PayPal's Cryptocurrency Foray Not Ideal But It's Something, Experts React

PayPal Holdings Inc PYPL on Wednesday announced it is starting to offer cryptocurrency as a form of payment on its platform. The move has invited mixed reactions from veterans of the digital assets space.

Not Real Bitcoin: Some experts were left unamused over what they judged to be significant restrictions in place on how the cryptocurrency in a Paypal account can be withdrawn or transferred to other users. 

Compound Labs General Counsel Jake Chervinsky questioned if users can't hold their own keys, "is it even Bitcoin?"

This is the highlight of the PayPal news for me.

They're not only preventing withdrawals to self-custody, they won't even allow transfers between accounts.

I'd be glad to speak with @PayPal's legal team about why these restrictions aren't required for regulatory compliance. pic.twitter.com/DIVUqkCkGC

— Jake Chervinsky (@jchervinsky) October 21, 2020

Blockchain.com CEO Peter Smith said in an emailed statement to Benzinga that Paypal had taken an “inflexible approach.” 

“While we’re excited to see a new audience gain access, a non-custodial approach limits opportunity to self-custody your [cryptocurrency] or transact freely,” said Smith. 

Buzz Around Numbers: PayPal says it has 346 million active accounts and processed payments to the tune of $222 billion in 3.7 billion transactions in the second quarter. 

Social Capital CEO Chamath Palihapitiya suggested PayPal's move could spur further adoption by banks.

After PayPal‘a news, every major bank is having a meeting about how to support bitcoin. It’s no longer optional... pic.twitter.com/eQrdfa4KJ7

— Chamath Palihapitiya (@chamath) October 21, 2020

CryptoCompare CEO Charles Hayter told CoinDesk that while PayPal’s Bitcoin foray may not be ideal for libertarians “being pragmatic about bitcoin’s trajectory and global adoption penetration rate, this certainly brings more options.”

Jason Deane, an analyst at Quantum Economics termed PayPal’s move as “extremely significant” and said it would expand the cryptocurrency’s “reach at a vastly accelerated level, as well as  “drive the development of additional services,” Decrypt reported. 

Validation Among Some: There is a sense of validation among some, seeing the increased mainstream adoption of Bitcoin.

“Many early [cryptocurrency] believers, myself included, were de-platformed and censored for buying bitcoin on PayPal, I have a strong sense of vindication seeing them finally come around to the inevitability of cryptocurrency,” Blockchain.com's Smith said.

Bitcoin developer Jameson Lopp said, “You can ignore Bitcoin for a while, but not forever.”

PayPal Treading Caution: Jerry Brito, executive director of Coin Center, told CoinDesk that it is possible that demand for Bitcoin transactions “is not as high” and that perhaps most people want to simply buy and hold the cryptocurrency.

Brito admitted that while PayPal did not have to limit transactions to be compliant with regulations, there are gray areas in the Financial Action Task Force’s Travel Rule and in anti-money laundering enforcement. 

“People are finally developing solutions to comply with [the Travel Rule] but [PayPal is] not there yet,” said Brito.

“The easiest thing to do is not engage in transfer and take on that compliance risk,” he added, pointing to the fact that cryptocurrencies would probably be a small part of PayPal’s business.

Stephen Palley, a partner at the Anderson Kill law firm, told Coindesk that PayPal is “going to be cautious, and they’re going to roll it out slowly.”

Nevertheless, there's no convincing the most ardent believers of the decentralized currency. “Don't let PayPal hold your precious bitcoin,” Lopp told his Twitter followers.

Photo courtesy: PayPal Inc.