PayPal’s recent decision to enable cryptocurrency purchases and increase limits has taken the cryptosphere by storm. Analysts believe that PayPal’s decision likely led to Bitcoin’s explosive rise this month, since it signals intense demand from consumers, and possibly opens up an entirely new market that was previously untapped.
If you’re an online consumer, you likely have your own PayPal account — there are over 350 million PayPal users, and growth continues to move upwards year over year. By comparison, pure cryptocurrency services are noticeably smaller — for example, Coinbase, one of the world’s most popular crypto-to-fiat on-ramps, only has around 35 million users. For most people, it’s a no-brainer to purchase some Bitcoin on PayPal instead of having to sign up with an entirely new company. However, is it that easy of a decision? Let’s discuss the implications of buying cryptocurrency on each platform.
Buying Bitcoin on Coinbase
Coinbase is not a merchant processing platform — instead, it’s a crypto exchange where people can deposit fiat to buy cryptocurrencies, and vice versa. They also feature the Earn program, which allows people to earn cryptocurrency by studying educational/promotional material for other coins. The entire website is crypto-specific and focuses on one main goal — making Bitcoin accessible to everyone.
Something of note is that Coinbase has more stringent KYC regulations compared to PayPal, at least when it comes to the creation of a new account. Cryptocurrency transactions are harder to track compared to those done by a debit card or a bank account, so regulators ensure that licensed cryptocurrency firms know who is using their platform. It is usually impossible to make a Bitcoin purchase on Coinbase without having a fully verified account — which of course, involves sending your KYC information to Coinbase first.
However, a major upside to buying Bitcoin on Coinbase is that the Bitcoins are actually credited to your account, which you can then withdraw on-chain. You can move your coins off of Coinbase and can then store them in your own web wallet, or even a hardware wallet if you have one (which is much more secure, and protects you from third-party incompetence or malicious targeting).
Buying Bitcoin on PayPal
Since most people already have a PayPal account, it is indeed a trivial matter for them to use their balance or linked cards/accounts to instantly purchase cryptocurrency from within the app. There’s a major benefit to not having to sign up to a new account — not only is it easier, but it reduces the risk of your private information being leaked or stolen, since it’s one less company that has data on you.
The primary problem that people have identified with buying Bitcoin on PayPal is its restrictive nature. The Bitcoin you purchase on PayPal is very different from what you can purchase on Coinbase. PayPal’s Bitcoin acts more like a derivative token, in that it holds the value of Bitcoin, but you can’t actually use the underlying cryptocurrency token itself. According to PayPal’s terms and conditions, Bitcoins purchased on the platform cannot be transferred to other PayPal users, nor can they be withdrawn to an external cryptocurrency wallet.
So, which one is right for me?
There’s no one-size-fits-all answer for this: it entirely depends on why you want to buy Bitcoin, and what sort of user you are. Here are the main factors to consider:
- Convenience. If you are already a PayPal user, it will obviously be more logistically convenient to log in and make the purchase. You save out on the time and effort required to sign up for Coinbase, make a new account, link a payment method, fund it, purchase, and withdraw.
- Trust/privacy. You may trust PayPal more if you are an existing user — also, it is best to have your KYC information with as few companies as possible. Adding one more to the mix is always worse for your privacy and data safety.
- Use cases. If you want to actually make use of your Bitcoins (ie. sending them to friends or family, purchasing things on online stores that accept cryptocurrency, playing with smart contracts, buying altcoins, etc.) then you won’t be able to do so if you choose PayPal, but you will be able to do so with Coinbase. This being said, the majority of new users entering the crypto space do not necessarily require Bitcoins to actually use them in markets — they are often speculating on the price going up. If you are one of those consumers, then it makes sense to make the purchase on PayPal, since even though PayPal’s Bitcoin cannot be withdrawn, it will still track the actual Bitcoin value, so you can easily buy and sell it directly into cash in order to realize profits/losses. (Of course, downward speculation is not possible through PayPal — if you want to short the market, you would need to take your coins to an exchange like BitMEX, which requires you to be able to withdraw them).
- Ownership. A significant tenet of the crypto world is ownership of your own finances. Buying Bitcoin on Coinbase means you can withdraw it to your own wallet and can secure it yourself, giving you complete control over the private keys containing your funds. If you buy your coins on PayPal, you won’t be able to take them out of PayPal unless you liquidate to fiat, which means no matter what, your cryptocurrency private keys will always be held by a third party. This is not ideal for people who believe in the principle ‘not your keys, not your coins’.
Once you know what type of user you are and what you are using Bitcoin for, it’s an easy decision. Based on the criteria above, what kind of user are you? Which fits you better: Coinbase or PayPal? Let us know with a comment down below.