PayPal Opens Doors to External Crypto Wallets

PayPal is no longer an island in cryptocurrency.

People who hold cryptocurrencies in their PayPal account wallets will now be able to send and receive digital assets through external wallets and exchanges, the company announced June 7.

New features take PayPal deeper into crypto payments and investing

PayPal, which has always been a closed system where customers can only buy and sell cryptocurrencies from PayPal itself and can only spend them at PayPal’s 32 million-strong merchant network, has announced that its users can transfer cryptocurrencies from their accounts to other wallets and exchanges.

“Since we began offering cryptocurrency purchases on our platform, users have consistently ranked this feature as one of the most requested enhancements,” said Jose Fernandez da Ponte, senior vice president and general manager of blockchain, cryptocurrency and digital currencies at PayPal.

The new features take PayPal deeper into the crypto payments and investing space as its customers are no longer limited to its ecosystem. PayPal only supports four cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH) and Litecoin (LTC).

The access is now available to a limited number of PayPal users and will roll out to all US accounts in the coming weeks.

One of PayPal’s key contributions to the use of Bitcoin and other digital assets as true currency alternatives is accepting Bitcoin purchases on its Merchant Network.

“Customers who move cryptocurrency to PayPal can expand the utility of their cryptocurrency by using our Checkout with Crypto product at millions of merchants,” said Fernandez da Ponte.

By opening it up to external wallets, existing cryptocurrency owners who want to spend at these merchants won’t need to sell their Bitcoin and then buy it back on PayPal — which would require two transaction fees, plus another transaction fee for the seller.

Besides that, transfers from one PayPal account to another are free, which opens up interesting possibilities for payments within its borders. In February, PayPal began charging a flat fee for crypto transactions, in addition to network fees.

However, the lack of internal fees is a big benefit, especially in the case of the Bitcoin and Ethereum blockchains, where transaction fees paid directly to the network are high — often several dollars. In addition, cryptocurrency exchanges charge fees of up to 2.5%.

These can add up quickly, for both small and large transactions. As of June 7, the average transaction fee on the Bitcoin blockchain was $1.50, having soared to over $10 over the past year. Ethereum’s average transaction fee is $1.08, having topped $10 and even $20 several times over the past year. They rise and fall depending on transaction volume, so it’s cheaper to trade at certain times of the day.

Thus, someone who does business regularly could process payments between PayPal accounts on a daily basis, moving their digital assets in and out only at fixed intervals or when network fees are low. Likewise, it would be cheaper for a sender to send cryptocurrency to a group of people by connecting it to PayPal and paying into each person's PayPal account.

Continue to expand more encryption functions

At the beginning of the year, PayPal had 392 million users worldwide, and its very user-friendly interface makes it a comfortable starting point for those who want to test the cryptocurrency waters.

Prior to this, if PayPal cryptocurrency owners wanted to expand their cryptocurrency trading beyond the four coins it supports, the only way was to sell Bitcoin to PayPal and then buy it from an external wallet.

Although the company did not mention adding more cryptocurrencies to its supported list, Fernandez da Ponte said PayPal will continue to add more crypto features in the coming months. The company also announced that it will enact additional Know Your Customer (KYC) personal identification data requirements for anti-money laundering (AML) laws.

Additionally, PayPal said it had obtained a full Bitlicense from the New York Department of Financial Services, upgrading from a conditional license obtained in October 2020 through a partnership with existing holder, cryptocurrency custodian Paxos.

The Bitlicense is by far the most stringent certification required to conduct crypto business in any U.S. state, making it the regulatory gold standard. Many in the crypto community believe that doing business in New York is an overburdensome blockade. A significant number of exchanges operating in the U.S. exclude New York residents.

PayPal said it was the first company to receive a conditional Bitlicense and the first to successfully upgrade to a full license. Fernandez da Ponte said this demonstrates “our commitment to responsible innovation and expanding the accessibility and utility of digital currencies while fully complying with regulatory guidelines and best practices.”