With the prevalence of digital currencies, payment giant Paypal has recently gone live with cryptocurrency trading. After cryptocurrency trading stabilizes, will Paypal go the way of issuing tokens? This article will explore three possibilities for Paypal’s subsequent path.
Investor interest in bitcoin is on the rise, with more than half of U.S. investors interested in investing in bitcoin in 2020, and 83 percent of the group of respondents have made a cryptocurrency investment in the past year, according to the latest Bitcoin Investor Study released by Grayscale Investments. With the prevalence of digital currencies, payments giant Paypal has recently gone live with cryptocurrency transactions.
Why does PayPal offer cryptocurrency trading service?
I found the answer in the recent annual report. According to PayPal’s first-quarter earnings report, PayPal’s operating income in the first quarter of 2020 was $4.618 billion, up 11.87% year-on-year, while net profit attributable to common shareholders was $84.00 million, down 87.41% year-on-year. In addition, last October, market analysis firm SEMRush said that Bitcoin became the second-largest online payment method in Italy after PayPal and PostePay.
Data shows that in Italy, Bitcoin is used on average more than 215,800 times per month for online purchases. American Express has used an average of just 189,000 times per month, while other credit cards, such as Visa and MasterCard, are used just 33,950 times per month.
The popularity of cryptocurrencies overseas has caused PayPal to feel the crisis, and the decline in performance is a warning. PayPal has chosen to go live with cryptocurrency transactions amidst the warning, which is certainly a way to protect itself. As John Rainey, PayPal’s chief financial officer said that cash has become obsolete with the growing popularity of digital forms of currency and digital and mobile payment systems. PayPal has in turn been able to expand its services and promote financial inclusion.
In light of PayPal’s financial situation and the main tone of the popular trend, PayPal chose to expand its business, and this choice has proved to be the right one. According to Jinse Finance news, two weeks after its launch, PayPal’s trading volume occupied 65% of Binance US, which can be called a wise move.
Traditional digital currency exchanges such as OKEx have issued their own digital currencies after going live with cryptocurrency trading in order to make it easier for users to use and to showcase its market value to the public in a simpler way. Although Paypal is not one of these traditional digital currency exchanges, will Paypal go the way of issuing tokens once cryptocurrency trading is stable? This is a question that the public is curious about.
For this, I think there are three scenarios: first, PayPal will issue tokens. Second, PayPal will not. Third, PayPal will act as an assisted token issuer.
·PayPal will issue tokens
In fact, Paypal’s original mission was related to establishing a global currency. At the 2019 World Economic Forum, PayPal co-founder Luke Nosek said that PayPal’s original mission was to create a global currency free from the interference of corrupt banks and governments that devalue their currencies. However, due to circumstances concerns, that vision did not materialize.
With the growing popularity of digital forms of money and digital mobile payment systems, more and more people are interested in digital currencies and see them as very promising. At the same time, Paypal has a good user base and a relatively rich capital pool. With an initial vision, good growth prospects, and a solid user base, Paypal may be on the path to issue tokens.
·PayPal will not issue tokens
Before Paypal went live with its cryptocurrency trading business, two software were already the first to announce to the public that they were going to issue cryptocurrencies.
In 2017, Telegram, an extremely popular overseas telegram app, was the first to announce that it was starting to research blockchain project TON and would be researching and issuing a new cryptocurrency, Gram, that could be used to transfer money around the world. The announcement created a buzz overseas, and Gram has already raised $1.7 billion before it was officially launched.
After two years of waiting, Telegram announced in April 2020 that it would launch TON in April 2021. For investors who have been waiting a long time, there is finally something to look forward to. However, it didn’t last long, as investors didn’t wait for TON and Gram to be launched after all.
In 2020 in May, Telegram founder Pavel Durov announced on the Telegram public channel that the Telegram Open Network (TON) project and the release of Gram would be terminated due to the company’s ongoing legal dispute with the SEC.
With the globalization of the economy, more and more people are looking forward to the establishment of decentralized trading currencies and achieving freedom of trade. But it is a long and hard journey.
Compared to the utterly hopeless Telegram, Facebook seems to be much better, but in fact, it is stuck in the middle.
Facebook, the world’s most widely used social platform, released a white paper on Libra on June 18, 2019, with a vision of a global digital native currency that combines stability, low inflation, universal global acceptance and fungibility, promote financial inclusion, and focuses on payments and cross-border remittances. The Libra vision is based on the characteristics of the current Internet era, but also transcends the current sovereign scope of the world’s currencies, and is ahead of its time with a great challenge.
Some users believe that if Libra is officially issued, it will have two effects on the current payment industry, the first is to adjust the payment industry; Facebook, as the world’s most widely used social platform, has a good user base, Libra would facilitate users to make payments and perhaps reshape the payment industry; in addition, it may strengthen the status of the U.S. dollar, squeezing the international space for national currencies. According to statistics from the past 30 years, the U.S. dollar has the lowest inflation volatility and the most stable purchasing power. The U.S., as the country of origin of Libra, is bound to strengthen the position of the U.S. dollar once again if Libra really issued.
As the user analysis shows, countries detected a crisis in the progress of the times, therefore, since September 2019, France, Germany, the United Kingdom, Singapore and other countries have boycotted the entry of Libra. In April 2020, the Libra white paper 2.0 stated that Libra is defined as a “settlement coin”, and in December 2020, Libra has officially renamed Dime and will probably be launched as a digital stable coin.
Libra keeps changing under regulation, and German Finance Minister Olaf Scholz says wolves in sheep’s clothing are still wolves.
However, I believe that as cryptocurrencies continue to be launched, this wolf would simply be a wolf of moderation.
Telegram has a similar vision to Facebook. However, this vision has been rejected by most countries because the economic consciousness of each country has not yet moved towards consensus, and it would challenge the authority of each country’s monetary system; at the same time, there is no more mature regulatory system for digital currencies, and the issuance of Gram and Libra in such a context is likely to cause the market disorder. In this context, Telegram and Facebook’s road to token issuance still went to the end of the road, one stopped issuing under the regulation, and one fell into the middle of the road in repeated rectification.
It is actually slightly less likely that PayPal will issue tokens.
Compared with Diem, Paypal’s token issuance will have a bigger impact. First of all, it is bound to reshape the payment industry; PayPal, as a global payment giant, has a good user base, and the issuance of PayPal’s own cryptocurrency will not only be convenient for users to make payments but may even be in a monopoly position; secondly, it will reduce the capital control ability of some sovereign governments and affect the monetary sovereignty of emerging market countries. For emerging market countries that have not yet fully opened up, the emergence of PayPal will reduce the government’s power to control the currency system; in addition, it may strengthen the status of the U.S. dollar and squeeze the international space of national currencies. As the native country of Paypal, the United States will strengthen the status of the U.S. dollar once again if Paypal is truly adopted.
With the combination of the previous experience and the subsequent impact, the possibility of PayPal issuing tokens is actually extremely small.
·PayPal will act as an assisted token issuer
According to Sri Shivananda, chief technology officer at PayPal, “The digitization of money is inevitable; it’s only a matter of time. Its future will reflect the involvement of consumers, merchants, regulators of fintech companies and governments.”
PayPal’s founding vision is to create a global currency, but with the experience of Telegram and Facebook, a cautious PayPal may take a more measured approach. As the CTO understands, digitization is inevitable, but it will take a long time for technology to evolve and a common vision to be established.
However, working with other countries to help issue digital currencies is a good option.
Dan Shulman, PayPal CEO, stated during the Q3 2020 earnings call that PayPal will “help develop scenarios for CBDC,” including enhancing the interoperability of CBDC with existing payment systems and promoting the acceptance of CBDC by merchants.
Based on this, I believe that PayPal’s “assisted token issuer” is the safest and most likely choice. Firstly, this approach meets the vision of PayPal since its establishment and is also within the expectation of PayPal executives; secondly, it is a matter of time before digital currencies are issued in various countries, and digital currencies will still fall into the mainstream; finally, PayPal’s assistance in token issuance can meet the regulatory needs of various countries and avoid causing a huge impact on the change of the currency industry. In addition to this, PayPal can continue to maintain its giant status on this basis, and also meet the rights and interests of users.
Article from OKEx Insights
Translated by Yang(Mengyan Finance)