The Danger of Buying Bitcoin via PayPal Has Already Come to Light With a First Example
On October 23, 2020, PayPal officially announced its entry into the Bitcoin world. From early 2021, the online payment giant will offer its 346 million users around the world a service directly on its platform to buy/hold/use Bitcoin.
PayPal will accept Bitcoin as a means of payment in the 28 million businesses in its network.
This news was added to the many other good news that had been accumulating about Bitcoin for several months. The upcoming entry of PayPal has accelerated the increase in the Bitcoin price that had been observed since the beginning of October 2020.
The arrival of PayPal has boosted the Bitcoin price since the beginning of November 2020
PayPal has started to offer its new service to a number of its American users. The success has been there since PayPal would buy about 70% of the newly minted BTC since the beginning of November 2020.
Driven by this scarcity of new Bitcoins issued, Bitcoin then entered a real bullish rally that brought its price close to a new All-Time High (ATH) on November 24, 2020, to $19,390. The market cap for Bitcoin has beaten its historical record at $360 billion.
Many are satisfied to see that the Bitcoin price is boosted by the arrival of an actor like PayPal. They are announcing significant progress in the mass adoption of Bitcoin.
As I wrote recently, I find that the mass adoption of Bitcoin will not be complete if an intermediary like PayPal remains involved. Indeed, Bitcoin was designed by Satoshi Nakamoto also to free us from middlemen such as PayPal.
Buying Bitcoin via PayPal makes you miss out on the Bitcoin revolution however
Bitcoin gives you total power as long as you have the private keys associated with your Bitcoins.
As such, remember this golden rule:
Not your keys, Not your Bitcoin.
If you buy Bitcoin via PayPal, PayPal owns your Bitcoins (for you) because the payment giant has the private keys. Under these conditions, you are not censorship-resistant.
You are falling into the same trap as with the current monetary and financial system. If PayPal decides for an arbitrary reason to ban you, your Bitcoins will be confiscated. What’s the point of buying Bitcoin to get out of the current system if you are going to get stuck with a system similar to the current one?
The danger of buying Bitcoin with PayPal, or with U.S. banks in the future, is very real.
A first example of the danger of buying Bitcoin via PayPal has just been given
Some people disagree with me, but a first example reported by an American PayPal user highlights this perfectly.
On Reddit, the TheCoolDoc user has just told in detail about the problems he just encountered with PayPal when buying Bitcoin and other cryptocurrencies. This user made at least 10 cryptocurrency transactions in a week to take advantage of the volatility of cryptocurrencies to make more profits.
Nothing extraordinary in the world of Bitcoin and cryptocurrencies. You have the perfect right to do whatever you want with your money.
For PayPal, this is apparently not the case. TheCoolDoc’s PayPal account was therefore limited, and PayPal asked it to justify its activity:
“My account recently got limited and asked for like 10 explanations of “sales” which all were cryptocurrency dip buys and high sells (as is normal) all within a period of one week.
The system flagged my account thinking I was selling items worth $10000 in one week when I hadn’t done so in the last 6 years I’ve held a PayPal account. (US account btw).”
In the hope of regaining full access to his account, TheCoolDoc justified all his purchases when he had simply used his money and was within his rights:
“So I knew the developers didn’t account for this shit when they released PayPal Crypto so I submitted the stuff for review with my photo ID and wrote “PayPal Crypto” for each crypto transaction BECAUSE WHAT ELSE could I say?”
Faced with a platform like PayPal, you have no control
As TheCoolDoc says, what else can you do when faced with the arbitrary decisions of these giants on whom you are totally dependent when using their services?
The next day, TheCoolDoc got a response from PayPal telling him that his account was permanently limited “due to potential risk”. Here is the message he received from PayPal:
“After a review, we’ve decided to permanently limit your account due to potential risk. You’ll not be able to conduct any further business using PayPal.”
Following its standard rules in this type of situation, PayPal also decided to block the user’s $482 balance for a period of 180 days.
This final decision by PayPal shows once again the dangers of centralization that Bitcoin wants to protect you from when it comes to money. By purchasing Bitcoin via PayPal, you do not have access to the liberating power of Bitcoin.
TheCoolDoc user then had the patience to contact PayPal support on the phone. The person who answered didn’t even know that PayPal had a cryptocurrency service. She was receptive to his arguments but finally told him that there was apparently no way to appeal PayPal’s final decision.
The conclusion of TheCoolDoc message on Reddit shows his dismay:
“There is no real justice for the innocents in some places in the world.”
This first misadventure with PayPal should alert you
I’m writing this story to alert once again those who would make the same mistake as TheCoolDoc in thinking that buying Bitcoin via PayPal, or other intermediaries who don’t let you access your private keys, is a good idea.
Real justice exists for the innocents in this world, but it is precisely by buying Bitcoin, so that you have the private keys associated with your Bitcoins, that you will be able to access real justice.
Among the responses to TheCoolDoc’s initial message, the bittabet user’s response sums it up perfectly, so you have to look at it this way:
“PayPal isn’t a crypto exchange, their service is meant for people to hold bitcoin with and then spend it at their merchants when they turn on that ability. They’re currently paying all the trading fees when you buy or sell because they’re actually buying the bitcoin for you on ItBit so if you go and trade constantly they lose a ton of money covering those fees since they’re not charging any fees right now.”
This user also explains the right way to see the service offered by PayPal:
“Their service is supposed to be more like a Bitcoin bank account, not a trading account. Maybe they need to make this more clear, but it’s really a service for people who want to hodl bitcoin and then spend it at PayPal merchants.”
Buying Bitcoin with PayPal is therefore obeying PayPal’s rules. You do not have access to the freedom that Bitcoin can give you. By buying Bitcoin with PayPal, you are once again locking yourself into a centralized system with all the constraints and risks that this entails.
This story confirms the fears I expressed earlier, and more importantly, it confirms why the true mass adoption of Bitcoin will not be complete if PayPal and other such intermediaries remain involved in the long term.
PayPal brings visibility and credibility for Bitcoin in the eyes of the general public.
From there, it is up to us Bitcoiners to do the essential work of evangelization to make people realize that this is only one step to access the true power that Bitcoin gives you. The Bitcoin revolution gives you the power to live your life on your own terms.
It’s up to you to seize this opportunity. It will not be seized if you decide to buy Bitcoin with PayPal. TheCoolDoc example is just the first in a long line of people who are likely to be disappointed in the coming months.