PayPal has announced that it will allow its 346 million users to buy and spend Bitcoin on the platform, along with selected major cryptocurrencies. The announcement, made by the traditional financial industry giant, also included some fine print – PayPal won’t let users transfer their cryptocurrency into or out of PayPal. Users will also have no control over the private keys, a string of numbers and letters that allows holders to move their digital assets.
PayPal’s announcement causes mixed reactions
The news was welcomed by investors and long time supporters of the popular cryptocurrency; however, celebrations were short-lived after reading the fine print. The company wrote in materials outlining its crypto plans: “Currently, you can only hold the cryptocurrencies you buy on PayPal in your account. Additionally, the crypto in your account cannot be transferred to other accounts on or off PayPal.” PayPal stayed mum on queries regarding future crypto withdrawal plans.
Satoshi Labs, the creators of cryptocurrency hardware wallet Trezor, issued a warning to avoid PayPal altogether, saying: “Not your keys; not your coins.”
The company wrote in a blog post: “Do not use PayPal for Bitcoin; there are many other places to buy crypto which will let you keep ownership of your coins,” and also “PayPal is conceding to bitcoin, and the many other inspirational, educational projects within the community should be highlighted to prevent newcomers from falling into a trap of trusting one of bitcoin’s greatest long-term adversaries.” It seemed suggestive that PayPal’s plans to adopt cryptocurrency are not motivated to spur healthy adoption, and outlining comments made by former PayPal chief executive Bill Harris in 2018 that the number one cryptocurrency is the “greatest scam ever.”
Cory Klippsten, the founder of crypto buying app Swan Bitcoin, stated: “It’s far less expensive and risky operationally to run an internal customer ledger against your company’s bitcoin stack.” His sentiments are that “PayPal appears to be taking a crawl, walk, run approach.” Swan makes it as uncomplicated as possible for its users to take ownership of their crypto. Klippsten expects that PayPal will eventually add additional features that will allow owners to take control of their cryptocurrencies.
Possible motives for PayPal’s Bitcoin announcement
PayPal payments rival Square and investing app Robin Hood have made millions of dollars through their cryptocurrency services over recent years, which has been speculated as PayPal’s primary motive. Jack Dorsey, the Bitcoin advocating leader of Square, enabled withdrawals of the cryptocurrency last year. Robin Hood has plans to follow Square’s lead.
Danny Scott, chief executive of Isle-of-Man-based Bitcoin exchange CoinCorner, said via email: “This really is just baby steps for PayPal. Seeing revenue competitors are making seems to be their focus, which is being made via exposure.”
“From outside the industry, this is a positive for the credibility of bitcoin, but from within the industry, this is just another company offering exposure rather than allowing for sends and withdrawals. Of course, this goes against the general bitcoin ethos of ‘being your own bank,’ but it is a potential step in the right direction, as long as their long term strategy is to open sends and receives to allow you to move bitcoin outside their system.”
Traders and investors have welcomed the news, despite concerns being raised. Following the announcement, the Bitcoin price rose sharply higher to hit year-to-date highs. In some circles, this has been taken as a trend towards digital currencies.
Scott Freeman, co-founder, and partner at JST Capital, a digital asset financial services firm, said via email: “Blockchain technology is increasingly being used and adopted by traditional financial markets participants. We expect these trends to continue into 2021 as the lines between traditional and crypto finance continue to blend.”
PayPal’s move toward Bitcoin seems set to help the currency close the year as one of 2020’s best performing assets.