Online payments firm Paypal has entered the cryptocurrencies market by allowing its users to use their accounts to buy Bitcoin and other virtual currencies.
Consequently, Paypal users may now also use Bitcoin and other cryptocurrencies to purchase goods and services from the 26 million sellers accepting Paypal payments.
The company is planning to introduce the buying options in the US over the next few weeks and expects full implementation early next year. News of Paypal's decision boosted Bitcoin prices, allowing it to break the $12,000 mark.
Paypal and cryptocurrencies
Aside from Bitcoin, the other virtual currencies that will be added into the system first are Ethereum, Litecoin, and Bitcoin Cash, a spin-off from Bitcoin. Paypal said these currencies could be stored "directly within the PayPal digital wallet".
Despite the increasing popularity of cryptocurrencies, they have remained a niche payment method, partly due to the quicker price changes compared with traditional state-backed currencies. However, this same nature makes them attractive to several investors.
Paypal claims that it plans "to increase consumer understanding and adoption of cryptocurrency". It added: "As part of this offering, PayPal will provide account holders with educational content to help them understand the cryptocurrency ecosystem."
Under the proposed system, Paypal will convert the cryptocurrency into the relevant national currency so the receiving seller will never receive virtual currency. The firm assured that there would be "certainty of value and no incremental fees".
However, the launch of the feature to allow users to pay using virtual currency to ordinary merchants is not due until "early 2021".
David Gerard, author of Attack of the 50 Foot Blockchain and Libra Shrugged: How Facebook Tried to Take Over the Money, called Paypal's proposed system "a crypto day-trading market".
Gerard said: "I'm at a loss as to who the market is for PayPal as a crypto-exchange."
He compared Paypal's decision to playing the stock market, but with Bitcoin, which is volatile and less well-regulated, making it more like "gambling on penny stocks".
He argued: "Have a flutter, drop $10 on it, you'll learn things you wouldn't learn any other way - but you are gambling."
Gerard claims that there were "a lot of big players who manipulate the price", and that ordinary people may end up losing their money.
"I don't expect much of a market for this beyond existing crypto holders... I'm baffled that PayPal would offer this, and it's not clear what they're trying to do here. There must be someone at PayPal who is very interested in cryptocurrencies." he explained.
Last year's pullout of Libra Association
In October 2019, Paypal pulled out of Libra Association, an alliance for the launch of Facebook cryptocurrency Libra.
PayPal released a statement saying that it is leaving the alliance with Facebook for its Libra cryptocurrency but did not specify the reason behind the decision. Facebook unveiled Libra and its digital wallet Calibra in June.
The digital currency has received criticism from regulators and France and Germany have expressed that they will prevent its use in Europe.
In the statement, Paypal said that it "[remained] supportive of Libra’s aspirations" but had chosen to focus on its own core businesses. Paypal was one of the original members of the Libra Association, a group of 28 companies and non-profits cooperating to develop Libra, which also include payments company Visa, ride-hailing app Uber and humanitarian charity Mercy Corps.
