The Shortcomings Of PayPal Crypto
Hey Jesscentralised
Bitcoin's latest pump up to $13 000 has got so many people foaming at the mouth as the market starts to get frothy, we've seen many traders by the rumour and sell the news and taking their profits. The rumour was that PayPal would be accepting Bitcoin and other cryptocurrency payments and adding wallet support.
PayPal is one of the biggest mobile payment services in the world, with millions of websites accepting them as a payment option. They also provide remittance for many international trades as well as having connections with banks all over the world.
It all sounds great. Cryptocurrencies are going mainstream, and this is it, this is what we've been waiting for people are going to keep using these centralised services so once crypto is there, they'll automatically be exposed to it and want to own and use it.
That's what many are thinking, and that's why many are buying currencies like BTC and ETH that should be supported by PayPal very shortly.
Backing and rehypothecation
PayPal is not an exchange, it's a payment gateway, and this distinction needs to be understood. Exchanges custody funds for clients and allow them to trade on their servers, snap up some fees and only do on-chain transactions when you cash out.
PayPal is not only used by individuals but businesses too, it's used by merchants to accept payments for goods and services. This means PayPal would need to custody billions in cryptocurrency should people come over, managing that kind of cold storage won't be easy, it adds additional attack vectors and level of complication.
It also means you're not trading with the real asset but a representative version, not like wrapped token though since these transactions aren't on-chain. This also leaves them open to rehypothecation and creating "fake" volumes and creating reserves out of thin air which isn't challenged if people remain off-chain.
Should people insist on going on-chain, this could leave PayPal open to major insolvency issues and having to buy off the open market to service their clients.
Regulation, accounting and cost
PayPal is an international company and reaches all sorts of people across borders, depending on each nation. They'll need to constantly comply with citizens using cryptocurrency in different regions and the regulations. Also, cryptocurrency is a tax nightmare and accounting pain that long with added regulation could prove to be far too costly to handle.
This could add additional costs to consumers, and that means it's actually cheaper to do on-chain transitions then sending to someone via PayPal.
You will also have to expose certain personal details which may not sit well with those looking for privacy.
Bitcoin conversions
There's also this idea that exposing more people to Bitcoin means that people will automatically switch over, but it doesn't mean it's practical for users. They would still need to sell into fiat within PayPal to buy goods and services.
Overall, I don't see PayPal as a bad thing, It's a positive step for the industry, but I don't see it as the silver bullet that's going to shoot Bitcoin to the moon.
A lot of what PayPal offers will become obsolete in a few years in any case with the improvements to the lightning network, wallets and chain interoperability.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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