• Home
  • About Us
  • Contact
  • Your Account
  • Subscribe
Tuesday, August 16, 2022
  • Login
Alternatives Watch
  • Subscribe
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
No Result
View All Result
  • Subscribe
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
No Result
View All Result
Alternatives Watch
No Result
View All Result

PayPal’s crypto move isn’t perfect, but it could help Bitcoin go mainstream

Kellogg FairbankbyKellogg Fairbank
November 30, 2020
in CTAs/Managed Futures, Hedge Funds, Service Provider News
PayPal’s crypto move isn’t perfect, but it could help Bitcoin go mainstream

Kellogg Fairbanks (provided)

ShareTweetShareSendSend

PayPal’s entry into the cryptocurrency space helped spark Bitcoin’s climb to over $18,000. The reasons are obvious: with around 350 million active users, PayPal’s network is already many times larger than Bitcoin’s, which contains roughly 42 million wallets.

At the same time, PayPal’s current solution is a far cry from the decentralized peer-to-peer network described in Satoshi Nakamoto’s 2008 paper.

Bitcoin’s fundamental value proposition is a solution to the double-spending problem that does not involve a trusted third party.

By contrast, PayPal remains custodial. If you buy Bitcoin on PayPal’s platform, you cannot withdraw it to your own wallet. In fact, you don’t actually hold the keys to the Bitcoin. Rather, PayPal’s cryptocurrency network is a “closed loop.” Users can invest in and speculate on Bitcoin or use it for payments within stores already in PayPal’s network. However, they are always trusting PayPal with their Bitcoin holdings and face the possibility of seeing payments blocked or hit by extra fees. In a worst case scenario, their funds could be frozen entirely, as sometimes happens with normal PayPal user cash balances.

This simply isn’t possible on the Bitcoin network itself, which is why the network has such extraordinary value in the first place.

Based on these limitations, it’s clear that PayPal’s solution is merely a first volley rather than a final product. The company has seen the potential value of cryptocurrency, especially for payments, and doesn’t want to be the Blockbuster to Bitcoin’s Netflix.

In this article, we consider why PayPal might see cryptocurrency as a threat, how PayPal measures up against existing crypto solutions, and why PayPal could help Bitcoin go mainstream when it finally opens up its network.

Merchants pay a price for convenient payments

As one of the leaders of the fintech revolution, PayPal knows the importance of increasing simplicity for users.

Ecommerce is expected to surpass USD 4.6 trillion globally by 2022, with the seamless experience of e-wallets boosting its popularity. The simplicity of services like PayPal and Stripe has helped to improve customer experience while giving merchants easy access to new markets.

At the same time, PayPal’s convenience comes at a price for merchants. Fees of 2.9%, or 4.4% for international transactions, mean that PayPal eats into merchants’ bottom line.

In this respect, PayPal is similar to traditional payment solutions like credit cards. In a traditional payment flow, three to five parties facilitate a single transaction. These different parties work together to create trust. They check that transactions can be carried out and manage the transfer of funds.

The traditional payments stack involves numerous charges. Card networks and other parties can also raise their fees. As recently as September 2019, Visa added a fixed charge of 0.02 EUR for merchants using 3D-Secure, which is increasingly required under new PSD2 legislation.

These costs are all borne by merchants.

Crypto cuts the cost of trust, with potential for great UX

PayPal’s model has proven profitable so far, thanks to a combination of smooth UX and network effects. But cryptocurrency can potentially offer the same advantages while cutting costs for merchants significantly – who may then migrate to an accessible crypto solution.

Blockchain offers trustless payments, verifying transactions through a decentralized network. By eliminating middlemen, cross-border blockchain payments can result in even faster transfers while significantly reducing costs for both merchants and customers. The only fees involved are network fees, which are paid by customers, not merchants.

At the same time, crypto’s status as a universal solution offers the potential for great UX. There is no question of compatibility between providers: Bitcoin is Bitcoin everywhere in the world. And a user can simply scan a QR code with any mobile wallet to send a payment – a technology that PayPal is already pushing.

The advantages of cryptocurrency payments for merchants are obvious. Their users will be able to enjoy a simple, seamless experience like PayPal or Stripe, but they won’t have to pay a third party for the privilege.

PayPal’s entry into the space will let it start taking advantage of these innovations and lessen the risk of being left behind.

PayPal doesn’t match existing crypto solutions

PayPal’s current crypto solution is provisional. It’s custodial and restricted to PayPal’s own network of merchants. In fact, it’s not even possibly for normal Bitcoin holders to pay for goods using PayPal’s system – you can only use “custodial” Bitcoin purchased within PayPal’s own platform.

There are reasons why PayPal is entering the space slowly. In 2018, Stripe discontinued support for Bitcoin, citing lengthy confirmation times, volatility and high fees. Similarly, merchants are discouraged from adding direct support for cryptocurrencies by the technical hurdle of integrating with blockchains, as well as fees and market risk.

Nevertheless, over the last two years, a number of platforms have arisen that make it easy for merchants to accept real cryptocurrency. Utrust, BitPay and Nash Link accept digital assets on behalf of merchants and provide conversions into national currency – sparing the trouble of integration with a blockchain wallet and reducing risk associated with holding volatile assets.

These platforms all significantly undercut PayPal’s fees for merchants. Utrust and BitPay each charge 1%, while Nash Link offers a market-leading 0%, with Nash making use of its non-custodial cryptocurrency exchange for conversions, eliminating the merchant fee entirely.

It’s likely that PayPal’s provisional system will evolve in the direction of these solutions. Similarly, they will offer their users full Bitcoin wallets, holding real coins they can send anywhere.

At that point, PayPal will be in a position to offer a major stimulus to the cryptocurrency space.

Bringing crypto to 350 million users

When PayPal finally offers full cryptocurrency support, it could potentially transform the space into a trillion-dollar industry.

The current cryptocurrency market cap stands at roughly $315 billion, with 42 million Bitcoin wallets representing what is likely a smaller number of active users.

By bringing its 350 million active users to Bitcoin, PayPal could quite plausibly expand the cryptocurrency market cap more than threefold according to Metcalfe’s Law, which states that the value of a network is proportional to the square of the number of users.

Of course, this growth is likely to be helped by other factors, including crypto technologies for merchants like those described above. Central bank digital currencies (CBDCs), such as the ECB’s proposed digital euro, are another development that will help push crypto into the mainstream – and will certainly be supported by PayPal when it expands its crypto services.

In fact, PayPal may not have to wait for CBDCs to attract users with stablecoins. Existing stablecoins like USDC provide opportunities for high-yield interest accounts – for example, those offered by BlockFi. Stablecoins pay yields far higher than cash right now owing to high from traders to borrow and leverage.

Even if its initial solution does not make use of Bitcoin’s underlying technology, PayPal’s entry into the cryptocurrency space is an important sign. Especially in the realm of payments, it highlights the benefits of blockchain technology. 

This doesn’t just point to a future where blockchain investors profit from the growth of the industry. It also suggests that merchants will see real benefits from cryptocurrency adoption.

By putting more profits back into merchants’ pockets, blockchain payments can stimulate growth in many areas of the global economy.

Tags: Crypto
ShareTweetShareSendSend
Previous Post

Valpre Capital taps Apex for fund administration

Next Post

Blackstone to buy quant credit investment firm DCI

Related Posts

Abrdn takes a tech-informed approach to risk management  
Hedge Funds

Abrdn takes a tech-informed approach to risk management

PGIM Quant hires senior exec
Hedge Funds

PGIM Quant hires senior exec

SEC to enhance hedge fund reporting
Hedge Funds

SEC to enhance hedge fund reporting

Carne Group buys Asset Management Exchange
Platforms

Carne Group buys Asset Management Exchange

AW Top 10 reads for July
Hedge Funds

AW Top 10 reads for July

Next Post
Blackstone to buy quant credit investment firm DCI

Blackstone to buy quant credit investment firm DCI

Log In

Lost your password?

Recent Stories

AW Deal Watch: Blockbuster deals continue in private equity land

AW Deal Watch: Blockbuster deals continue in private equity land

KCERA ups private real estate

KCERA ups private real estate

Illinois pension adds more than $1.5 billion to alts

Illinois pension adds more than $1.5 billion to alts

Pennsylvania Public School Employees Retirement System

PSERS adds to alts 

Search the AW Archives

No Result
View All Result

Download

Alternatives Watch

© 2019-2022, All Rights Reserved  |  BMV Digital

Navigate Site

  • Subscribe
  • Hedge Funds
  • Private Equity
  • Private Credit
  • RE/Infrastructure
  • Investor News
  • Research

Follow Us

No Result
View All Result
  • Subscribe
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
Log In

© 2019-2022, All Rights Reserved  |  BMV Digital

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Be an alts insider

Start your days in the know with our free newsletter

No, I don't want to be an alts insider

Thank

You!

Follow us
on LinkedIn

Cookie Consent
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie Settings Accept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
Save & Accept
Powered by CookieYes Logo