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With the news that Paypal's subsidiary Braintree will begin accepting Bitcoin payments, much of the Bitcoin community is full of excitement and lofty dreams of another big boom. But is the news actually good for Bitcoin?
With the news that Paypal's subsidiary Braintree will begin accepting Bitcoin payments, much of the Bitcoin community is full of excitement and lofty dreams of another big boom. But is the news actually good for Bitcoin?
We have decided to pose the question to two of our writers here at CoinTelegraph: Tone Vays and Ian DeMartino. We are going to attempt something new here, a text, by-email debate inspired by the popular Lincoln-Douglas Debate format on this very issue.
Ian DeMartino will be arguing in favor of the statement while Tone Vays will be taking the opposing viewpoint.
Moving from the spoken word to the written word does, of course, provide both challenges and opportunities. We don't have to wait for each other, so the advantage given to the second speaker is eliminated, and we no longer have to account for that. Secondly, the response section and closing arguments can easily be combined into one section. Each section's time limit was roughly kept to a page and a half and both participants are allowed to ask three questions of the other. Questions have been moved until after both opening statements to help combat “tl;dr” disorder.
The question that will serve as the basis of the debate is “Paypal's announcement will have a positive effect on Bitcoin.”
When it comes to both Bitcoin's price and long-term health, the one factor that the Bitcoin faithful point to. more than any other, is mass adoption. Mass adoption is the key to what every Bitcoin investor wants: a repeat of Bitcoin's early days.
There certainly is something to be said about the downward pressure created by the people selling their bitcoins with increased merchant adoption. That isn't up for dispute and I don't intend to disprove that notion.
What I intend to prove is that Braintree and eventually Paypal and eBay's adoption of Bitcoin is not only good for Bitcoin in the medium term, it is the quickest path to creating another big jump in Bitcoin's price that will eventually create the wealth needed to fund the next Bitcoin Renaissance.
When looking at general trends, Bitcoin's price has historically mirrored Bitcoin adoption. While day to day and even week to week prices tend to fluctuate unrelated to adoption, the general trend has been a growth in Bitcoin price and a growth in Bitcoin transactions and addresses.
Merchant adoption doesn't make more people want to buy Bitcoin because it isn't offering anything their current fiat currency lacks.
Paypal is different. Because Paypal isn't simply a merchant accepting bitcoin, it is a new method of taking bitcoin. This creates a new awareness about the coin as well as having the potential of being an extremely accessible on-ramp to the Bitcoin network.
As you know, Bitcoin payments aren't coming to the base Paypal app just yet, instead Bitcoin is coming to Braintree, the primary function of which is to help developers integrate Paypal payments into their environments or apps without the customer having to leave the environment or app to make the payment.
In-app purchases look to play into a big part of the internet's future, with or without bitcoin. Sending a transaction from your bitcoin wallet to another is fairly easy on your computer, but within an app, without the help of a payment processor, it’s extremely unintuitive.
If you use Uber in Washington D.C. but you are from China, you have to jump through all the necessary hoops of getting money from your Chinese bank account into Uber's American based system. This can involve currency conversions, wire transfers and all the accompanying fees.
Or, you can use Bitcoin, and all that can be done without fees and without friction. Braintree can make that process extremely simple, while trying to do it without an intermediate service like that would be more difficult.
Adoption always has a chicken and the egg problem. I want to use my Bitcoin to find rides on Uber, but the drivers won't take it. Some drivers might be interested in taking Bitcoin, but they don't see enough customers wanting to take it. The Paypal deal can break this cycle. By allowing customers to pay for services in Bitcoin without having to depend on the individual driver's preference, they break that bottle neck that stops adoption in that micro economy.
When we start talking about In-App-Purchases in video games, services like Braintree are that much more important. If I want to buy a booster for whatever the next Candy Crush is and I want to use Bitcoin, that process should be simple, for both the developer and the user. Enabling that, and given that developers can circumvent Apple and Google's high fees, they can offer a significant discount to Bitcoin users, giving customers a real incentive to buy Bitcoins. If I can get five extra moves for $0.99 using a credit card or ten extra moves using Bitcoin, its advantage is suddenly larger than 3 % cash back at Gyft.
That is the kind of thing that increases demand for Bitcoin. That is the kind of thing that demonstrates to people the power of a frictionless economy in a way they can understand.
The fact is, the on-ramps to Bitcoin are simply too narrow. In order to move from niche currency to a crypto dominated future, we have to go through a transition phase, and that transition phase will involve some of the old guard from the old financial system. Paypal may not implement Bitcoin perfectly when they first get into it, but you can bet that they will do a better job than MasterCard, VISA, Bank of America or anyone else from the traditional financial system. Paypal understands online payments and I suspect they know more about Bitcoin than people give them credit for. They haven't gotten to where they are now without doing their research.
With a recent video publication by PayPal mentioning bitcoin, the conversations are already starting as to how exactly it will be implemented, but the more important question is whether this is beneficial to the Bitcoin Ecosystem and will bring about the Mass-Adoption most want. It’s impossible for anyone to speak for the entire Bitcoin community, but being a true believer in the revolutionary technology of the Blockchain, the short answers to the questions are “probably not” and “not the type of Mass-Adoption that is needed”.
We do need to start with some assumptions as to how a company like PayPal plans to get involved with Bitcoin. The most logical way is for them to simply allow their users to pay them with bitcoins, PayPal will then immediately sell them to a company like Coinbase while the Merchant gets Fiat Currency deposited into their account of choice. In this scenario, PayPal sees bitcoin as nothing more than an additional payment option with the 1 % being charged to the Merchant. Both parties benefit, PayPal picks up an additional user base and Merchants save vs. credit card fees, but the detriment happens behind the curtain. The Merchant would have no reason to know that Bitcoin even exists and a company like PayPal would have no reason to explain it to them because if the merchant understands, they would just take bitcoins directly and have no need for these intermediaries like PayPal and even Coinbase.
Bitcoin isn’t just a neat payment option; it gives people the power to be in control of their own medium of exchange and payment system at the same time. Its true power resides with more users and not just more ways to spend them. For every Merchant that accepts bitcoin and holds on to it, the ecosystem strengthens. This Merchant becomes an additional user who will then seek out places to spend their bitcoins, attempt to pay employees, try to convince suppliers to accept it and so on. Two companies are head and shoulders above the rest at the moment in this area, Overstock and the BitcoinShop, everyone else is pretty much there to make some more sales without a real understanding as to why people even have bitcoins.
In the case of PayPal the answers are simple, they are a dinosaur in the payment space and have lost touch with what consumers need. They can’t even have a user-friendly interface and are hence relying on a subsidiary like Braintree to make that happen. At this point they will be trying to do anything to stay relevant 5 years from now, but what they don’t understand is that tide is shifting and the consumer is becoming privacy conscious. PayPal has become the enforcement arm of financial services to the point where people are afraid to place a comment on a $10 payment saying “for the NCAA Basketball Tournament” from the fear the account will be shut down. Anyone paying with bitcoins through this centralized ‘big brother’ hub is only exposing themselves and eliminating the Semi-Anonymity backbone of bitcoin. A lot of smart users will not want to expose themselves like that and Merchants that sign up for this will never understand why Bitcoin does not seem to be popular while thinking they are part of the ecosystem when they are not. In the short run this might give Bitcoin some good PR and price may jump up a bit, but over time, all it would do is bring selling pressure as it does nothing for Mass-Adoption in terms of new users and only provides those currently sitting on lots of bitcoins additional places to spend them.
Your example centers around Travel and Uber both considered luxuries that the average citizen of any country does not do often. If we take a more common use case of say, a poor cab driver. I'm sure you would agree that Bitcoin is better for everyone over fiat currency but how is that cabby's parent company helping him on this road to financial independence if they are immediately converting the customer’s bitcoins to fiat that goes to the bank?
Other than remittance, Bitcoin's most immediately apparent advantage is in travel. I can get off a plane in Paris and spend bitcoins for a cab to my Bitcoin-paid-for Airbnb, without having to pay fees to change currencies. That is a huge advantage for Bitcoin over fiat currencies.
Not every advantage of Bitcoin comes from the merchant perspective. It is also an advantage for the consumer. If Uber offers Bitcoin and Yellow Cab does not, then, even if Uber doesn't give any option for their drivers to take Bitcoin, it still encourages other companies to start accepting Bitcoin themselves in order to stay competitive.
Everyone said going into 2014 that this will be the year of Mass-Adoption and wide acceptance by merchants. Clearly those that said it were right about major merchants accepting bitcoin, but the price has consistently been going down. How would you explain that? Where is the incentive for people to jump through hoops acquiring bitcoins to spend them at a merchant that wouldn't know or care you made that effort?
There are several reasons for the price drop, many I'm sure you are aware of. The downward pressure created after merchants sell bitcoins that customers spend there. There is also that everyone was already expecting 2014 to be a year of mass adoption, so that was already factored into the price as a speculative investment.
But I still disagree with your central premise that Merchants won't know when Bitcoin is being spent, there has been no indication that it will be the case and considering Paypal and Coinbase's track record, I would say it is unlikely.
Does it bother you that the semi-anonymity aspect of Bitcoin is removed with these intermediaries and PayPal already has a reputation to consistently freeze accounts just based on suspicion of things they don't understand? Some are already paranoid that Bitcoin will be a way for government to track all our payments and remove cash, how is this move not a step in that direction?
No it doesn't bother me, because Paypal cannot control the Bitcoin network. If Paypal wants to continue doing what it is doing (freezing accounts etc.) then people don't have to use it. There are plenty of places to spend and use Bitcoin in a completely anonymous way. Paypal (and Coinbase for that matter) obviously isn't the place for that.
If you want privacy and anonymity in Bitcoin, don't use those services, or use them to obtain bitcoins and then move them out. There is nothing wrong with wanting privacy and anonymity, but there is nothing wrong with wanting convenience as well. Paypal and Coinbase and similar companies offer (or will offer) a convenient way to get onto the Bitcoin network. Darkwallet and Tor helps you spend them privately. Different tools for different tasks.
Paypal provides merchants with a lot of information on payments. It would be easy for PayPal to let its merchants know when a payment is done with Bitcoin, what makes you think they wouldn't?
Sure, they can let them know that the payment was made using bitcoin, but since Bitcoin is not a company and does not have a PR team, there is no incentive in explaining to these merchants that the function of PayPal being this intermediary is kind of useless. These merchants will have no incentive to become additional users within the Bitcoin Ecosystem and over time will be wondering why their Bitcoin sales are so small. The answer is simple, if you have the ability to acquire bitcoins by selling your products but chose not to, why would you expect others to do the same?
Paypal has a consumer base of over 150 million, to put that in perspective, it is nearly half the size of the entire population of the United States. Do you deny the value of potentially bringing in that number of people into the ecosystem, regardless of how they are brought in?
I don’t see a 1 to 1 correlation here. 150 million new places to spend your bitcoins are great for those that already have bitcoins, but it does not bring any extra demand for Bitcoin. Merchants will simply get comfortable with the fact it’s just another payment system with little advantages over Credit or Debit cards and that’s bad. Back in 2013 there was clearly more demand for bitcoins than places to spend them which is why there were so many jokes about where you would spend them besides Silk Road. PayPal’s implementation has a chance to swing the pendulum the other way. The Economy needs to grow organically with demand (new users willing to hold and use bitcoins) should be increasing in similar fashion as supply (places to spend them), with the newly mined bitcoins being a predictable factor that can cause inflation (the other two increase too slow) or deflation (the other two increase exponentially aka Mass-Adoption)
Do you feel Bitcoin companies that follow and enforce regulation, such as Coinbase, have any place in the Bitcoin world?
There is plenty of information out there that can convince people that the Financial Regulators are even more corrupt than the system they regulate. I’m a believer that Bitcoin was created to change this system and hopefully for the better. Services like Coinbase and BitPay do provide a valuable service as they help spread bitcoins' liquidity. It is also understandable that in order for them to do so they will need to follow some regulation but the public must understand that using these intermediaries is optional and the goal of every merchant should be to remove them as the middleman and embrace the Bitcoin Ecosystem. I feel that is the only way Bitcoin will ever reach its full potential and proper organic Mass Adoption. Embracing PayPal becoming the ultimate middleman with a 10 year history of being a financial policeman is a step in the opposite direction. We should be cheering a small local business man that is willing to accept bitcoins directly like the owner of Flow Again Books on Hollywood Rd in Hong Kong who has agreed to do this as of September 12, 2014 with the same hype.
The fundamental argument my opponent seems to be making is that Paypal is a dinosaur, and therefore has no knowledge of how to properly implement Bitcoin and even if they did, wouldn't want to because they are part of the legacy financial system.
That couldn't be further from the truth. Contrary to his statements, Paypal's site is very user-friendly, far more so than most Bitcoin sites and services. It allows anyone to send money to anyone else in their system using simply their email. Their innovations were huge for their time. Previously, you had to trust every merchant with your Credit Card information, now you can just trust Paypal with that information instead. That had a huge impact on e-commerce and it would be nowhere near where it is now if it weren't for Paypal and Ebay. Bitcoin's system is preferable of course, but their innovations shouldn't be discounted.
Furthermore, their purchase of Braintree wasn't done out of desperation or a simple attempt to buy their way to relevancy. In fact, Paypal was already well established far and away as the leader of their industry. When they purchased Braintree, mobile web shopping was still in its infancy and many people incorrectly predicted that consumers wouldn't want to buy items with their mobile device. Paypal thought otherwise, made a 200 million dollar bet that they were right and it paid off. Paypal processed US $27 billion in mobile payments alone in 2013, a number only expected to rise. The Braintree deal didn't show that Paypal was falling behind; it showed that they were still at the forefront of the industry, and they are showing that again with their adoption of Bitcoin.
Yes, merchants will be able to accept bitcoin payments without touching bitcoins, but they will also see that 1 % fee, just like I see the 3 – 4 % every time a publication pays me with Paypal. Surely a significant number of those merchants will be interested in finding out how to circumvent that last 1 %.
Merchants without an intermediary is the ideal situation, but it is extremely rare. Rome wasn't built in a day, and neither will the new financial reality. Paypal itself is a bridge between the fiat and the digital, and they are in the best situation of anyone to help facilitate that change. But merchants don't care about the advantages of Bitcoin, they aren't for the revolution, they are for their business, they are for Bitcoin helping their business and nothing more. We can't expect them all to memorize private keys, and figure out cold storage, when all they want to do is sell pizza. Paypal will help us bridge that gap.
From the customer side, seeing a “pay with Paypal using bitcoin” button would be a huge advertising win for Bitcoin. If Paypal plays it right and makes fees lower for Bitcoin payments, that could be passed on by merchants to the consumer, instantly creating a huge reason to buy Bitcoin.
Merchant dumping will have a negative effect on the price. But increasing the size of the network, and making connections between Bitcoin's relatively small six to seven billion dollar marketcap to Paypal, which processed an estimated US $115 Billion in 2011. Hell, Paypal itself is worth US $40 Billion, roughly six times larger than the value of the entire Bitcoin network.
That kind of market cap, that kind of reach and those kind of numbers can cover up a lot of warts. Even if Paypal doesn't implement Bitcoin payments in our ideal way, it is still greatly increasing Bitcoin's potential market size and reach. Merchant dumping causes a short term downward pressure on the price, but spending a currency isn't a bad thing, it is what it was meant to do and will ultimately have a positive effect on the network as a whole. If only 10 % of Paypal users get interested in the currency, that will bring 15.2 million new users onto the network. The current number of Bitcoin users right now is up to debate, but is generally put somewhere between 0.5 and 1.5 million users.
Fifteen times the number of users, and no extra Bitcoins to go around, simple supply and demand economics dictate that the price has to go up. Even if only 1 % of users make the jump and get their own wallets outside of Paypal, that still more than doubles the size of the Bitcoin network.
If Bitcoin is ever going to be mainstream, it needs someone to bring the masses to it. Paypal is the clearest and most obvious candidate out there.
It all comes down to how Mass-Adoption should come about. Some might think that PayPal’s involvement as the ultimate middleman is amazing but if Bitcoin was designed to be this revolutionary P2P value transfer, how can people say that this is needed to help the ecosystem. Flooding the economy with ways to spend bitcoins without creating any incentives for people to acquire them has a chance to skew both adoption and price in the opposite direction of 2013 (this might already be happening)
By creating a simple, lazy way for companies to get one minor benefit of Bitcoin at no risk is not the most optimal way to grow a strong stable Ecosystem. Businesses need to start embracing all the benefits of Bitcoin with an understanding it might come with some risk stemming from volatility and government regulatory changes. Only when business accept bitcoins directly and do their best to educate employees and suppliers to do the same will Mass-Adoption become realized. Having the ultimate middleman will not create any incentive toward this future since bitcoin has no sales or PR team.
The anonymity loss can be a stand-alone article on this issue and clearly the governments that want to control every aspect of our lives want nothing less than every Bitcoin transaction going through PayPal. This is the unseen element as those shops that only accept bitcoins via centralized middlemen are not only losing 1% in transaction costs but may also be losing customers that are more privacy conscious than the average Reality TV junky.
That's it for the debate today, feel free to add your own thoughts in the comments below.
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