your account. Additionally, the Crypto in your account cannot be transferred to other accounts on or off PayPal.

There’s no way to downplay these limitations. PayPal’s implementation completely defeats the raison d’être of cryptocurrencies. Cryptocurrencies promise decentralized control directly in contrast to centralized banking systems.

If you already own a cryptocurrency, you can’t move it into PayPal for spending. If you purchase a cryptocurrency on PayPal, you can only access and use it with your PayPal app. PayPal wants to be the central authority of cryptocurrency bought, sold, and used on its platform.

That’s worse than fiat.

“Not at this time”

PayPal won’t let cryptocurrencies leave your account. That said, the company does hint that this could change in the future. Notice the phrase “not at this time” in these answers:

Will PayPal support peer-to-peer (P2P) Crypto trades?

Not at this time. PayPal only supports the purchase and sale of Cryptocurrency using your PayPal account. To complete P2P transactions with PayPal, all Crypto assets held with PayPal must be sold and thus converted into USD.

Can I use my Crypto assets as a funding source to pay merchants?

No, users cannot use Crypto as a funding instrument for commerce at this time, though this is planned for 2021. Crypto assets can only be bought, sold, or held in the PayPal wallet at this time. To pay merchants or complete P2P transactions with PayPal, all Crypto assets held with PayPal must be sold and converted into USD.

It’s possible the company is moving cautiously for regulatory and/or security reasons.

Boost

But even if PayPal doesn’t at some point change its implementation, the embrace of cryptocurrencies will be a boon for the market. The announcement alone has likely sent the whole financial industry, from big banks to tiny fintech startups, scrambling to respond.

What PayPal does in finance matters. In October, for example, the company was the first to leave Facebook’s Libra Association. Less than a week later, eBay, Stripe, Mastercard, Visa, and Mercado Pago followed suit.

All these financial firms were already looking at blockchain and cryptocurrency. With PayPal’s latest announcement, it’s all they’ll be focused on until they figure out their stance on “the future of money.”

I’m not saying your local bank will suddenly accept Bitcoin or that next month you will be able to pay your credit card bill with Ethereum. But by the end of the year, they’ll certainly have an answer ready when anyone asks them what they’re doing to stay relevant in 2021. PayPal’s move will further cement the notion that cryptocurrencies are here to stay.

ProBeat is a column in which Emil rants about whatever crosses him that week.

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