Will PayPal’s adoption of bitcoin make cryptocurrency more mainstream?

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By Matthew Sparkes

Will cryptocurrency be more widely used now that PayPal accepts it in the UK?

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PayPal has two decades of experience in online payments and manages 403 million user accounts. So it made waves when it announced on August 23 that it would allow UK customers to buy and sell four cryptocurrencies: bitcoin prices peaked in three months. But will this and last October rollout in the United States push cryptocurrencies into the mainstream, or is this just another incident in the short but volatile history of decentralized money?

In the United States, customers who bought cryptocurrency through Paypal log in twice as often as those who haven’t, says Jose Fernandez da Ponte of PayPal. We expect digital currencies to play an important role in long-term consumer payments, he says.

Public interest in bitcoin and other cryptocurrencies is certainly growing, but only a minority has signed up. The AYouGov survey found that in August 2019, only 3% of people in the UK owned cryptocurrency. By July 2021, this figure had risen to 8%.

Giving millions of existing PayPal customers the ability to buy with a click has huge potential to boost those numbers, but access to currency isn’t the only limiting factor. People need a way to spend it.

A handful of large companies, such as Microsoft, have started to accept bitcoin as a form of payment, and others, such as electric car maker Tesla, have occasionally done so too. And while several other retailers, including grocery stores, coffee shops, and hardware stores, have systems for accepting cryptocurrency in some countries, using just this form of payment on a daily basis wouldn’t be an easy task.

PayPal users in the UK will not be able to use cryptocurrency to purchase goods or services that they can only buy, hold and sell in currency. But in the United States, the company offers the option of using balances for payments anywhere that PayPal accepts. This effectively allows hundreds of thousands of retailers to accept cryptocurrency without having to make any changes or accept risk, and receive US dollars from PayPal as usual.

This is vital because the risk to businesses is high, says Carol Alexander of the University of Sussex, UK. Cryptocurrencies are dominated by huge speculation and widespread manipulation, she says.

Organized groups are capable of causing fluctuations in the values ​​of cryptocurrencies with coordinated buying or selling, and unlike the traditional financial services industry, there is little regulation to stop it. So, if you directly accept bitcoin as a payment method, its value may drop before you convert it.

I can’t see this as crypto goes mainstream. Widespread market abuse must first be addressed, says Alexander.

Cryptocurrencies are decentralized systems without official oversight, so regulation is difficult. The registered companies that process them are increasingly under scrutiny. In June, the UK’s Financial Conduct Authority ruled that Binance Markets Limited, one of the world’s largest cryptocurrency exchanges, should cease regulated trading in the UK.

There are still hurdles to overcome before cryptocurrency can really make its way into the mainstream, including its sky-high energy consumption, volatility, and complexity.

But some are still convinced that the technology offers enough advantages, such as inflation protection, a certain degree of anonymity, and low fees for large payments, that widespread adoption is inevitable.

Nigel Green of financial services firm deVere Group is convinced that cryptocurrencies will replace traditional money and, while that time is still far away, he says PayPal’s announcement is another example that exposes deniers of the cryptocurrency as being on the wrong side of history.

This is a big step forward towards mass adoption of digital currencies, he says. More and more payment companies will naturally follow their example.

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