Yesterday, PayPal Holdings, Inc. (NASDAQ: PYPL) announced the launch of its crypto checkout service. You can now spend your Bitcoin, Ethereum, Litecoin, and Bitcoin Cash at all of the 29 million affiliated merchants online with your PayPal digital wallet.
While it's technically true this new feature does allow you to spend the crypto you hold with PayPal, some crucial details were left out of the announcement.
First however, let's recap the broader strokes of this new development.
PayPal was early to the party compared to others, introducing their buy, sell, and holding crypto services last October, with the intention of quickly adding the payment feature after ironing out the kinks.
Already with a stranglehold over the globe's digital payments infrastructure, the move was a no-brainer for the big tech giant and has spurred others to accelerate mainstream adoption.
From PayPal's October press release:
"Mainstream adoption of cryptocurrencies has traditionally been hindered by their limited utility as an instrument of exchange due to volatility, cost and speed to transact. However, the promise of advanced technological platforms offers the possibility of mainstreaming digital currencies."
The launch essentially creates a singular streamlined digital wallet for both your fiat and crypto, allowing you to spend your PayPal crypto holdings as you would a debit card. The new added feature will appear in your digital wallet if you have “sufficient cryptocurrency balance to cover an eligible purchase,” allows for only one type of crypto per purchase, and displays your coin balances next to your legacy currency.
At face value, this appears like a win for crypto's macro value and the decentralized Web 3.0 movement.
However, If PayPal's digital wallet was really a crypto wallet - i.e. the seamless integration of cryptocurrency and fiat into one singular payment processor - it would be the #1 most downloaded crypto wallet in the world...and it wouldn't be close.
The problem is, PayPal's crypto wallet is not actually the same thing as a traditional crypto wallet such as Metamask, Trust Wallet, or even the Ledger/Trezor. In fact, you're not sending crypto at all when using your PayPal wallet.
This is how the actual process works:
Instead of you physically sending your actual BTC or ETH to your favorite online vendor as payment, PayPal first converts your crypto to USD before finally initiating the transaction and paying the selected vendor. In other words, you could simply sell your BTC or ETH yourself for cash, initiate the transaction yourself, and it only takes a couple extra seconds.
Additionally, PayPal restricts users from sending their crypto holdings to an external wallet or exchange, and users are not provided a private key or any sort of personal control. You're literally forced to hold your coins with them, with noncompetitive interest rates, until you either wish to spend or sell them. (Outdated traditional savings account says what?)
Let me repeat: You cannot actually send or spend the crypto you hold on Paypal.
I can't emphasize this enough. What they've done is taken the idea of a free, pseudonymous, decentralized concept and cherry pick the parts that benefit them most.
Here's PayPal's full explanation of how it works from their newest press release:
Checkout with Crypto will appear for a customer to select as a payment method if they have sufficient cryptocurrency of a single type held in their PayPal wallet to cover the purchase price. Appearing alongside other payment methods in the PayPal wallet like a bank account, balance or credit card/debit card, the Checkout with Crypto payment flow remains similar and familiar to other ways of checking out with PayPal:
- At checkout, if a customer has sufficient balance of cryptocurrency to cover an eligible purchase, crypto will automatically display as a payment method for that purchase.
- Customers will be able select their cryptocurrency of choice – Bitcoin, Litecoin, Ethereum or Bitcoin Cash, depending on what they are holding with PayPal and the balances available in each cryptocurrency. Only one type of cryptocurrency can be used for each purchase.
- Once the customer confirms the purchase, the cryptocurrency is converted to fiat currency by PayPal on the customer’s behalf and the transaction is completed. The customer will receive a record of both the crypto sale, as well as the purchased item.
- PayPal charges no transaction fee to checkout with crypto – a cryptocurrency conversion spread will be built into the conversion from crypto to USD.
Eligible Checkout with Crypto purchases include the safety, security and other benefits of using PayPal, including 24/7 fraud protection, return shipping and purchase protection on eligible items. Checkout with Crypto starts rolling out to PayPal customers in the U.S. today.
The recent news come almost two weeks after Elon Musk and Tesla Motors officially began accepting Bitcoin as an acceptable form of payment, and the difference between these two companies couldn't be more glaring.
Let's say you decide you want a fancy new Tesla, and have ~$50k in Bitcoin laying around in your LEDGER wallet. If you were to pay for your Tesla with BTC through PayPal rather than a traditional crypto wallet, the vendor (Tesla) would receive USD on their end.
This isn't entirely surprising, as the company would have to overhaul it's entire business infrastructure and require all of it's vendors to accept crypto as a form of payment. That would be a major undertaking that would take years not months.
I would be surprised if anyone, besides lazy boomers, hold any of their cryptocurrency with PayPal, for the current structure gives the average user very little incentive to do so.
Here's the link to PayPal's cryptocurrency FAQ in case you're interested.
More content coming soon, let me know your take in the comments!
