The news that PayPal is giving more than 300 million users access to bitcoin is bullish. But it’s not empowering them to truly control their funds.
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News broke on the morning of October 21 2020, that PayPal would grant its users the ability to purchase, sell and hold bitcoin within its app.
PayPal’s stock price rose 4.65 percent on the news, and the bitcoin price continued its rise from $11,400 to $12,700 by midday.
There is no denying that PayPal is a monster in the mobile and digital payment processing space. Since the lockdowns stemming from the spread of COVID-19, consumers and businesses are transacting with cash less often, and more often paying for goods with 1s and 0s from their mobile devices. It only makes sense that PayPal would allow its users the ability to buy and own the world’s first (to some enthusiasts, the world’s only) digital and decentralized global currency: bitcoin.
But what does PayPal bring to the table for Bitcoin that Jack Dorsey’s company — Square — hasn’t already with its rapidly-growing financial app Cash App? Cash App has offered customers bitcoin since the summer of 2019, and the platform has seen incredible growth.
“Cash App delivered $1.2 billion in revenue alone and $281 million of gross profit during the second quarter, an increase of 361% and 167% year-over-year, respectively,” according to ZDNet. “In total, Cash App generated $54 million in transaction-based revenue over the quarter.”
Additionally, Cash App’s parent company, Square, announced on October 8, 2020, that it had allocated about 2 percent of the cash on its balance sheet to bitcoin — a total investment of $50 million or 4,708 bitcoin at an average price of roughly $10,620. This investment has grown by over 15 percent since October 8 and is worth more than $57 million at the time of this writing.
Still, Cash App pales in comparison to PayPal, as it has only 30 million active users, Roughly 10 percent of PayPal’s monthly customer base.
But this isn’t the only difference between Cash App and PayPal.
The most noticeable difference in the two companies’ Bitcoin offerings is in PayPal users’inability to withdraw bitcoin from their PayPal account to another bitcoin wallet. CashApp, on the other hand, allows its users to withdraw their bitcoin, and Cash App even covers the network fees of the withdrawal by batching the transactions. Of course, in compliance with U.S financial law, Cash App is required to get information about its users (including your name, SSN, picture of your driver’s license, etc). But once Cash App has that information, it allows them to withdraw and transact their bitcoin freely. PayPal announcement didn’t include support for this “feature.” You can buy bitcoin, hold it and sell it in their app — that’s it.
For many, this may not seem like a very significant difference. They may even prefer to just hold bitcoin in their PayPal account. Obviously, PayPal has a trusted consumer base: 300 million-plus people trust its services each month. So, it would be safe to assume that its customers will trust it to hold their bitcoin for them.
For many Bitcoiners, though, this is an insufferable difference. The word “insufferable” may not even be strong enough — let me explain:
The core thesis of Bitcoin (as stated in Satoshi Nakamoto’s infamous white paper), and the whole reason for Bitcoin’s decentralized proof-of-work consensus mechanism, is to empower the bitcoin owner with sovereign control over their funds. The word “immutable” is attributed to Bitcoin for this reason — if you’d like to transact your bitcoin, nobody can stop or “mute” your transaction. This is an incredible characteristic, unique to Bitcoin.
So, the fact that PayPal doesn’t allow its customers to withdraw their bitcoin is completely antithetical to the Bitcoin ethos. Bitcoiners will likely balk at and attack this fact — much like a swarm of hornets protects its queen from any and all bad actors potentially aiming to taint the purity of the hive’s bloodline.
Will PayPal follow Square’s lead and allocate a percentage of its $10 billion-plus of cash on hand into bitcoin? It only seems logical that it would hold a reserve of the global asset it now aims to hold for their customers. Time will tell, as all eyes remain set on consumer-access to bitcoin following the release of this news.
It can be safely concluded that PayPal offering its more than 300 million customers bitcoin is a bullish event. As is often stated, “There will only ever be 21 million bitcoin.” As mainstream exposure to bitcoin increases, so does mainstream demand for bitcoin.
This is a guest post by Adam Ortolf. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.