PayPal began championing the adoption of cryptocurrencies in 2020 when they allowed users to store, buy, and sell cryptocurrency (Bitcoin, Litecoin, Ethereum, and Bitcoin cash) on their platform. They took their pro cryptocurrency stance a step further when in March 2021, they announced users could now pay for items using the digital assets. The bullish news was received well by the market as Bitcoin rallied over $1000. Operators such as American Express have allowed users to pay with cryptocurrency for years.

How Does PayPal’s Crypto Checkout Service Work?

With PayPal’s cryptocurrency checkout service, the payment giant will convert the purchasers’ cryptocurrency into the local fiat currency of the seller, and the seller will receive fiat currency. PayPal will charge a conversion fee at the standard conversion rates.  The payment happens exactly like a foreign exchange transaction. Currently, sellers will not be able to get recipients of cryptocurrencies in exchange for the goods and services on the platform.

Who Can Use PayPal’s Crypto Checkout Service?

At the moment, only US PayPal customers can utilize the crypto checkout service. PayPal is hoping to offer the service to most of its US customers within the next few weeks. They expect to have over 29 million merchants accepting cryptocurrency within three weeks.

PayPal has admitted that certain services may not be eligible to be paid for with crypto. It has not revealed a timeline of when international players can use the crypto service. For now, international users will have to endure only being able to hold, buy, or sell cryptocurrencies on PayPal.

How Will PayPal’s New Service Affect Bitcoin?

Initially, the rolling out of PayPal’s new cryptocurrency service was met with enthusiasm as Bitcoin rose over $1000 within hours of the announcement. PayPal has said it is committed to helping cryptocurrencies reach mass adoption. They have stated the secret to that is providing users with safe and easy infrastructure. Cryptocurrency experts have long expressed that mass adoption will lead to substantial price increases as the digital assets are still relatively underutilized, with around 1% of Americans currently holding any cryptocurrency.

However, there are a few problems with PayPal’s new cryptocurrency service. As cryptocurrency is a deflationary currency, meaning its value rises over time, what incentive do users have to spend their crypto tokens? For example, would you rather pay for a $30 t-shirt with $30 worth fiat currency that is going to be worth $29 next year or with $30 Bitcoin, which is going to be worth $40 next year?

The other problem with using cryptocurrency to purchase items is that the government has classified cryptocurrencies as digital assets. Every time a cryptocurrency holder buys an item on PayPal, they are liable to pay tax because when they sell cryptocurrency, it is the same as selling any other asset. If PayPal allowed vendors to accept cryptocurrency without forcing crypto holders to exchange their tokens like online gambling sites the service might be more popular.

Who wants to pay extra tax and make their life more complicated by using crypto for small and frequent purchases on PayPal. It makes much more sense to convert a large amount of cryptocurrency to fiat currency, pay tax on the single trade, and then use fiat currency to fund your living expenses.

While PayPal’s new crypto service may get people interested in exploring and investing in cryptocurrency, digital assets are not effective for purchases due to their deflationary nature and the tax liabilities. Save your crypto asset and spend your fiat currency!

Conclusion

PayPal is doing its part to usher in the mass adoption of cryptocurrencies. In 2020, they allowed users to buy, hold, and sell crypto tokens. Now they are allowing US users to even pay for goods and services with cryptocurrency. PayPal is hoping to offer its new cryptocurrency service to most US users by the end of April 2021. They have not revealed a deadline for international users. 

PayPal’s new cryptocurrency users will get more people interested in cryptocurrencies; however, don’t expect many cryptocurrency holders to use their precious tokens as the inflationary nature of cryptocurrencies and the tax liabilities of selling them makes them unsuitable for small and frequent purchases.

We want to know your opinion. Would you use your cryptocurrency to purchase goods and services on PayPal? Please comment below.