The ugly truth behind PayPal accepting Crypto

in LeoFinance3 months ago


I am sure by now you have heard PayPal has announced support for Cryptocurrencies. Initially offering BTC, ETH, LTC, and BCH support, with more to come in the future.

This is amazing news for adoption of cryptocurrencies, and will do more for adopting normies than most anything to date.

To use this feature you have to sign up to the wait list and be approved. It is unknown how long this process will take, but I do know some users who have been approved and have been using it.

If you do get accepted, you can buy crypto with zero fees for the rest of 2020. If you want to buy a little crypto this is maybe good opportunity (if you trust PayPal with your money). Keep in mind though you are unable to withdraw until it is unlocked later next year.

Like most conventional banking system, fees ultimately will be based on the amount being transferred, kind counter to traditional fees in crypto.


So what's the ugly secret?

Current block chains cannot handle the PayPal userbase, even PayPal knows this and likely part of the reason for the delays.

While BitcoinCash and Litecoin have slow but usable transaction performance, Ethereum and Bitcoin are not even remotely close to adequate. If PayPal enabled this feature for everyone and even if 1% of the userbase used it, transaction times and fees would go through the roof.

This would not help crypto adoption if the first experience is really slow transaction times. PayPal transfers are typically near instant. PayPal will shield the user from volatile transaction fees but for larger transactions the percentage based fees will far outweigh even worse case scenario transaction fees. I do suspect most transactions will be relatively small and this won't be a major issue outside of the long delays.

PayPal also plans to integrate crypto into their popular Venmo personal money transfer app that has been gaining a lot of popularity for paying friends and small businesses. In fact, I was at a football tournament with my son and the hot dog stand was taking payments via Venmo to minimize the handling of money and contactless transactions. Venmo is becoming a household name much like PayPal has, most in fact don't even know it is PayPal.

While I think PayPal (as much as I hate them) taking crypto is a huge move forward to mainstream adoption, I think it may expose the ugly side of crypto to new users if they all come at the same time.

Fortunately PalPal can likely shield a some of the issues with their own balances and fixed fees.

I am looking forward to see how this plays out. Either way, I think it will get more users into crypto and increase the adoption.

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I don't believe that I'll use PayPal for crypto transactions. Well, maybe when I have a chance to pay for something. But to go to a special program for this, no way...

They should have included Hive...and then unleash their beast user base :P

Let's grow the user base so big we can have PayPal coming to us and say "no thanks". 😁

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They likely don't even know Hive exists.

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yeah man. as much as i detest paypal with every fiber of my being...they will help bring more adoption.

but without the chains that can support it, it’ll be just an awful experience.

could hive handle those can of numbers?

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That is a good question.

Truthfully, I am not sure that anyone really knows. I would believe that as a PoS chain, we could handle the transactions to a much greater degree. However, until we are under that pressure, I am not sure we can say one way or another.

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Thanks man, appreciate the response.

I would love to see if it could, crossing fingers it could handle it lol

I personally think that the Hive chain throttles transactions. The reports from pablopenguin show a completely unnatural repeating spike/trough manner of how data is broadcasted. I'm just not sold then that this is a fast chain.

Because if ... IF Hive really is so superior, then why don't people at the wheel here put Hive through a STRESS TEST and report that data.. and even market Hive on that demonstration. See again, this is what makes me think it couldn't handle high throughput or else that's a very logical thing to do in order to step up and fill the void and to attract inventors.

I'm not clued on how all that backend works but the "3 second blocks" is celebrated simply because there's not much activity here compared to other chains. Or it's simply a falsehood.

I was assuming they would just have a big custody pool and track crypto transactions via their service and not do on chain transactions unless they have to but butt fuck us with fees like the do with USD and other fiat they support. Wouldn't seem practical for them to do on-chain

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There will still be on chain for withdrawals and deposits. No way around that. And it isn’t like there is a lot of internal trading like an exchange would have.

I would trust PayPal with my crypto anymore than I wouldn’t trust them with my fiat. I always transfer out all sales immediately as they frequently freeze accounts.

Yeah there is no safety in dealing with them.

This is just another step in the move towards them trying to remain relevant.

Their "moat" isnt that great since an electronic payment system isnt that novel. Yes they have the name but there are thousands of currencies that can perform the task. If we see some crypto applications that fill this role, they could overpower PayPal.

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If both the merchants and users were using paypal for crypto, paypal could do custodial off-chain transactions, and they could also implement a custodial lightning service to make instant Bitcoin tx.

In fact, if all users used PayPal to transfer Bitcoins, there would be congestion on the network and transaction costs would skyrocket.

However, PayPal probably wanted not to lag behind its competitors and are probably studying possible solutions.

I am very curious to observe the developments and in any case it is a huge advertisement for the crypto world 😊

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A big player like PayPal might loosen that up. But they are not really going to provide a major benefit to Crypto users. As Marky said, there is a dark side to all this.

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Yeah, there are always two sides to the coin. Although it sounds beautiful to buy crypto with PayPal, I can only imagine what it would feel like to get your account suspended with all your crypto in it and having no private keys.

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Imagine having an entire Bitcoin on there, your account gets locked, and then it moons.

Of course, PayPal is centralized so the possibility of hack is greater. Many will go after the honeypot if the crypto feature gets popular.

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Yeah, it's scary! It would probably be the second worst thing that could happen. Dying is in the first place. Some may prefer dying instead of losing their Bitcoin, though.

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Especially if BTC hits $250,000 or more.

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I've been using PayPal for more than a decade now and have had a few ugly disputes with clients regarding payments and PayPal has always helped me, even when my account was hacked, they got my money back. I trust them, they have given me no reason not to.
So I'm happy to see PayPal in the game. As you said, things won't go smoothly but at least it's a start.

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You are very lucky, the Internet is filled with horror stories and some I have myself. They have frozen many accounts for no reason, some for just being associated with crypto in the past.

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It will be interesting to see how it all works out with PayPal, I for one will not be on the list.

Where's Hive? What is the max transaction speed?

Unknown, we have never tested the max transaction speed but it is better than 60 transactions a second which is the best one listed there. I suspect it can easily keep up with PayPal at 193 transactions a second.

Why don't they test it and demonstrate it? It seems like a no-brainer to do that and present the results to then attract interest and step into that graphic ahead of other chains.

Specially now that outside/mainstreet eyes are getting interested in Blockchain/Crypto. I sometimes think that complacency will be the downfall of some Blockchains. Mainstream will just build their own chains and take the masses. Teams sitting on their hands thinking that the masses are actually against centralised is just not good business sense.

People just want the service to work.
PayPal (as much as some hate it) does that. MasterCard/Visa (as much as people feel they're evil) command the infrastructure.

Let's be PayPal!

You put this together well.

I don't transact with PayPal either. Long story short, they held up the sale of a vehicle for three months while we were abroad. But I am excited to see what this does for the market, that's a lot of consumers who didn't have crypto access and now they do.

For some reason my wife is on the waiting list but mine rolled out immediately--haven't tried it but I have full access. I didn't know you can't withdraw though! That's dirty.

I was looking for Hive on this list but nooooo.. PayPal does not know what a golden opportunity they have lost in not including Hive. :D

I guess they don't want to support Ripple because it is 9x faster than paypal. There are also a few other reliable blockchains with higher transaction speeds than paypal.

I understand they want the ones with non regulatory issues, and definitely nothing unstable or dodgy.

I know ripple isn't everyone's favorite because it is centralized, but I think if raw transaction speeds for payment are the primary concern, it's great. The 2$ eth fee and 5$ btc fee to send off platforms is really annoying. Also the wait.

Now I know Hive is faster, too. But it would probably also be a regulatory nightmare.

Growing pains, hugely net bullish either way.

I think they try to get money out of crypto and don't try to bring money into crypto. Can be wrong about that.

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I am quite ignorant about the type of security used on these platforms. But I have always wondered how Faucethub and other micropayment platforms handle so many transactions at the same time, with so many faucets registered, most bitcoin, thousands of transactions were made from 1 sat even.

I understand that it is not the real crypto that is transferred, but could this system be applied in a payment ramp like PayPal?

Much of the user to user transactions will be in PayPal's wallet and never hit the blockchain. It's mostly when users put in or take out money.

Crypto in paypal wallet is the same as putting your asset to third party. You do not really your own cryptocurrency because you do not have the pv key

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Not the same. Worse as PayPal has a history of stealing money from users by freezing accounts for absurd reasons.

Thanks for this. I had been pondering how exactly the different chains were planning to handle (they probably weren't...) the potential of 350 million PayPal users suddenly wanting to dabble on cryptos. I figured PayPal would probably hold a large pool of the cryptos they plan to handle (they already do, with numerous foreign fiat currencies), but that only goes as far as to when people can/are allowed to start sending their cryptos to wallets outside the PayPal infrastructure.

If CryptoKitties can crash Ethereum, I can't even imagine the bottleneck millions of PayPal users could create...


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My guess is that they will hold a large pool of crypto like an exchange but won't be doing on chain transactions. Users won't control their crypto nor will they be able to withdrawl it to another wallet. Users will only have a fiat amount that represents their crypto. Sort of like buying gold from a bank. You don't actually get to take home a gold bar, but instead you get a certificate that says you own a gold bar thats sitting in a vault somewhere. Users will actually be buying and selling fiat and Paypal will only do on chain transactions when they want to increase their own holdings or need to cash out to gain more liquidity. Paypals crypto prices will fluctuate based on the markets.
This is just a guess but I saw this same thing 2 years ago when Mogo finance offered users a crypto wallet. You could "buy bitcoin" but not withdrawl btc. You could only withdrawal fiat. Its a system geared towards the average person who doesn't care or understand the technology, or the concept of "not your keys, not your crypto." They will think they are buying the actually cryptocurrency but they will actually only be buying a stake or a share in paypals holdings. Again, just a theory.

To add to that. This is probably why they aren't allowing users to withdrawal their money until next year. They will likely use the money they get now to buy crypto, to begin building their pool.

I think the hold until next year is a ramp up effort. This is a new and huge change for PayPal and can potentially cost them a fortune if they mess up. Slow and steady I think is the reason behind it. That's why there is a wait list blocking most people for a while.

Yeah it makes sense to throttle the new users for sure.

But this statement

Keep in mind though you are unable to withdraw until it is unlocked later next year.

Leads me to believe that they are using the new funds to buy crypto to "fill their vault" essentially. Like you said, the system can't handle paypal doing on chain transactions so they need a large enough pool to minimize their need to do them.

Brave perspective, the only way for a real progress is looking at things with true eyes


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"Current block chains cannot handle the PayPal userbase.."
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In my opinion the only real future option for crypto is IOTA. The more users and thus the more transactions, the faster IOTA's "Tangle" gets.

I heard that they were just allowing people to hold crypto in a wallet and not actually allowing them to send or receive it, like investing in it. At least at first. Obviously they’ll want to expand services eventually

Yeah you can only hold it in the wallet and you cannot see the wallet address or anything. The buying and selling process is simple and fast though. I got approved the day they launched it but all I did was by one USD of each coin to see what I could do with it and have them in my account.

Researcher at Arizona State University claim that you can scale to credit card levels (100 MB blocks and more). So Dash, LTC and BCH won't probably need paypal.

You're absolutely correct in articulating the fact the crypto chains itself will not be able to keep up when too many users start to get some crypto. I suppose, Paypal will need to play an offchain play. Bitcoin, Ethereum and other top (in marketcap) crypto chains are simply not fast enough, and will not get fast enough any time soon. What strikes me is the fact that in the last 4 years that I'm in crypto, I had many discussions on the topic of need for fast chains, with super stable services on top and the need for super simple user experiences. Not so much happened on these fronts though. I think, crypto is still not ready for mass adoption any time soon. When too many users will come to crypto through eg Paypal, and the user experience is effected negatively, we run the chance the whole hurt will step out again and we'll left with another attempt by the market for crypto adoption. Remember Microsoft accepted crypto as a payment option for (some) of their products? IN 2017? And what did they do when BTC came down again in 2018? They stepped out again. Crypto space need to work together more to create the best in class services for a larger mass to use. Only then crypto has a chance to become part of our daily lives (not only for the few crypto minded people, but for much larger group of people I mean). When we dont work together and don't create crypto based services that can truly compete with all the fiat based services, crypto will stay niche for a long time to come, and we'll see short periods of hype (like we are in at this point in time), followed by long crypto winters. I for sure dont have the truth in hands, but my logic and ratio tells me this. I simply hope, I'm wrong :)

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this is very good news and I believe in paypal because I have been using paypal for a long time as my side account for overseas transactions with my best friends. and i like to use nyan. and I will also choose you as a witness. glad to read your post

There was a time when Paypal closed your account if it found out you were buying selling crypto.

Boy has the times changed.

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Paypal has the resources to sidechain most transactions on their own private ledger, which is really the only way they'll overcome blockchain limitations while maintaining security. So long as they hold enough of each crypto, they can reconcile on-chain when it's convenient for them, and not for every single transaction.

Yes, this will work for internal transactions (PayPal users buying stuff from each other in crypto), but not for deposits and withdrawals.


The devil is always in the detail...
Thank you for this valuable post @themarkymark

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Yes, this to me seems no different than libra coin. So Paypal was with libra coin project backed out last minute. Now is doing its own crypto project. Possibly it's own cryptocurrency. Now it would seem to me as Paypal has the bigger network that would make bitcoin less valuable not more.

So although Paypal is using Bitcoin as it were..the network is Paypal. The thing as well is Paypal can store and conduct it's own transactions on it's own ledger and implement protocols that work with their system. This feels similar to what happened with Electroneums instant payment processor. Once the blockchain transaction is recorded before the transactions are confirmed there is an okay to hold that crypto on their network and allow you to make a purchase faster although the parties haven't actually received the crypto and Paypal only needs but do this.

None of this feels like a win for Bitcoin to me. In fact it just feels like operations thats been run already so i feel this entire paypal thing is over hyped. i think its good for Paypal like it would have been for libracoin. I don't think bitcoin became anymore useful. I think the masses of people will want to use crypto like the use the Cash App. So i don't really consider this a crypto win at all. Perhaps the price goes up the utility doesn't and im not entirely optimistic we're going to see any more significant gains from Bitcoin and if we do i highly doubt we will see anything beyond the $30k range.

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As a canadian, it's amusing that you Americans have to use some jank 3rd party app to give your buddy the $16 you owe him for that Stadium Beer. While us Canucks have been able to e-transfer money to eachother for the better part of a decade now.

The limitations and restrictions with PayPal crypto holdings are indeed somewhat concerning. Some could think that at least this offers alternative gateways for buying crypto when a total bull run begins and perhaps avoids the situation of 2017s network congestions and also when exchanges were closing registrations turning away new potential customers with most left out of convenient way to get ahold of crypto, however those new comers may not realize of the lack of control the platform offers in terms of sending, withdrawing & depositing crypto

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