Starting from the beginning of 2022, PayPal customers in certain countries will have the option to use cryptocurrencies such as Bitcoin, Litecoin, Ethereum, and Bitcoin Cash for buying, selling, storing, and paying in over 27 million merchants. The CEO of PayPal stated this move is in preparation for the rise of digital currencies backed by central banks and corporations. This service will be expanded to users in other countries and Venmo users in the first half of next year.
Apart from expanding its cryptocurrency services, PayPal is also in talks to acquire players in the cryptocurrency market, like BitGo custodian, which offers secure transactions and storage of cryptocurrencies. With 383 million active users worldwide and $243 billion transactions in the second quarter of 2021, PayPal is the first company to receive a conditional Bitlicense from New York's financial services regulatory authority, aimed at simplifying cryptocurrency regulatory requirements and processes.
However, in Europe, regulators are increasing surveillance on cryptocurrency-based services, leading to the temporary shutdown of ePayments with plans to remove cryptocurrency-related functions before a restart.
PayPal has imposed certain restrictions on its cryptocurrency services. One such restriction includes storing only the crypto that was purchased from PayPal in the wallet, which cannot be moved to other accounts. Additionally, the owner of the crypto does not possess a private key in PayPal. The advantage of storing crypto in PayPal is not clear.
It is interesting to examine the sequence of events that led to PayPal's involvement in cryptocurrency:
The founder of PayPal regarded bitcoin as a useless payment instrument in 2018.
In 2019, PayPal withdrew from Facebook's Libra project.
In 2020, PayPal announced its partnership with Paxos to launch its crypto service, and customers were allowed to buy, sell and hold cryptocurrencies through PayPal.
As of 2021, reports suggest that PayPal is in discussion to acquire BitGo and other cryptocurrency companies.
Using PayPal's cryptocurrency wallet comes with a potential problem - it is non-custodial, meaning that PayPal developers can restrict access to your wallet and even block you from accessing it since your coins are not stored in the blockchain. For better security, it is advised to use cold wallets such as Ledger.
It's important to note that investing in cryptocurrency carries inherent risks, especially considering the volatility of many cryptocurrencies. Cold wallets are hardware devices that store your private keys and enable you to securely manage your cryptocurrencies offline. They provide an additional layer of protection against theft, hacking, and other cyber threats, making them a popular choice among investors who prioritize the security of their digital assets.
PayPal has decided not to support Facebook's cryptocurrency Libra, according to Bloomberg. The company had initially backed the Libra project but has since announced its withdrawal from the consortium. Reports suggest that other companies such as Visa and Mastercard are also considering their involvement in the initiative.
The Libra project has faced criticism from various entities since its announcement, including the US Federal Reserve System and some European countries. Additionally, state regulators in the US and EU are examining the potential impact of the new cryptocurrency on the market. As of now, Facebook has not made any public comments on these developments.
The controversy surrounding Libra highlights the need for thorough scrutiny of any new cryptocurrency projects, especially those launched by major tech companies. It is vital that companies and regulators prioritize the security and stability of digital currencies to ensure the protection of consumers and stability of financial markets.
By offering support for cryptocurrencies like Bitcoin, Litecoin, Ethereum, and Bitcoin Cash, PayPal is effectively bridging the gap between traditional fiat currencies and the burgeoning world of digital assets. This move is particularly significant, given the CEO's statement about preparing for the rise of central bank-backed digital currencies (CBDCs) and corporate-backed digital currencies. It's a clever play to position themselves as a key player in the emerging digital currency ecosystem.
The acquisition of cryptocurrency players like BitGo custodian is a shrewd move, as it will enable PayPal to bolster their security and storage capabilities for cryptocurrency transactions. With BitGo's expertise in secure transactions and storage, PayPal can further enhance their cryptocurrency services, providing users with a seamless and secure experience.
It's worth noting that PayPal's conditional Bitlicense from New York's financial services regulatory authority is a significant milestone, as it simplifies the regulatory requirements and processes for cryptocurrency transactions. This license will likely pave the way for other companies to follow suit, further legitimizing the use of cryptocurrencies in mainstream finance.
However, the regulatory landscape in Europe is becoming increasingly complex, with authorities crĐ°cking down on cryptocurrency-based services. The temporary shutdown of ePayments and their plans to remove cryptocurrency-related functions before restarting is a cautionary tale for companies operating in this space. It's essential for PayPal and other players to stay vigilant and adapt to the shifting regulatory environment to avoid similar setbacks.
PayPal's crypto foray seems more like a bandwagon jump than a well-thought-out strategy. With just 4 cryptos supported, it's a mere drop in the ocean of altcoins. The service expansion is slow, and regulatory issues, like ePayments' woes in Europe, could derail plans. Moreover, PayPal's conditional Bitlicense is more of a regulatory workaround than a victory.