Despite what they are saying in all the tech blogs across the internet-you cannot buy Bitcoin using PayPal. Not even if you have the much-touted and coveted US PayPal account that seems to get all the good features. All PayPal has done is to find a way to neuter Bitcoin and use it to get free good publicity from proponents of Bitcoin.
What am I yapping on about?
So normally PayPal and Bitcoin are two competing wallets. If you want to exchange your wallet balance you have to find some exchange or someone who wants your PayPal balance, you send them your PayPal balance and they in turn will send you Bitcoin to your Bitcoin wallet. In other words the two are kept separate.
By now you have probably heard or read about how US PayPal account holders can buy Bitcoin for as little as US$1 using their PayPal wallets. They don’t even have to leave the comfort and familiarity of their PayPal account in order to buy this Bitcoin. That convenience comes at a cost. PayPal treats Bitcoin as an asset rather than a currency!
So let me outline the buy and sell process of Bitcoin using PayPal to better demonstrate what I will mean:
- To buy Bitcoin or Ethereum or the other selected cryptos you:
- Log in to your PayPal account
- Click on the Payments screen
- Select Buy Bitcoin and more
- Select the crypto you want to buy e.g Bitcoin
- Select the amount you want to buy or enter your own
- Agree to terms and conditions
- Pay and voila you will have an additional balance in your summary section showing the current value of your crypto as an additional balance. The balance changes from time to time even when you don’t transact. Cryptos are volatile. It’s their nature.
- To sell your crypto you have two options:
- You can just sell your crypto by selecting the sell option and following the steps. Once you are done your proceeds are added to your main PayPal cash balance
- Or you can sell during the checkout process when you are about to buy something and a portion of your crypto is used to fund the transaction.
Each time you buy or sell crypto PayPal takes a cut of the transaction. Nothing much but it’s how they make money. There is nothing wrong with this in my opinion.
Now if are familiar with how Bitcoin works you would have already noticed something: at no point did we mention your Bitcoin wallet! When you buy Bitcoin or other cryptos via the official PayPal option you don’t get your wallet details. You actually don’t get your Bitcoin. PayPal holds it on your behalf. Think of it as buying a painting and leaving it at a museum instead of taking it with you to hang it on your wall.
That kind of defeats the whole point of buying the painting if you ask me. In addition to this restriction, you are told you can only sell the painting through the same gallery/museum. That’s what PayPal is doing with your Bitcoin here. You cannot spend it anywhere else but through PayPal.
Why is PayPal doing this?
If you a staunch proponent of Bitcoin and the anonymity it provides you would be disappointed by these regulations but I don’t think PayPal had a lot of options here. After 9/11 Americans went crazy and they will do anything to stop the next 9/11. That includes peering through every transaction and every financial institution is tasked with making sure that their system is not being hijacked for criminal purposes or to fund the next 9/11. And there is always the inordinate fear that a similar event will be funded using Bitcoin.
On the other hand, you have ordinary people waking up to news about how the price of Bitcoin has surged. We have romantic stories about people who bought Bitcoin or some other crypto as a joke, forget about it and wake up one day to learn that they are now rich due to the surge in prices. Everyone wants in on that piece of the action but not everyone understands or cares for the complexities involved in handling and trading Bitcoin.
People generally hate maths and telling them that they have to use a string of letters and numbers such as 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 as a wallet seems stupid and unnecessarily complicated. Imagine telling them you have to keep another alphanumeric string secret otherwise it’s bye-bye Bitcoin? That’s a turn-off. Did I mention the miner’s fee?
PayPal’s solution comes with restrictions but it’s an igneous solution that will find favour with the U.S government and the common man. The government can cheerfully spy on its citizens and keep track of who did what with their money and the common man will get to tell people they bought Bitcoin at some cocktail party.
It’s however an arrangement that turns Bitcoin into an asset. You get a neutered version of Bitcoin that you cannot spend anywhere else. This means you lose out on some of the best aspects of Bitcoin. No anonymity. No freedom.
If you want traditional Bitcoin or if you are like the rest of us, you have to trawl the internet and brave some risky exchange to get the real thing. It’s unlikely that will ever change.