Why PayPal is developing a cryptocurrency service and what it will be

Back in March, the global leader in online payments PayPal sent a letter to the European Commission with recommendations forofficials regarding preparationcrypto regulation. In this letter, information about which first appeared in the media on June 14, the company admitted that it is actively developing applications using cryptocurrencies.

And last month it became known that PayPal is working on the launch of a full-fledged crypto-asset trading service. Why did the company decide to strengthen its work in the crypto business?

PayPal's position on cryptocurrency regulation

June 14 payment giantPayPal published a letter sent to the European Commission (EC) in March this year, where the company confirmed its plans to develop a cryptocurrency trading service. The letter was prepared after the EC asked leading market players to provide their position on cryptocurrencies in December 2019 as part of the preparation of a pan-European legal regulation of digital assets.

In the letter, the company said it “is followingevolution of the crypto-assets sphere ”and took a number of“ steps to further develop its capabilities in this field ”. The company is also convinced that cryptocurrencies can solve the pain problems of the modern economy.

PayPal also noted that their numberusers worldwide exceed 300 million people, and in Europe the company operates thanks to a license for banking and payment services obtained in Luxembourg. In total, the PayPal payment service is represented in 31 European countries, where the company serves 95 million merchants and retail consumers.

As for the subject line, PayPal has identified three points that European legislators need to focus on when developing crypto regulation:

• A clear set of definitions for various cryptocurrency transactions. This is to ensure that the companies involved in such operations operate legally. Legal uncertainty scares off business.
• As with other financial services, clear AML / CFT requirements must apply to cryptocurrencies.
• Given the rapid development of technologydecentralized networks, consensus protocols and cryptography, the future legal regulation in Europe should be “technology neutral” - this will effectively support innovation in the blockchain industry.

Why did PayPal leave the Libra project?

In addition, PayPal mentions in its letterparticipation in the Libra cryptocurrency project from Facebook. Let us remember that it was launched in June last year, and about 20 large companies participated in it as partners. However, after a barrage of criticism from Western governments, many of them stopped participating in the initiative, and the first of them was PayPal.

However, PayPal CEO DanielShulman, in an interview with Fortune, later explained this step by the company’s desire to focus on the development of its own cryptocurrency projects, and not at all by a loss of faith in the promise of digital assets.

At the same time, according to Shulman, the problem with the function of cryptocurrencies for payment is not in the technical part, but in too high volatility, which is unacceptable for commercial enterprises:

“Until cryptocurrencies become less volatile, they will not be widely used by online traders.”- he is sure.

By the way, Shulman himself admitted that he owns bitcoins (and only them).

PayPal's involvement in the crypto industry

PayPal hasn't really stopped developingin the field of cryptocurrencies and blockchain. Less than a month ago, CoinDesk spoke about plans to introduce a cryptocurrency trading service at PayPal, citing sources. Presumably, the new service will also work on Venmo, PayPal's subsidiary app that handles mobile payments.

"They will have something like a built-in wallet so that the user can store cryptocurrencies there.", - said one of the sources of the publication.

The fact that PayPal is working in this direction was stated by the company’s CFO John Raney back in May 2019:

“We have teams working on blockchain and cryptocurrency applications, and we want to be involved in any form in the future. I just think it's a little early now. "

Rainey also added that PayPal previously conductedexperiment with bitcoin, offering it as payment from some sellers. However, due to the strong price volatility, traders almost immediately exchanged the first cryptocurrency for fiat.

A year later, the increasing popularity of steelpurchase stablecoins, however, PayPal has not yet commented on the possibility of using stable cryptocurrencies in the field of trade, which would help the company avoid the risks of volatility in the cryptocurrency market.

We would like to add that at the end of June the portalDecrypt reported that PayPal has a blockchain technology research team and is currently looking to hire a senior research engineer. In addition, in November last year, PayPal was among the investors in the cryptocurrency risk management platform TRM Labs.

Since 2014, PayPal has been collaborating with severalAmerican crypto companies (including Coinbase and BitGo), but services for direct purchase and sale of digital assets are a fundamentally new step for the company.

What could be the future cryptocurrency service from PayPal?

What is the reason for PayPal's current interest intrading cryptocurrencies? In an attempt to answer this question, Forbes noted that the coronavirus epidemic has had a positive impact on American businesses that offer such services.

So, from March to the end of May, the mobile applicationBRD reported nearly 700,000 new users in the U.S. alone—the company plans to reach 5 million users worldwide by August. Twitter creator Jack Dorsey's startup Cash App also set its own download record. The epidemic and quarantine had a similar effect on the activity of users of the Robinhood app.

The head of PayPal recently also noted positiveimpact of quarantine - according to his opinion, expressed in an interview with the ET Tech portal, the spring quarantine led to the rapid development of digital payments. During the second quarter, the fintech giant's share price rose by 82%.

The contours of the future become clearCryptocurrency service PayPal - functions for storing and exchanging cryptocurrencies with the ability to pay for goods and services. However, for now, the company seems to be standing in the way of the very legal uncertainty mentioned in the letter of the European Commission, and the high volatility of cryptocurrencies.

It is possible that Bitcoin and other cryptocurrencies will be used as an exchange commodity, while PayPal will offer stablecoin for payments for purchases or sales of goods.

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