Paypal’s venture into cryptocurrencies could introduce many of us into this virtual world of money.
Bitcoin is an innovative form of cryptocurrency that arose to address economic problems related to centralised currency. Because Bitcoin is not a physical form of currency, it can be a little daunting, but it’s quite simple.
As the first form of digital currency, Bitcoin was founded during the crippling financial crisis in 2009. In September of 2008, Lehman Brothers (one of the largest US-based global financial services firms) filed for the largest bankruptcy in history. The collapse of this giant kicked off a global financial crisis. A few months later, Bitcoin was born. An enlightening new form of cryptocurrency: Bitcoin was a bank-free internet currency.
Bitcoin started at $0.068 a share (30 June 2010) and recently hit its record high of $19,140 a share (4 December 2017). That’s approximately an increase of 281,470 times – a whopping 28m percent increase. If in 2010 you had spent a measly $68 on 1000 shares, 2017 would see you sitting on a tidy $19.14m. It has since fluctuated a fair bit and averaged around $7,000 a share as of April 2020. Even when Covid–19 came about, the price it hit was $5014 (16 March 2020). This is remarkably low looking at the progression of its stock but still miles off where it started. Yet, since PayPal has announced their entry into the cryptocurrency market, Bitcoin’s share price rocketed back to almost $16,000.
Unlike the Dollar, the Euro, the Yen, and other forms of centralised currency, Bitcoin is classified as a decentralised currency. Standard Currencies define our modern economy; these are centralised in banks and controlled by the government. Here’s one of its initial appeals: there is no bank or central authority that governs Bitcoins. Bitcoins are controlled by a network of users who control and verify monetary transactions. This poses one of its greatest advantages to the everyday user; your Bitcoin is not centralised and based on your native currency. The standard currency we use day to day and its value are completely controlled by the country you are living in.
For example, if you’re in Tokyo and want to sell a pair of shoes to someone in London, you cannot use Japanese Yen because the United Kingdom uses Pound Sterling. Bitcoin is an international currency so if someone from London buys something from someone in Tokyo and pays with Bitcoin, there is no conversion rate, no bank delay, and no bank fee. The money is sent instantly and there are no attached fees.
When banks are eliminated from the equation and we can send a single form of payment regardless of geographical location, we truly create a separate global economy.
Is PayPal about to make Bitcoin useful?
Cryptocurrencies remain a niche payment method, largely due to the rapidly changing prices they experience compared with traditionally traded currencies. This has made them an extremely popular and lucrative prospect amongst some investors.
PayPal has confirmed its entry into the crypto-asset industry with the announcement that it will be enabling the buying, selling, and holding of cryptocurrencies on its platform. Users will be able to use these cryptocurrencies to purchase goods to 26 million merchants within the PayPal network. That’s right, you can use a digital form of currency to buy a vintage jacket from Depop or even book your dream holiday with Airbnb. The service is expected to be fully rolled out in early 2021.
Mainstream awareness of crypto remains very low. Genuine use cases are extremely limited for Bitcoin; currently crypto is more of an asset than a utility. However, the ambition behind PayPal’s new digital wallet is to widen that pool of use cases drastically, offering some form of legitimacy to a limited form of currency that has yet to storm the global payments ecosystem. When it comes to using virtual coins, PayPal converts the cryptocurrency into the appropriate national currency. This means the company itself will never actually receive the virtual coins; just the correct number of pounds or dollars.
PayPal brings over 340 million new users to the crypto table. For context, Bitcoin currently has 32 million addresses (only five million of which are active) so arguably the actual Bitcoins will increase dramatically, but there is still a great deal of constriction. PayPal’s crypto users will not be able to transfer their crypto holdings out of their PayPal account, nor will they be able to send crypto to other PayPal users. In other words, PayPal more or less dictates what users can do with their cryptocurrencies and could presumably freeze accounts if they see fit. This is not exactly in line with the industry’s origin and ethos. This is a daunting prospect for the true cult of crypto users, many argue that their industry coming into the mainstream is ruining its originality.
What does it all mean?
Crypto is finally beginning its long-waited emergence into mainstream finance. PayPal may introduce the concept of cryptocurrency to millions of users, but the drawbacks will probably prevent them from using the platform in the long run. It’s an excellent start for Bitcoin but there is still a long way to go.