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China has been trialing its e-CNY currency for some time and plans a large-scale test during the Winter Olympics next year. The US has two programmes running to investigate a digital dollar, and the Bank of England is talking to banks, retailers and members of the public to decide what its own digital currency should look like.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. The payments giant, with 346 million active accounts around the world, pledged to make crypto “a funding source for purchases at its 26 million merchants worldwide.”
Beginning in early 2021, PayPal customers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with certainty of value and no incremental fees, PayPal said. While users will not be liable for “unauthorized” crypto transactions on their account (think: hacks), PayPal appears to have no interest in mitigating sloppy private key management.
Paypal’s new services, however, do not usher in a new age or contribute to cryptocurrency’s mainstream adoption. They merely enable a customer to use any purchased or held cryptocurrency as a funding source rather than allowing such cryptocurrency to be used toward transaction settlements.
PayPal’s solid reputation will be a major boost for bitcoin. It processed around $159 billion in payments last year.
On Oct. 21, Paypal announced that it had received a “conditional Bitlicense” from the New York State Department of Financial Services (DFS). But perhaps what is more interesting is the fact that a customer’s cryptocurrencies can be used toward transacting with over 26 million merchants in Paypal’s network.This license was granted in connection with Paypal’s partnership with Paxos Trust Company, a New York state-chartered trust company. Moreover, as a global financial institution, Paypal faces compliance obligations under the BSA’s so-called “Travel” rule, which obligates financial institutions to send certain customer information to a recipient financial institution when its customer transacts. Therefore, it is not surprising that this partnership has won the coveted approval from DFS.Mainstream Adoption Still a Ways AwayPaypal’s new services, however, do not usher in a new age or contribute to cryptocurrency’s mainstream adoption. They merely enable a customer to use any purchased or held cryptocurrency as a funding source rather than allowing such cryptocurrency to be used toward transaction settlements.Paypal’s FAQ states that a private key will not be given to a customer, which means that Paypal—or Paxos, to be precise—will purchase, sell and hold cryptocurrencies on such customer’s behalf. Once purchased, no cryptocurrency can move to an external wallet (customer’s, merchant’s or otherwise), including cryptocurrency received by a merchant as payment for goods or services. Whatever the considerations are, the simple truth is that, based on the information currently available, all customer-to-merchant transactions are settled in fiat, which weakens the argument that Paypal’s new services are making any contribution toward cryptocurrency’s mainstream adoption. That said, Paypal’s new services will likely create new demands for certain cryptocurrencies, helping their prices and trading volumes.Customers Charged FeesAnother issue to consider is whether Paypal’s new services provide the benefits of blockchain technology to its customers. Paypal notes in the same FAQ that it will charge each customer looking to purchase or sell cryptocurrencies a “spread (or margin) between the market price we receive from and the exchange rate between US dollars and the displayed to the user.”Such fees will be disclosed to a customer at the time of transaction. Moreover, it seems likely that Paypal will apply its standard transaction-based fees, which in the U.S. is 2.9% $0.30 per transaction, when a customer converts his or her cryptocurrency holdings into fiat to transact with merchants. If the fees charged by Paypal in the aggregate are high, then it is hard to argue that its customers are enjoying a critical benefit of using blockchain technology—namely, fewer intermediating institutions leading to lower transaction costs.But perhaps Paypal is building a path toward a cryptocurrency’s mainstream adoption in the future.