If you think the bitcoin or cryptocurrencies you purchased through PayPal are officially yours, think again. As it turns out, anyone who purchases digital assets through the company are not given private keys to these coins, thereby denying them ownership, though it is still possible to garner a hefty profit on these assets granted they move up in price.
PayPal Is Looking to Retain Control
PayPal first announced its venture into the crypto space during October of last year. At the time, the world’s number one digital currency by market cap – bitcoin – was trading for approximately $10,000 per unit, though the news was so well received that the currency shot up by $3,000 overnight. From there, it was stated by many analysts and industry experts alike that this was going to push bitcoin into mainstream territory much quicker than anybody could have anticipated.
Thus far, it seems like PayPal’s crypto dealings have had a lot to do with the success of various crypto assets over the past few months, though there is a serious problem in that anyone who buys digital assets through this platform does not fully own the coins they purchase. The fine print associated with PayPal’s crypto division reads that the money cannot be transferred to any other platform. Thus, you can purchase the units and make money off them, but in not being able to move them around, the assets remain in PayPal’s control.
Mike Bucella – general partner at Block Tower Capital – explained in an interview:
PayPal manages the wallets, which means that you do not necessarily hold your own bitcoin.
Right now, it looks like the relationships between PayPal and its crypto customers take on “IOU” forms. Similar with how standard banks operate, someone deposits their money into an account, meaning that while the money is technically theirs, it is not kept on hand at the branch you deposit the funds with. They use it for other things, and thus keep a record of how much it is you are owed should you ever need to make a withdrawal.
Things Don’t Appear Decentralized
PayPal operates the same way, according, to Asheesh Birla, the general manager at Ripple. Birla says:
It is similar with when you deposit U.S. dollars with Bank of America. You are trusting that Bank of America actually has your U.S. dollars in their bank accounts, and they are giving you an IOU.
This creates something of a problem in that it is the exact opposite of how crypto was built to operate. Initially created to be fully decentralized, we now have a platform that is operating in a very centralized manner, which is exactly what crypto creators did not want. Digital assets were designed for individual ownership and financial independence, and the fact that so many PayPal users are not getting this when they buy crypto assets arguably establishes a convoluted environment.