When online payments giant PayPal announced last week that it was making a move into cryptocurrency, bitcoin prices skyrocketed, conversations and debates sparked on Twitter and media outlets wrote flashy headlines.
This news has certainly sent digital assets prices up and running. If we track the prices of particular coins from September up to today’s price, its estimated that there’s been significant surges.
Bitcoin + 25%, Ethereum + 23%, Litecoin + 30%, Bitcoin Cash + 27%
Does this mean mass adoption is coming? Perhaps not quite.
PayPal is making a slick move to launch a new service, completed with a glossy 30 second video to explain it all. The platform will enable customers to buy-hold-sell cryptocurrency in the United States and will expand to other countries in 2021. It sounds transformative, but what will the service actually entail? And does this mean digital assets have mainstream potential? Let’s find out.
PayPal’s newly launched service will allow customers to to buy, hold and sell cryptocurrency directly from their PayPal account. In the near future, they will also introduce cryptocurrency as a funding source for purchases at its 26 million merchants worldwide. PayPal has been granted a first-of-its-kind conditional Bitlicense by the New York State Department of Financial Services (NYDFS) and is launching this crypto initiative with New York based Paxos Trust Company, a regulated provider of cryptocurrency products and services.
Mainstream adoption of cryptocurrency has typically been halted due to regulations, its volatility and cost. Now, things are slowly changing. Central banks across the world are planning to launch their own digital currencies in the next few years.
PayPal will initially accept these four: Bitcoin, Ethereum, Bitcoin Cash and Litecoin and users will be able to buy-hold-sell directly from their PayPal wallet.
Consumers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with certainty of value and no incremental fees.
It will allow merchants to accept payments in the form of traditional currencies, which offsets the volatility risk for them. PayPal merchants will have no additional integrations or fees,
There’s no denying that PayPal’s massive reach of 346 million active accounts and processed payments ]of $222 billion in 3.7 billion transactions in the second quarter might help speed digital assets to the mainstream.
The devil is in the details though. Apparently, at the moment you will only be able to ‘hold’ the cryptocurrency in your Paypal account.
If they won’t facilitate movement between accounts, it may be difficult for PayPal’s new initiative to reach mass adoption, nor would users have control of the private keys, the ‘password’ if you like to keeping your digital assets secure and owning them outright. This goes against the fundamental bitcoin ethos of ‘being your own bank,’ but 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.
What’s more, there have recently been reports that Paypal is looking to invest in Goldman Sachs-backed BitGo, one of the leading institution-level custodian and trading solutions firms in the space also based in Palo Alto, giving a clear indication of Paypal’s strategy
PayPal is probably playing the cautious, long game with this.
Stephen Palley, a partner at the Anderson Kill law firm said “PayPal is “going to be cautious, and they’re going to roll it out slowly.” It’s probably best at this stage to not involve themselves in compliance risk, and make cryptocurrencies a small part of the business for now.
PayPal isn’t the only “mainstream” platform that is integrating cryptocurrency though.
US based trading app Robinhood also offers cryptocurrency trading. Robinhood allows users to trade bitcoin, ethereum, dogecoin and others 24/7 with 0 commission fee.
Twitter’s Jack Dorsey also owns and runs payments company Square. The platform has accepted bitcoin as a form of payments since 2014, with Dorsey being a personal believer in bitcoin. Earlier this month, Square purchased US$50 million in bitcoin as part of its larger investment in the crypto space.
Square has also been facilitating cryptocurrency buying & selling on its P2P payment app Cash since 2018, according to Reuters. Bitcoin revenue for the app jumped year-on-year by 600% in Q2 2020 to US$875 million, a validation for the space.
It’s clear to see that both Square and Robinhood leverage the frequency and growing popularity of cryptocurrency trading for their platforms’ user engagement, which is what PayPal could find valuable about the addition. However, its angle on merchant transaction has been unheard of and unexplored…until now.
What this could very well be, is PayPal’s cautious move into expanding its products and services, there’s only things to gain from widening its ecosystem and hence, building on existing and potential new users.
One potential implication or challenge though, relates to the very foundation to why people buy cryptocurrency – as a store of value.
Therefore, it relates back to a very simple question. Do the majority of traders want to spend their cryptocurrency?
Although PayPal will enable merchants to accept payment via traditional currencies,this won’t be effective unless users are willing to spend their crypto, not just trade and store it.
Rauchs doesn’t seem too excited about the PayPal news, his sentiment echoed by other industry experts.
Some analysts believe PayPal’s move is a monetization tool, “similar to Square’s capabilities, PayPal’s foray into crypto will probably serve as a pass-through revenue item, with no/little margin contribution,” said analyst Moshe Katri to Marketwatch.
PayPal will most likely be able to position itself as a trusted partner with central banks and other corporations by expanding into digital assets.
One thing we have seen retailers and businesses do with blockchain (so, the technology layer that enables digital assets, not the actual cryptocurrency) is to offer rewards points.
So, this is inherently different from what PayPal wants to do with merchants, but we think it’s an interesting window into how retailers and merchants are currently experimenting in this space.
The company explains this on its blog:
On a deeper level, blockchain and tokenization introduces a different way of looking at the world of finance and financial services , one that’s not constrained to crypto assets.
When we onboard new types of tokenized assets (like tokenized loyalty points) and enable it as a form of payment (like Pay with Points), we’ll be able to apply asset rules to them
Omise is working with the likes of Citibank to launch pay with points, enabled by blockchain technology. Pay with Points will essentially allow e-commerce businesses to accept payments through the instant redemption of credit card reward points. The benefit for customers here, is the ability to branch out beyond a small ecosystem to redeem their credit card points.
n Korea, Blockchain-powered rewards startup MiL.k has partnered up with a luxury retailer, Shinsegae Duty Free in Seoul to offer reward points on blockchain.
Once users interlink the accounts, they can reportedly trade their Shinsegae loyalty points for the in-house cryptocurrency called MLK. Granted, it’s contained in a small ecosystem, but the adoption provides an example of how the ecosystem can work.
Last year, Japanese retailer Rakuten enabled customers to exchange Rakuten Group’s loyalty points to bitcoin, ether or bitcoin cash. With this service, Rakuten Wallet aims to boost cryptocurrency adoption while also promoting its loyalty program.
The fluidity in the ecosystem allows for multiple methods of exchange. One thing is essential for the success of these projects – mass adoption.
Who knows, in the future, retailers could potentially integrate themselves into the wider ecosystem. With the rate of adoption, anything is possible.
- Paypal’s ‘adoption’ of Cryptocurrency points to a strategic objective of creating new revenue streams, and may not do so much to boost the adoption of cryptocurrencies as the current restrictions in transaction abilities suggest.
- This move allows Paypal to position itself as a leader in the fintech space and attract crypto money to their platform from existing and new users.
- Paypal’s plans to allow transactions outside of their system have not been revealed.
- Blockchain technology is increasing its number of use cases and projects beyond finance – in the retail space.
- Thailand’s local Omisego Network blockchain technology could be leading the digital integrations forefront in removing some of the current limitations of redeeming and integrating retail store and credit card company loyalty points.
- As more innovative use cases arise within blockchain technology, successful projects will provide the answers and lead the charge in opening up the technology for mass adoption.