PayPal lays the foundation for a cryptocurrency payment system

Last week, global payments consortium PayPal announced that it is starting to allow US users to pay for online transactions using cryptocurrency.

"We think it is a transitional point where the cryptocurrency goes from an investment asset to a legitimate source of funding for real-world transactions with millions of sellers," Paypal chief executive Dan Schulman told Reuters.

PayPal accepts electronic money payments

Forward is a good word to describe the current situation, especially for those who use cryptocurrency with PayPal. Since the end of 2020, the consortium has allowed customers to buy or sell bitcoin (BTC), ethereum (ETH) and a number of other cryptocurrencies, but has not yet made a stance. Users cannot withdraw funds from the platform or deposit cryptocurrencies they already own.

Currently, users still cannot deposit or withdraw digital assets from PayPal - reducing its appeal as a method for individuals to have more control of technology assets. However, at least users can purchase products or services through Paypal's electronic payment system.

Many analysts still doubt the effectiveness of this form of payment. They think the percentage of users who will take advantage of the new feature will not be high as the level of skepticism remains large.

Besides, the process of recognizing the payment mechanism of the electronic money payment technology can be time consuming.

PayPal lays the foundation for a cryptocurrency payment system Picture 1

Waiting for a bitcoin transaction payment confirmation within 20 minutes may not be an ideal solution for in-store retail purchases. Depending on the size of the purchase, sellers accepting bitcoin could be at risk if they allow the customer to leave before the transaction is confirmed.

Even assuming they can accept the risk, there is no peace of mind because, from a seller's point of view, the payment transaction has not been counted as successful if the money has not been transferred to the account - perhaps later. 2 or 3 days.

In other ways, bitcoin could be an attractive alternative (or addition) to Visa, MasterCard or PayPal for merchants.

The advantage is that users do not currently have to pay an acceptance fee (bitcoin has an optional transaction fee for the sender, usually equivalent to a few cents to process payments). Therefore, traders affected by the fluctuating exchange rate between bitcoin and USD will not be exposed to currency risk either.

For example, they may choose to hire a processor to instantly own bitcoins on behalf of the seller and transfer the equivalent amount in USD or euros.

The fee for the service is about 1%, still 2% to 3% higher for the credit card payment. So merchants can profit from Bitcoin without having to worry about bitcoin's price.

Another problem is that no cryptocurrency blockchain developer today dares to guarantee 100% level of security, network effect, or name recognition of bitcoin. Meanwhile, other strong cryptocurrencies like ethereum also face challenges of their own size.

In the US, the government currently considers digital currency generally an asset, meaning that if you buy a can of pet food with cryptocurrency, you still have to be taxed. Clearly then, it is not easy for the electronic money payment system to be ubiquitous in everyday commerce.

Users may not really want to pay with a currency that can fluctuate prices and have to wait a long time to complete the transaction, and then pay taxes, while they can swipe the card and yen. mind returning home.

Potential of a cryptocurrency payment system

Despite such challenges, there is still some evidence that cryptocurrencies are starting to be used as a medium of exchange in other parts of the world, where payment systems have not really developed yet. .

It can be argued that bitcoin has value as a repository, depending on its utility. The more redundant demand for bitcoin as a payment token, regardless of its price, the more investors believe that demand for it will steadily increase.

The PayPal move looks like a preparation for the future. The company won't charge a regular fee to sell crypto when a consumer uses the Checkout feature with crypto (and you have to sell it, as PayPal doesn't ask its merchants to accept anything other than that). fiat money).

PayPal customers also won't have to worry about online fees or confirmation times - that fussy business will be handled behind the scenes by the company and its partner Paxos.

Jessica Tanner

Update 07 April 2021