PayPal now allows crypto transfers to third-party wallets
PayPal Holdings Inc. has announced expanded cryptocurrency features, enabling users to send and receive funds to and from other wallets.
Prior to today’s announcement, PayPal already allowed users to buy and sell bitcoin, Ethereum, Bitcoin Cash and Litecoin from within its app, and also use crypto to pay at checkout for many goods and services.
However, the new update means PayPal’s crypto wallet now has similar features to others. For instance, users can now send funds from another wallet, such as Coinbase Wallet, to the PayPal app. Or they can transfer tokens from PayPal to a third-party wallet or exchange, with no fees, though network fees known as “gas” may apply, depending on the cryptocurrency.
In a blog post, Jose Fernandez da Ponte, PayPal’s senior vice president and general manager of blockchain and digital currencies, said the new feature was one of the most common requests it has received from users.
“We’re excited to connect PayPal’s customers to other wallets, exchanges and applications, and we will continue to roll out additional crypto features, products, and services in the months ahead,” he wrote.
PayPal first added support for cryptocurrency in October 2020, making headlines as it was one of the first mainstream payment technology providers to make such a move. At first, users could only buy, sell and hold crypto with PayPal. Then in March 2021, the company launched its Checkout with Crypto feature that enabled users to spend their crypto at millions of online businesses that support PayPal.
For now, the new feature will be available only to U.S. customers, and for security reasons PayPal said it will implement additional identity checks for users before they’re allowed to transfer any crypto. The feature will rollout in the U.S. gradually, with select users getting access today and others becoming eligible in coming weeks.
Whether or not the new capabilities will impress the crypto community remains to be seen. One of the key benefits of crypto, for many users, is its decentralized nature. With crypto, users effectively become their own bank and can buy, sell and hold funds without any authorization from a third party. But that’s not the case with PayPal, which is a highly centralized and regulated company.
PayPal’s wallet is known as a “custodial” app. It means that PayPal holds the “private keys” required to access the funds stored in its wallet, so the company could potentially freeze those coins and prevent users from accessing them if it had a reason to do so. That’s different from noncustodial wallets such as Coinomi, where users hold the private keys themselves.
PayPal has always tried to position its custodial nature as a benefit. The advantage, it says, is users don’t have to worry about losing their private keys, and it also promises to replace any stolen funds in the event a customer’s account is hacked. With noncustodial wallets, there is no way to recover the private keys if they’re lost. Similarly, if a noncustodial wallet is hacked, there’s no way for users to recover any stolen funds.
Though Fernandez da Ponte didn’t elaborate on what additional new features may be rolling out in the coming months, he has previously said the company is looking at developing its own “stablecoin” asset. Stablecoins are pegged to a stable reserve asset such as the dollar or gold to ensure their value remains more or less stable, eliminating the volatility associated with traditional cryptocurrencies.
Stablecoins have grown in popularity with crypto traders as they provide a quick and easy way to “cash out” of more volatile assets. Recent events such as the crash of Terra Lab’s TerraUSD have created some distrust around stablecoins, potentially creating an opportunity for a “trusted” firm such as PayPal to step into the space.
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