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PayPal’s small steps toward cryptocurrencies don’t diminish enthusiasm for adoption

October 27, 2020

The crypto world has been full of excitement the past few days for good reason. Bitcoin (BTC) is currently hovering around the $ 13,000 mark, while Ether (ETH) has safely crossed the $ 400 mark again, despite the hack of the KuCoin cryptocurrency exchange and the unfortunate legal developments that recently occurred around BitMEX. However, the latest surge is largely due to the decision by online payment service provider PayPal to finally step into the crypto arena.

In 2021, PayPal will allow its customers to use a range of popular digital currencies such as Bitcoin, Ethereum, Bitcoin Cash (BCH) and Litecoin (LTC) to shop seamlessly through its vast network of partner retailers. Although transactions can be initiated in cryptocurrencies, payments are only processed in fiat form, which means that merchants only receive money in their local currency.

To make all of this possible, PayPal has partnered with Paxos to meet its custody and liquidity needs. In addition, PayPal secured its conditional license for virtual currency from NYDFS through the Paxos Trust. Charles Cascarilla, CEO of Paxos, told Cointelegraph that partnering with PayPal to provide simplified crypto access for customers around the world will no doubt have a huge impact on the crypto industry as a whole. He also stated in a blog post that due to PayPal’s reputation in the marketplace, the crypto industry is likely to see an unprecedented rise in awareness in the mainstream world.

PayPal’s small steps toward cryptocurrencies don’t diminish enthusiasm for adoption
PayPal’s small steps toward cryptocurrencies don’t diminish enthusiasm for adoption

Similarly, Luke Stokes, executive director of the Foundation for Interwallet Operability and acting executive director of the EOS Foundation told Cointelegraph that PayPal not only legitimized the crypto space for retail user takeover, but also emphasized the importance of timing:

“The time now is and PayPal wants to get started early with its personalized approach to digital finance. Other financial products and services have the ability to step out of a walled garden. PayPal is made possible by integrating with decentralized open finance usability solutions detected. “.

The entry from PayPal could be a game changer

Just a day after PayPal announced its decision to venture into the cryptocurrency world, it emerged that the payment giant was exploring various avenues by which it could acquire the well-known and soon-to-compete bitcoin custodian, BitGo.This was the first US cryptocurrency service provider to gain broker approval, transfer agent registration, and fiat company recognition.

The move could be relevant for PayPal as the new platform for buying and selling cryptocurrencies will effectively transform the company into a digital asset custodian, which explains its interest in BitGo. Additionally, the deal could potentially usher in a new era for cryptocurrency legitimacy in the mainstream world, as both PayPal and BitGo have made law compliance a priority from the start and have been able to secure all the necessary licenses to facilitate various activities in the Related to cryptocurrency in the United States.

After all, there have been some critics in the last few days specified Companies like Square and Revoult are already doing more to bring crypto functionality to their users than PayPal plans to do. However, The fact is, there is no other digital financial platform that currently has the same impact on the market as PayPal.

On the matter, Douglas Borthwick, director of marketing at INX Limited, told Cointelegraph that while PayPal’s initial limitations can be seen as severely limiting for many cryptocurrency purists, it also gives users the opportunity to interact with and learn about cryptocurrencies. how to deal with cryptocurrencies outside of PayPal. “”Think of the Paypal environment as a safe place with training wheels where people can learn about crypto before escaping into the real world, where they can experiment with cryptocurrencies without restrictions.“He suggested.

Centralization remains a key issue

In the past few months, many prominent banking institutions have been digging into crypto, and several countries have been experimenting with CBDCs, suggesting that it was only a matter of time before a financial giant like PayPal entered the world of cryptocurrencies. João Gomes, director of growth and marketing at Utrust, a cryptocurrency payments company, told Cointelegraph:

“Adoption is gaining momentum around the world. We have always believed it was a ‘when’, not ‘if’, and PayPal’s leap is just another falling piece of dominoes. This is the money of the future .. “

Even so, Gomes was skeptical of the centralized design of PayPal’s upcoming digital currency system, as it completely deprives users of features like private keys as well as the ability to withdraw their digital assets. The fact that the PayPal system is not on the blockchain makes it extremely limited in its general scope, especially for experienced cryptocurrency players.

Another pertinent criticism could be that by using the PayPal system, users do not buy digital currencies but receive derivatives – much like the Revoult system – as they have no actual ownership of their assets.

Not just that, but for every transaction The cryptocurrency in question is converted back into “Fiat” for a high fee of 2.3% (for transactions of less than USD 100), as merchants connected to PayPal can only receive payments in cryptocurrencies. This then begs the question, why does anyone choose to pay for crypto with so many additional fees.

In short, it appears that PayPal is currently experimenting on the surface with digital currencies without giving users the independence that Gomes said should ideally come with them: “They really own the coins, convey everything and even charge you according to their own, not so clear compensation structure. […] You run the show.“”

PayPal needs to evolve

Obviously, as the PayPal hype subsides, people will examine some of the company’s competitors in more detail, looking for possible alternatives. For example, for transactions with cryptocurrencies (and vice versa) between 200 and 1,000 dollars, PayPal charges a processing fee of 2%. In comparison, you can see that Coinbase only charges 1.49% for transactions over $ 200. Similarly, Square’s Cash app offers users dynamic conversion rates.

Lior Lamesh, co-founder and CEO of GK8, an Israeli cybersecurity firm, told Cointelegaph that PayPal needs to avoid the “Not Your Keys, Not Your Money” trap that has already caused great damage to many cryptocurrency exchanges in China in recent years:

“By being dependent on third-party vendors, PayPal exposes its customers’ digital assets to a serious cybersecurity risk. Therefore, I believe that once this initiative starts and becomes more important, PayPal will switch to a service model at some point There is simply too much at stake for over 340 million users. “

Last but not least, PayPal has always been viewed as a centralized financial platform. As a result, many crypto enthusiasts who value transparency and financial freedom may avoid the platform altogether. However, it seems fair to say that PayPal’s market reach alone will damage more than just the reputation of the crypto industry in the long run.