In a symbolic move that highlighted the progress cryptoassets have made in recent years, PayPal announced last week that it would make cryptoassets such as Bitcoin and Ethereum available to its 346 million users. This is an important step for the space, and will both increase awareness and further, it’s legitimacy. However for those in the know, the service proposed by PayPal is less robust than players already operating in the space. The DeFi first firm which aims to build the financial services infrastructure for the global digital economy of Web 3.0, provides a service through which users can purchase, store, and trade their cryptoassets. Here we examine the differences between PayPal’s emergent offering and crypto native operations such as PlasmaPay.
Not your keys, not your funds
PayPal’s service is very clear that users “will not be provided with a private key”. This was backed up by recent reports from both Sign Key and Satoshi Labs which discourage PayPal for transacting BTC. This is because you never truly own any cryptoassets held on PayPal. This has a number of important ramifications of which users should be aware.
Firstly, it means that users are forced to trust that PayPal actually has the cryptoassets stated, and that the company will continue to operate. While PayPal is of course a large institution with a lengthy track record, this does not make it invulnerable. There is a long history of financial services companies going out of business and being unable to provide full restitution to their account holders.
PlasmaPay, meanwhile, is a non-custodial service. This means that users hold their own keys at all times. If PlasmaPay goes out of business, then user funds are still safe, because each user holds their funds at all times.
Secondly, because users don’t control their private keys, they have to abide by all PayPal rules and restrictions. The most pressing for most people is that the cryptoassets held in your account “cannot be transferred to other accounts on or off PayPal”. As such, users cannot spend their cryptoassets as they wish, but can instead only use it to complete transactions to PayPal merchants. Users can’t send to friends or families (not even through PayPal), or complete any non-PayPal merchant transaction. This would be akin to your bank dictating that the money in your account could only be spent at places in which the bank had a partnership with the shop; that you could not withdraw cash, send it to your friends or family, or otherwise do anything else you wish with it.
Users of PlasmaPay, however, can use their cryptoassets in any way they choose fit. They can send any amount of their funds to whomever they choose, withdraw it, use it to make purchases, send to exchanges, or transfer to a different account of their own choosing. This is because they own their own private key, and as such are free to do whatever they want with their funds.
As well as limiting how users can spend their cryptoassets, PayPal is also limited in who can access the service. Only US based customers (excluding Hawaii) are able to buy cryptoassets. Furthermore, these customers have to use PayPal Cash to complete their purchase.
PlasmaPay, on the other hand, is available to users in 165 countries and offers a wide range of options through which users can purchase cryptoassets. This includes debit and credit cards, e-wallets, bank transfers, and PlasmaPay Cash.
Because of this walled garden and market size, PayPal is also able to charge significant fees. For example, from 2021 a purchase of $100 on PayPal would incur a 2.3% fee, as well as a spread estimated at 0.5% to the market price provided by Paxos (PayPal’s trading service provider). PlasmaPay, conversely, only charges a flat 1% fee on purchases made through bank transfers. Furthermore, instead of being reliant on one trading provider, PlasmaPay is partnered with five leading crypto exchanges including Binance and Kraken to source the best price possible for users.
The difference between holding and participating
PayPal offers a route for those new to the space to buy and sell cryptoassets. But, as with Revolut’s similar offering, it only offers users limited exposure and interaction. This is a shame, since it denies people the opportunity to fully participate in the likes of DeFi and other crypto protocols. It only allows users to buy four cryptoassets (Bitcoin, Bitcoin Cash, Ethereum and Litecoin), and, as discussed, it does not really allow users to do anything with them once purchased. It is very much a ‘light’ experience.
Services such as PlasmaPay, on the other hand, are geared towards enabling users to participate in crypto as much as possible. Users can use their funds as they choose to, not as is prescribed for them. Future developments include the likes of a DeFi dashboard, which will let users stake, farm, and borrow/loan assets. PlasmaPay will also shortly launch the ability to buy and sell any token, providing unrestricted access to the full range of DeFi and crypto. This will provide all the convenience of a centralized service that is easy to use, with all the benefits of decentralization.
Legitimacy, but with potential risks
PayPal’s introduction to the crypto space is certainly something to be welcomed. It brings with it a mass of users and the accompanying awareness and media attention that should benefit all of crypto. The legitimacy PayPal brings, however, also needs to be kept in check. Bitcoin and other cryptoassets are built on the foundation of decentralization, something that could be endangered by centralized firms dictating too much of what people can and can’t do with their cryptoassets. As such, users should be educated on the benefits of decentralized services wherever possible, to better secure their own holdings and the safety of networks moving forward.