American users of PayPal can now pay with bitcoin at 29 million affiliated retailers, PayPal announced via a press release. Users with bitcoin on their PayPal account can choose to pay in bitcoin from their credit during the checkout process, after which the merchant will receive payment in a regular currency of their choice.
PayPal announced via a press release on Tuesday that American users of the payment service can now pay with bitcoin at 29 million affiliated retailers. Users who have cryptocurrencies such as bitcoin on their PayPal account can choose to pay with it during the checkout process.
“This is the first time you can seamlessly use cryptocurrency from your PayPal wallet in the same way you would a credit or debit card.” – Dan Schulman, CEO of PayPal, Reuters
At the time of checkout, the amount in bitcoin is sold at the current exchange rate and the merchant receives payment in their account in a regular currency of their choice. PayPal says it does not charge extra transaction costs for bitcoin payments.
At the moment, the service is only available to US users of the payment service.
Closed system
A PayPal account is required to pay with Bitcoin via PayPal. For several months now, PayPal users have been able to buy, store or sell bitcoin via the platform. They can now also pay at affiliated retailers from the credits in their accounts.
For the time being, it is not possible to pay a merchant connected to PayPal from a normal bitcoin wallet. It is also not possible to deposit bitcoin from your own bitcoin wallet to a PayPal account, nor to withdraw bitcoin from a PayPal account to your (own) bitcoin wallet.
It is therefore a completely closed and ‘custodial’ system, in which only PayPal has a real bitcoin wallet and manages it on behalf of users as a central intermediary. Users themselves do not have a bitcoin wallet, no bitcoin addresses and no private keys.
The Bitcoin network is therefore hardly involved. This mainly comes into play when PayPal buys or sells bitcoins on behalf of a user. Bitcoin via PayPal therefore mainly means that you have exposure to the price, but not to the decentralized network. It ignores many of the innovations and benefits of decentralization.
Given PayPal’s business model, that’s perhaps not surprising, as PayPal treats every currency this way. However, it provides only limited benefits for users.
Bitcoin as a means of payment
PayPal’s support for bitcoin payments is likely to drive bitcoin’s recognition as a currency and means of payment. After all, a much-heard criticism from the past was that bitcoin is unsuitable as a means of payment because you can hardly spend it anywhere.
The big question is whether bitcoiners are willing to spend their precious satoshis at all. After all, many bitcoiners expect a higher bitcoin price in the future and if that is the case, spending in the present can seem expensive in retrospect. Many signs point to a growing number of people ‘HODLing’ their bitcoin for the longer term.
PayPal CEO Dan Schulman thinks we are at a turning point. “We think it’s a transition point where cryptocurrencies are shifting from an asset class you primarily buy, hold or sell to a legitimate funding source for real-world transactions across millions of retailers,” he told Reuters.
That sounds promising, but it probably won’t take off right away. After all, PayPal has only been offering the option to buy bitcoin via the platform since October and only people who have bought bitcoin via PayPal since then can pay with it in the closed system of the payment service. These are probably mainly people with fairly recent investments.
Also read our previous article on PayPal’s support for bitcoin.
