PayPal, Musk and Cryptocurrency: Enlightenment, Progress and Exploration

Original title: "PayPal, Musk and Cryptocurrency"
Written by: Chen Yiwanfeng

In 2020, the large institutional investors flocked to the cryptocurrency market, which completely sounded the clarion call for institutional bulls. As a member of the institutional army, PayPal may have joined a little late.

As an international trade payment tool sought after by hundreds of millions of users around the world, PayPal is one of the most widely used third-party payment tools in the world. It was established by Peter Thiel and Max Levchin. It serves more than 200 markets and supports more than 100 currencies.

In cross-border transactions, nearly 70% of online cross-border buyers choose PayPal to pay for overseas purchases, making it a truly global payment platform.

In fact, there is another key figure in the development history of PayPal - Elon Musk, who may be the real mentor of PayPal's entry into the field of cryptocurrency.

Musk: I can’t move anymore, stop for a while

If you don’t have a detailed understanding of PayPal’s development history, it is actually difficult to associate it with the “cryptocurrency shouting devil” Musk.

In 1998, PayPal had not yet appeared. Max Levchin and Peter Thiel first founded Confinity, and PayPal was officially launched in 1999. In 2000, Confinity announced its merger with X.com founded by Musk, and in the following year, X.com was officially renamed PayPal, which was the true predecessor of today's PayPal.

At that time, Musk, as the founder of X.com, squeezed out PayPal's original founder Peter Thiel after the merger of X.com and PayPal, and became the CEO himself. However, due to poor management, he was jointly impeached by employees and the board of directors, and Peter Thiel returned to PayPal.

It can be seen from this that Musk's innovative ideas have not been recognized by traditional institutions like PayPal, and we have no way to verify whether these innovative ideas involve the field of cryptocurrency, but we can know that Musk had expressed great interest in Bitcoin as early as 2014. Although the story of Musk and PayPal has ended, the story of Musk and cryptocurrency has officially begun.

On April 1, 2019, Dogecoin’s official Twitter account published a survey titled “Who should be the next CEO of Dogecoin?” In the atmosphere of April Fools’ Day, Musk won with 54% of the votes. Upon hearing the news, Musk gladly accepted the “position” and changed his Twitter profile to “CEO of Dogecoin”, but later he seemed to feel that it was a little inappropriate, so he changed it to “Former CEO of Dogecoin”.

Since then, Musk seems to have fallen in love with Dogecoin.

Dogecoin developer Nicol once said in an interview that they have been working with Musk since 2019. Musk provided "a lot of advice and suggestions" and shared his huge network of relationships, but the development team rejected the funds he offered.

This means that Musk did not suddenly wake up in 2021. He started to lay out Dogecoin in 2019, and it was not until 2021 that he officially stepped into the spotlight, from the former CEO of Dogecoin to the Godfather of Dogecoin. Of course, the Godfather of Dogecoin is not Musk's job. As the CEO of Tesla, Musk's every move will have a certain impact on the market.

So after Musk announced that Tesla would accept Bitcoin payments, Bitcoin immediately soared, soaring from $39,200 to $44,300 in 40 minutes, and further rose to $48,200 the next day. But on the road to embracing Bitcoin, Musk fell behind. At 6 a.m. on May 13, 2021, a tweet from Musk poured cold water on the crypto market.

The tweet stated that Tesla will suspend accepting Bitcoin payments due to the energy consumption caused by Bitcoin mining, and expressed concern about the rapid increase in the frequency of fossil fuels used in Bitcoin mining and transactions. However, Musk emphasized that Tesla will not sell any Bitcoin.

Even so, Musk is still criticized online and called a "scumbag". In contrast, Musk's former employer PayPal has never stopped its research in the field of cryptocurrency since its inception.

PayPal: Climbing up step by step

If your memory of PayPal’s foray into cryptocurrency began in October 2020, you’d be wrong.

That story started six years ago. In 2014, PayPal established partnerships with BitPay, Coinbase and GoCoin, allowing merchants using PayPal on eBay to accept Bitcoin payments from customers. It was 2014 again. Remember what we mentioned earlier, Musk revealed that he was very interested in Bitcoin in 2014. The relationship between the two is self-evident. This may also further confirm the view that Musk is PayPal's crypto enlightenment teacher.

In addition, PayPal has not stopped its research in the field of cryptocurrency since 2014, exploring the potential of digital currency by cooperating with regulated cryptocurrency platforms and central banks around the world.

And through its internal blockchain research team, it continues to explore the research of the next generation of digital financial service infrastructure and digital commerce. Therefore, in 2019, PayPal Ventures, the venture capital arm of PayPal, invested in the cryptocurrency risk management platform TRM Labs and the blockchain-based identity management and compliance software company Cambridge Blockchain. It also participated in the launch of Facebook's stablecoin Libra project (later renamed Diem) and became a member of the Libra protocol. However, under pressure from supervision and review, PayPal later chose to withdraw from the project.

In 2020, cryptocurrency has gradually become a trend overseas. The outbreak of DeFi and the entry of major institutions seem to be beckoning to PayPal. At this time, PayPal itself is also under pressure from declining performance. According to PayPal's first quarter financial report, PayPal's operating income in the first fiscal quarter of 2020 was US$4.618 billion, a year-on-year increase of 11.87%, while net profit attributable to ordinary shareholders was US$84 million, a year-on-year decrease of 87.41%. Given PayPal's financial situation and the main trend, PayPal naturally chose to expand its business.

On October 21, 2020, PayPal issued a statement announcing its official entry into cryptocurrency.

The statement mentioned that considering the new coronavirus and the surge in interest among central banks and consumers in digital currencies, the acceleration of digital payments and digital transformation is particularly urgent. To this end, a new service will be launched that will allow users to buy, sell and hold cryptocurrencies directly from their PayPal accounts. It will also allow users to use cryptocurrencies to settle shopping at the platform's 26 million merchants.

The service is provided in partnership with Paxos Trust Company, a provider of regulated virtual currency products and services. In addition, through Paxos, PayPal has obtained the first virtual asset limited license from the New York State Department of Financial Services.

It is reported that PayPal has 346 million active accounts worldwide, including more than 26 million merchants.

Therefore, PayPal's announcement of entering the cryptocurrency field will not only indirectly provide cryptocurrency buying and selling services to its more than 300 million users, while enabling 26 million merchants to accept Bitcoin, but will also significantly increase the adoption and scale of cryptocurrency in the next few years.

On November 12, 2020, PayPal announced that it is opening its new cryptocurrency service to all eligible U.S. users. All qualified U.S. PayPal account holders can now buy, hold, and sell cryptocurrencies directly through PayPal.

As soon as the news came out, the market responded enthusiastically, so in February 2021, PayPal stated that due to the strong market demand, the weekly transaction amount that users can increase from US$10,000 to US$20,000.

But even so, market demand has far exceeded PayPal's expectations. PayPal CEO Dan Schulman revealed that demand for cryptocurrency has reached several times what PayPal initially expected, which is exciting.

It is precisely based on such huge demand that PayPal has recently raised the cryptocurrency purchase limit for eligible users in the United States to $100,000 per week and completely abolished the annual limit. During PayPal's entry into the cryptocurrency field, it has allowed American and British consumers to use their cryptocurrencies to pay millions of online merchants around the world, and allowed users to pay with 4 cryptocurrencies. On April 20, PayPal's mobile payment software Venmo began to support cryptocurrency transactions.

Thanks to its investment in the cryptocurrency sector, PayPal's second-quarter transaction revenue increased 17% to $5.80 billion from $4.95 billion in the same period last year.

Compared with the previous quarter, transaction revenue increased by 3%, which also made PayPal clearly taste the sweetness of entering the field of cryptocurrency. On May 29, PayPal's Bitcoin transaction volume hit a new high of more than 300 million US dollars. The transaction volume jumped from about 80 million US dollars per day to more than the peak of 240 million US dollars in January.

End of story? No, it continues

Although Musk has stopped embracing cryptocurrencies, the "order shouting" has not stopped.

Not long ago, Musk said in an interview that SpaceX holds Bitcoin, and he personally holds Ethereum, Dogecoin and Bitcoin. As the proportion of renewable energy used in Bitcoin mining increases, Tesla may resume accepting Bitcoin as a means of payment.

Although this is limited to Musk’s personal remarks, such news is still very beneficial to the general public. It is reported that Musk mentioned BabyDoge in a tweet in early July. At that time, the popularity of BabyDoge spread rapidly and the price increased by more than double in an instant. It can be seen that the story between Musk and cryptocurrency is still to be continued.

In the pursuit of cryptocurrency, PayPal may have been inspired by Musk's ideas at the beginning, but in the subsequent development, it has gradually developed its own rhythm.

PayPal's crypto journey has always kept pace with regulation and moved closer to compliance.

In May of this year, PayPal had exploratory discussions with developers on stablecoins and planned to launch its own stablecoin. A PayPal representative spokesperson said that PayPal will continue to explore the potential of digital currencies, digital financial service infrastructure, and how PayPal can help enhance digital commerce as a trusted partner in this field. PayPal Chief Financial Officer John Rainey once said in an interview that when cryptocurrencies become more stable in a few years, he will not refuse to invest in the asset.

Obviously, PayPal has never stopped exploring cryptocurrency.

Thanks to its cryptocurrency payment support, PayPal now has more than 400 million active user accounts, with a total payment volume of $311 billion in the second quarter of 2021. The company also added 14.5 million new active accounts, bringing its user base to 392 million.

On July 29, PayPal said it would soon launch a super app wallet with cryptocurrency functions, and planned to fully promote the wallet in the United States in the coming months. At the same time, PayPal CEO Dan Schulman said that PayPal may launch crypto services in the UK in early August.

Gu Yanxi, founder of the American Lijian Consulting Company, said that there will be no clear distinction between banking and securities industries in the future, so digital asset exchanges will definitely provide existing banking services including storage and lending. A further result is that modern digital asset exchanges, if their business focus is still on trading, will definitely miss this future trend.

PayPal's crypto journey continues, and it has begun to pay attention to the fields of DeFi and smart contracts. PayPal's future is accelerating towards becoming a bridge and hub connecting the crypto industry and the traditional financial industry. The crypto industry is also accelerating towards compliance with PayPal's participation.