A look at PayPal’s TOS and What it Means for Users

[Pmalek]

As many people have already heard, on 21 October, PayPal introduced an option for its users to buy, hodl, and sell (exchange back to fiat) cryptocurrencies. At the moment, it is not possible to use your coins to shop and purchase goods and services at PayPal.

This is confirmed in their TOS that state:

As described in more detail below, here are some things you can do with the Cryptocurrencies Hub:

Buy Crypto Assets;
Hold Crypto Assets;
Sell Crypto Assets; and
View market information and educational content.

The following 4 assets can be purchased with the new service:
Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.

I took a look at their new TOS for cryptocurrencies to understand precisely what rights and benefits crypto holders have. What follows are the most important parts.

To read more about what Skrill offers its customers, please take a look at my other topic titled: A Deeper Look into the Skrill cryptocurrency TOS.

Who is this service for?

- Only citizens of the United States and its territories can access the new service that Paypal calls Cryptocurrencies Hub.
- The service can’t be used by residents of Hawaii.

US customers may have to pay taxes on the profits they make after they sell/convert their crypto back to fiat.

PayPal users are not the owners of the coins! PayPal and their service provider Paxos always remains in the custody of your crypto. That means that users have no private keys or seeds. It’s a custodial service, similar to centralized crypto exchanges.

We keep a record of your interest in that omnibus account based on the amount of each type of Crypto Asset that is reflected in your balance. You do not own any specific, identifiable, Crypto Asset.

The purchased crypto can’t be withdrawn or sent to other wallets or users of PayPal. If you want to close your crypto hub, all purchased cryptocurrencies have to be sold before.

This is the part of their TOS that explain this:

You currently are NOT able to send Crypto Assets to family or friends, use Crypto Assets to pay for goods or services, or withdraw Crypto Assets from your Cryptocurrencies Hub to an external cryptocurrency wallet. If you want to withdraw the value from your Cryptocurrencies Hub you will need to sell your Crypto Assets and withdraw the cash proceeds from their sale.

What payment methods can be used to buy cryptocurrencies with?
- You can use everything except credit cards. You can use your PayPal balance, bank accounts, or debit cards.

There are some interesting points to note concerning the buying and selling of crypto. Since the price of coins fluctuates, users have a limited timeframe to buy/sell. This is pretty standard, nothing unusual here. If the transaction is not completed in time, PayPal will offer an updated price.

This is where it gets a bit interesting. When you want to buy crypto, this is what Paypal says in their TOS:

The updated price you see may be much higher than a price that just expired.

Apparently, the price can get higher, but can it also go lower? 😊

When it is time to sell your coins, here is the part of the TOS that mentions the price:

The updated price you see may be much lower than a price that just expired.

Is there any chance of the price to be higher? 😉


PayPal Fees

The amount that PayPal makes and the exchange rate provided may be different than what you would pay on other cryptocurrency platforms.

In other words, you will pay more than what you would spend on cryptocurrency exchanges. PayPal will charge you a margin fee + additional fees when you buy or sell your coins. The fees depend on the amount you are buying or selling. They are between 1.50% – 2.30%.  

The rates are available below. I also took a screenshot of the page for a better overview.
https://www.paypal.com/us/webapps/mpp/paypal-fees#Cryptocurrencies

PayPal will make money every time you buy or sell your crypto, but the amounts remain a secret.

We will not separately calculate or disclose the spread we earn on each transaction.

- If a cryptocurrency undergoes a fork, PayPal may or may not support the forked coins. If such an event happens, the TOS state that they can suspend all trading activities around that coin. You won’t be able to hold PayPal accountable for any losses you make concerning the forked coins.

- PayPal has the right to limit how much you can buy or sell. The standard weekly limit is $10.000, and the yearly is $50.000. PayPal can change these limits for your account.

- In case PayPal has reasons to believe that you have done something illegal, you should know that you are agreeing to the following terms:

You authorize PayPal to seize your Crypto Assets if we believe a transaction relating to those Crypto Assets involves money laundering, terrorist financing, fraud or any other type of crime.

- PayPal can choose to sell a user’s cryptocurrencies if that user has a negative balance in his PayPal account. (I am not sure how you can have a negative PayPal balance, but OK). In such a situation, PayPal can sell an amount of your crypto that is equivalent to what you owe PayPal.

If the balance in your Cash Account (including your Cryptocurrencies Hub) becomes negative for any reason, that negative balance represents an amount that you owe to PayPal. In addition to any rights we have under the PayPal Cash and PayPal Cash Plus Terms and Conditions, you authorize PayPal to sell your Crypto Assets and use the proceeds to pay a negative balance you owe to us in any PayPal account you own.[/b]

The source of information and quotations were taken from PayPal’s Cryptocurrency TOS:
https://www.paypal.com/us/webapps/mpp/ua/cryptocurrencies-tnc

dkbit98, a user from my local Croatian sub-board, wrote a very similar thread to this one in Croatian. Although I did not use that thread as a source, or inspiration for this one, I did notice it while browsing and posting in the Croatian section. I feel it is necessary to mention it here.

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[o_e_l_e_o]

This service from PayPal is targeted towards brand new users and should never be used by any serious bitcoin user. As you say, the fees are high, PayPal takes a cut, the buy/sell price will probably include a hidden premium on top of all that, you never own your coins, you can't actually do anything with them other than sell them back again, you require complete trust in a number of third parties, they can freeze, seize, or even sell your coins and there is nothing you can do about it, etc.

It may be good for getting some new users interested in bitcoin, but hopefully once their interest is piqued, they will transition to a real wallet and hold their own coins.

I am not sure how you can have a negative PayPal balance, but OK

If I receive a payment, withdraw that payment leaving my account at a zero balance, and that payment is then reversed for some reason, I assume my account balance would then be negative. (Note: I don't actually own a PayPal account, so this is pure conjecture.)

[Becky666]

The updated price you see may be much higher than a price that just expired.

, a scammer will remain a scammer no matter the repentance; if not genuine, hope users see a lower price when make their purchase on their platform becasue this will make more users get involve. Though, i won't be surprise if it don't and 'if it don't', then, more experienced users will be left with the option of exit to be left only with newbies on their platform.

In all these: the importance of this news is the adoption among a huge numbers of investors who have been on their platforms for ages. Hope PayPal don't screw-up this excitement with their bogus TOS.  

[Csmiami]

So not surprisingly, you are not buying bitcoin; you are buying some numbers on the screen which they have named as "bitcoin" and their only porpuse is the one of speculation according to the prices that the platform, and not the market, decides. And in between, they take an unkown comission during every operation that is made.

What could go wrong?

[Darker45]

What could go wrong?

Everything. So I don't think even brand new users should make use of the service at this current state. Well, if out of mere curiosity and without really any intention to even get informed or understand the basics of Bitcoin, some newbies want to buy a very small amount, let them proceed. But if they are going to convert a large amount of money into Bitcoin, they should know better than just do it in Paypal. A little understanding of Bitcoin would probably strongly suggest them not to make Bitcoin purchases in Paypal.

[aioc]

So not surprisingly, you are not buying bitcoin; you are buying some numbers on the screen which they have named as "bitcoin" and their only porpuse is the one of speculation according to the prices that the platform, and not the market, decides. And in between, they take an unkown comission during every operation that is made.

What could go wrong?

The fact that you cannot transfer it to other wallet or users, makes it so, we are dealing with numbers that are associated on the price of those coins in the market, they cannot give us a transaction text so our transaction is not part of the blockchain, I am in a country where the feature is not yet available but I already have an idea, I think I better of with other platform, it's not the usual Bitcoin that I'm familiar with.

[GreatArkansas]

So not surprisingly, you are not buying bitcoin; you are buying some numbers on the screen which they have named as "bitcoin" and their only porpuse is the one of speculation according to the prices that the platform, and not the market, decides. And in between, they take an unkown comission during every operation that is made.
(....)

The fact that you cannot transfer it to other wallet or users, makes it so, we are dealing with numbers that are associated on the price of those coins in the market, they cannot give us a transaction text so our transaction is not part of the blockchain, I am in a country where the feature is not yet available but I already have an idea, I think I better of with other platform, it's not the usual Bitcoin that I'm familiar with.

For me, the fact that the thing you already don't own the private keys of your Bitcoins inside your Paypal account, it's already non-sense for me, you still don't own that Bitcoin, that' why Paypal is really almost the same with centralized exchange now. Nothing surprised me about this Paypal thing. It's just Paypal got more customers when it regards to Fiat mode of payment.

[Pmalek]

It may be good for getting some new users interested in bitcoin, but hopefully once their interest is piqued, they will transition to a real wallet and hold their own coins.

Exactly! I share the same opinion. It is an opportunity to target millions of new users who might buy their first coins this way. If this service brings them some profit, they will hopefully decide to look for better deals elsewhere, realize what Bitcoin is all about, and move away from PayPal.

If I receive a payment, withdraw that payment leaving my account at a zero balance, and that payment is then reversed for some reason, I assume my account balance would then be negative. (Note: I don't actually own a PayPal account, so this is pure conjecture.)

PayPal can probably charge your connected card/bank account if you owe them money without having to put a negative balance on your account. Maybe it's different if you disconnect your card/bank account from their site before a transaction gets reversed.

Snip

I haven't taken a look at what kind of service Skrill offers, but it's probably something very similar, if not identical. One thing that might become interesting is getting access to the PayPal shops and merchants that are currently not accessible for crypto users. I am pretty sure this will be added sometimes in the future.

[1miau]

- In case PayPal has reasons to believe that you have done something illegal, you should know that you are agreeing to the following terms:

You authorize PayPal to seize your Crypto Assets if we believe a transaction relating to those Crypto Assets involves money laundering, terrorist financing, fraud or any other type of crime.

Since it's not possible to deposit or withdraw "Bitcoins", I'm very confused why PayPal says, how can users do anything illegal with their "Bitcoins"?

As described in more detail below, here are some things you can do with the Cryptocurrencies Hub:

Buy Crypto Assets;
Hold Crypto Assets;
Sell Crypto Assets; and
View market information and educational content.

I'm wondering how PayPal could determine "illegal" behaviour. 


After all, I wouldn't call it Bitcoin (BTC) what we can buy there. It's just a fancy way to participate in Bitcoin price speculations with horrible fees. 
Hopefully, withdrawals and deposits will be introduced later. Otherwise, users would likely switch to an exchange some time later to buy real BTC.

[Twinkledoe]

- In case PayPal has reasons to believe that you have done something illegal, you should know that you are agreeing to the following terms:

You authorize PayPal to seize your Crypto Assets if we believe a transaction relating to those Crypto Assets involves money laundering, terrorist financing, fraud or any other type of crime.

Since it's not possible to deposit or withdraw "Bitcoins", I'm very confused why PayPal says, how can users do anything illegal with their "Bitcoins"?

As described in more detail below, here are some things you can do with the Cryptocurrencies Hub:

Buy Crypto Assets;
Hold Crypto Assets;
Sell Crypto Assets; and
View market information and educational content.

I'm wondering how PayPal could determine "illegal" behaviour. 


After all, I wouldn't call it Bitcoin (BTC) what we can buy there. It's just a fancy way to participate in Bitcoin price speculations with horrible fees. 
Hopefully, withdrawals and deposits will be introduced later. Otherwise, users would likely switch to an exchange some time later to buy real BTC.

For most of these crypto users, I don't think they will use PayPal platform to buy and sell crypto. There's really no advantage on their part. Better use the actual trading platform and you can also save some fees. But anyway, this move of PayPal may increase crypto users but for actual trading, I don't see any benefit that we can derive from using their services.

[Fortify]

While it is nice to see Paypal jump into the Bitcoin scene and they will certainly start buying up a lot from the market, as you point out - it will all be restricted to trading within Paypal network. I think once they have built up a market of customers with bitcoin holdings and started to build up a large knowledge base around Bitcoin, that they will eventually allow people to send BTC into and out of the network. The good news is, Paypal supporting it will be a huge encouragement to all sorts of asset managers  and hedge funds that it is now officially a mainstream currency.

[libert19]

Would rather stay with non-custodial wallets. I hope those who come to crypto from PayPal, move to their own wallets soon enough.

[hatshepsut93]

Would rather stay with non-custodial wallets. I hope those who come to crypto from PayPal, move to their own wallets soon enough.

PayPal or exchanges should never be viewed as wallets in the first place, they should only be viewed as places to buy and sell crypto. A hypothetical good custodial service would guarantee that your coins will be safe even if they get hacked, and it should respect your privacy and not snitch on you to any government that asks. PayPal and exchanges don't do any of that. And with how big PayPal's fees are, I wouldn't recommend to use it even for beginners.

[Pmalek]

Since it's not possible to deposit or withdraw "Bitcoins", I'm very confused why PayPal says, how can users do anything illegal with their "Bitcoins"?
I'm wondering how PayPal could determine "illegal" behaviour. 

They are probably talking about money that originates from illegal activities like credit card fraud, hacked PayPal funds etc. If you use illegal funding sources to purchase your crypto, they can seize those assets.

I think once they have built up a market of customers with bitcoin holdings and started to build up a large knowledge base around Bitcoin, that they will eventually allow people to send BTC into and out of the network.

I am very skeptical about that and I doubt they will allow it. Any assets you move out of your PayPal cryptocurrency hub are assets they don't earn any commissions from. It is the same thing if you were to send cryptocurrencies to PayPal, they don't make any money there, unless they charge a deposit fee. It's in their interest that you purchase the coins from their service provider.   

[o_e_l_e_o]

I am very skeptical about that and I doubt they will allow it. Any assets you move out of your PayPal cryptocurrency hub are assets they don't earn any commissions from. It is the same thing if you were to send cryptocurrencies to PayPal, they don't make any money there, unless they charge a deposit fee. It's in their interest that you purchase the coins from their service provider.

I agree. There is no incentive for them to support full bitcoin integration, sending, receiving, transferring, etc. Widespread adoption of bitcoin is a direct threat to PayPal's business model. Bitcoin allows online stores and retailers to accept payments with less fess and more securely than they can with PayPal, and allows people to transfer money internationally far cheaper than PayPal does. If bitcoin becomes widespread, then the need for PayPal falls drastically, and so do their profits. I can't see them doing anything which will genuinely boost bitcoin adoption; more likely they will only hop on the bandwagon and provide full bitcoin functionality if and when the outcome is inevitable and they are already losing significant business to bitcoin.

At the moment, they have created a system which poses no risk to themselves but allows them to make more profit from the significant fees they are charging. There are a bunch of other services which have done the same, which all show no evidence of moving towards full bitcoin integration.

[Akiko]

I don't see any reason why users will buy using their platform if they can't transfer it in their own wallet. Does PayPal think that more of the crypto investors just want to keep their coins inside of online wallet without moving it in his own ? And to be able to widraw that currency they need to convert it again to $.
what paypal is doing, is they are just selling numbers and when the value of crypto increases they will also buy it from it's users but they don't really own any crypto.

[20kevin20]

You do not own any specific, identifiable, Crypto Asset.

This is the biggest red flag, confirming my previous thoughts: you won't be holding cryptocurrencies. You'll be holding basically nothing - PayPal is selling you air. If my purchased coins are not specific and identifiable crypto assets, I will suppose the price of the real Bitcoin may move completely different to the BitcoinAir they're "selling". The saddest thing is that PayPal already knows >95% of the incoming Cryptocurrency Hub users will NOT read the ToS and, in consequence, will get wrecked up by shitty terms.

The good news is, Paypal supporting it will be a huge encouragement to all sorts of asset managers  and hedge funds that it is now officially a mainstream currency.

I personally do not see any of this PayPal news in a positive way. They're either trying to profit off the continuous rise of crypto users, to attempt taking down cryptocurrencies and manipulate markets or both. It's them selling nothing with a premium. This isn't encouragement but more of a middle finger towards Bitcoin purists.

[Pmalek]

I don't see any reason why users will buy using their platform if they can't transfer it in their own wallet. Does PayPal think that more of the crypto investors just want to keep their coins inside of online wallet without moving it in his own ?

New users who get introduced to cryptocurrencies through PayPal in this way wont know any better. They will not know what custodial or non-custodial is, so this will be enough for them. They might even take a look at how to set up their own wallet, notice you need to write down a weird string (the private key) or a bunch of words (the seed) that mean nothing to them and just decide to let PayPal hold their assets for them. Same way they do with fiat.

Don't believe everyone will welcome the idea of being your own bank. Hopefully they will change their mind.

[UserU]

New users who get introduced to cryptocurrencies through PayPal in this way wont know any better. They will not know what custodial or non-custodial is, so this will be enough for them. They might even take a look at how to set up their own wallet, notice you need to write down a weird string (the private key) or a bunch of words (the seed) that mean nothing to them and just decide to let PayPal hold their assets for them. Same way they do with fiat.

Don't believe everyone will welcome the idea of being your own bank. Hopefully they will change their mind.

Agree, it's pretty much like the interest lending accounts which just encourage you to park your Bitcoin for a measly return but have 101 terms and conditions.

But to newbies, it's difficult to blame them since at a glance, securing the private keys and 2FA can be intimidating. When I first purchased my Bitcoin some time back, I didn't even know shit about those since all I wanted was just the final product, like an e-Wallet.

[bitFlowers]

So if the users don't actually hold any BTC, then PayPal could in effect sell infinite amounts. Derivatives?