2020-11-01
For almost two weeks one topic has dominated the international crypto world: PayPal. Beside a bullish market outlook for the Bitcoin course, this step raises also questions about the PayPal strategy. Why PayPal harms the original Blockchain ecosystem, it on a long-term basis not at all so much around Bitcoin goes and why also for PayPal some stands on the play.
PayPal's announcement on October 21 to accept several of the major crypto currencies helped the crypto market to make a significant jump in prices. Not only has Bitcoin reached a new annual high of over 13,000 US dollars, but the total market capitalization of all crypto currencies is now higher than it has been since May 2018, at over 400 billion US dollars.
As understandable as the price reactions are, the question arises as to what it means for the crypto ecosystem in general and the aspect of decentralization in particular when a Silicon Valley company like PayPal enters the token economy.
The reactions to PayPal within the crypto community are not new. Already with the announcement of Facebook to develop an own crypto currency by the Libra Consortium, there have been divided reactions. Although this was not about the acceptance of Bitcoin as a means of payment like PayPal, it was about the provision of a transaction infrastructure based on a stable coin, ergo token derivative.
While mass adaptation undoubtedly benefits from the market entry of such giants - one need only think of the user numbers of Facebook and PayPal - a piece of decentralization is always buried at the same time. The way PayPal and Facebook contribute to the crypto-economy clearly contradicts the block chain narrative. No wonder some crypto-enthusiasts sound the alarm and sketch a sellout of the decentralization movement. After all, PayPal retains full control over the private key. Users will thus never be in "full" possession of their crypto currencies.
A narrative of block chain protocols consists in the re-decentralization of the centralized platform economy. A dismantling of power with simultaneous participation of the users. The idealistically conceived desire for a decentralized, new Internet economy is that this should allow for more say, monetary participation opportunities and data protection.
By incorporating crypto-applications such as payment with Bitcoin or a stable coin, in an environment controlled by the provider, i.e. without access to private keys and without control over one's own data, Web 2.0 platforms are facing the wave. Just like in a chess game it seems, they are always one move ahead. Especially as they have a very strong argument: The network effect. While every new block chain protocol has to fight laboriously for every new user, PayPal falls back on 346 million users. On Facebook it is just under half the world's population.
So if PayPal soon enables the convenient exchange in Bitcoin, the damage for crypto startups with a higher decentralization requirement will be great. The step to use one's PayPal account for Bitcoin Investments or even to process a crypto transaction through it is much more obvious for most people than to choose a special crypto service.
In terms of usability, block chain alternatives usually cannot keep up with the large central platforms. Instead, they must use less tangible benefits such as data protection or financial incentives to attract new users.
The following scenario is therefore not unlikely: PayPal provides for a higher Bitcoin adaptation and to support the Bitcoin price - so investors can be happy. On the other hand PayPal prevents a redistribution of market shares towards "real" crypto-economy. The Silicon Valley platform economy places itself downright between the user and the potential block chain alternative, since it keeps him on the platform and in the network by a supposedly better offer. The fact that the offer is not better, but only more convenient, will be a thorn in the side of only a few.
Whether Facebook or PayPal, the question arises what is the long-term strategy behind the crypto-switch? While Facebook has already formulated countless thoughts about this, PayPal also has a thought that goes far beyond the announced intentions.
According to a Morgan Stanley analyst, the business of PayPal will not profit for the time being particularly by Bitcoin, Ether and CO. The large money might be earned still in the traditional payment traffic.
Measured at the sales volume and the yields of PayPal Bitcoin and CO. will represent only a small optimization. According to the investment bank, it is rather the new customers and the market coverage - 26 million merchants can now accept crypto - that PayPal is driving. According to Bloomberg, PayPal is also planning to make additional purchases to firmly position itself in the crypto economy. For example, the takeover of the crypto custodian BitGo is under discussion.
According to a Morgan Stanley analyst, the business of PayPal will not profit for the time being particularly by Bitcoin, Ether and CO. The large money might be earned still in the traditional payment traffic.
Measured at the sales volume and the yields of PayPal Bitcoin and CO. will represent only a small optimization. According to the investment bank, it is rather the new customers and the market coverage - 26 million merchants can now accept crypto - that PayPal is driving. According to Bloomberg, PayPal is also planning to make additional purchases to firmly position itself in the crypto economy. For example, the takeover of the crypto custodian BitGo is under discussion.
What do large crypto stock exchanges like Binance, banks like J.P. Morgan and corporations like Facebook have in common? They all rely on their own stable coin. PayPal is also part of the Libra Consortium and is therefore involved, albeit indirectly, in a stable coin.
Classic crypto currencies such as Bitcoin, Ether or Litecoin are not particularly suitable as currency in the sense of daily payment. They either have a value storage function (Bitcoin or Litecoin) or an application function (Ethereum). However, unless you are travelling in a "crisis area", there are few rational reasons why you should pay with Bitcoin, for example.
As long as our salary, taxes and ultimately the prices in the supermarket are displayed in euros, Swiss francs, etc. and are set as legal tender, we will also have the domestic fiat currency as a reference point. So it would be more than obvious if PayPal would also rely on stable coins. A fact that is already hotly discussed in the crypto-scene.
On the one hand, PayPal is attacking its business model with a stable coin. The risks for PayPal would be anything but small. After all, they would be exchanging an old payment infrastructure, from which they earn handsomely as middlemen, for a new infrastructure. How high the margins and market shares are in the new infrastructure environment is difficult to calculate. Nobody, not even PayPal, can predict exactly how the market for payment services will develop over the next ten years.
However, this risk is countered by an even greater risk: The oversleeping of developments that can no longer be stopped. PayPal is also forced to develop further. If it does not do so, then PayPal is threatened with the same fate as many large dinosaurs from DAX and Co. Their added value has already been more than counted by Internet platforms and companies of the next generation.
As irrelevant tokens may be to us at the beginning of this decade, they will certainly not be at the end of this decade. PayPal now has the chance to actively shape this change and implement its standards and strengthen its user base. The Bitcoin integration can only be a first cautious step to subsequently convert all payment services to tokens.
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