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

[Pmalek]

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

If you are asking if someone can buy 30 million Bitcoin this way, no I seriously doubt that is possible. Their service provider Paxos makes the investment on their behalf, but you don't get to keep the coins. 

If the supply was infinite, I don't think they would place a $50.000 yearly limit on user accounts. They would gladly take bigger profits. I haven't given more thought to your idea, but someone else will surely chip in with more information. 

[smyslov]

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.

I will never think of recommending PayPal to my friends who just introduced to Cryptocurrency to buy and hodl using PayPal service, so many things PayPal posted on their terms of service Cryptocurrency features are very much different from what we all old timers know and very much different from Nakamoto's whitepaper.

If you are an old timer and an investor this can help you to make a profit, but as a starter you should go for wallets where you own your private key and all your transactions should be part of the blockchain.

[UserU]

If you are asking if someone can buy 30 million Bitcoin this way, no I seriously doubt that is possible. Their service provider Paxos makes the investment on their behalf, but you don't get to keep the coins.  

If the supply was infinite, I don't think they would place a $50.000 yearly limit on user accounts. They would gladly take bigger profits. I haven't given more thought to your idea, but someone else will surely chip in with more information.  

I believe there's a limit, since like you said, Paxos manages the investments on behalf of them.

On Paxos' website, they're a brokerage company so it wouldn't make senseif they do not rely on the blockchain for their main services.

[DooMAD]

On Paxos' website, they're a brokerage company so it wouldn't make senseif they do not rely on the blockchain for their main services.

It's puzzling on their website that they provide monthly reports for their fiat and physical gold holdings to show that their stablecoins are fully backed.  Yet they make no attestations about the quantity of BTC held, instead simply referring to "deep liquidity".  

Like... how deep?  Some of us are skeptical here.  A bit more information from them would be reassuring.  

[DooMAD]

Bump

I've been looking into whether Paxos need to maintain full backing as part of their regulatory obligations.  I'm sad to report the impression I'm getting is that fractional reserve IS permitted.   

See the following link to read the capital requirements for all companies who have obtained a Bitlicense:
https://govt.westlaw.com/nycrr/Document/I85908c7a253711e598dbff5462aa3db3

It basically reads the "superintendent" (whoever that is) gets to decide what funds are "sufficient".  This does not instil confidence.

[mrob82]

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.

I think this is going to be my first rant on the board, lol.  You have no idea how correct you are, everything can go wrong.  Paypal is almost a constant with the majority of the homes in the US.  Over the past several years, look at the different adoptions that have occurred within Paypal.

1.  Pay state taxes
2.  Tax forms printed from Paypal's database
3.  If you want to purchase crypto in Payapl, must verify KYC

Just these two items alone allows government information control.  Too many people are worried about the seizure of "coins," but there needs to be as much if not more concern about the simple gathering of information.  I wouldn't touch buying crypto in Paypal with a 10 foot pole.  In order for a government to control a product, service, type of currency - they have to track it first.

[o_e_l_e_o]

1.  Pay state taxes
2.  Tax forms printed from Paypal's database

I don't have a PayPal account, but is this true? They are linked up with the IRS and will print you tax forms and allow you to pay taxes all through their platform? If this is the case, then there is absolutely zero chance that they won't report every crypto "purchase" to the government ("purchase" in quotation marks since we've already established you aren't actually buying crypto with PayPal, you are just buying fake price exposure). All the more reason to avoid this if you have any sense at all. It's all the worst parts of a privacy invading centralized exchange, with the added disadvantage that you don't actually get to own, withdraw, transfer, use, or spend actual bitcoin.

In order for a government to control a product, service, type of currency - they have to track it first.

Absolutely, and they are already doing this quite well with centralized exchanges reporting all your activity to them and by leasing blockchain analysis software from a variety of companies, such as Coinbase.

[Csmiami]

Wait, wasn't this shared here?

It's a small thing to add to the already long list of reasons not to operate on PP; but they basically terminated the users' account for "suspicious activity" while trading

[mrob82]

1.  Pay state taxes
2.  Tax forms printed from Paypal's database

I don't have a PayPal account, but is this true? They are linked up with the IRS and will print you tax forms and allow you to pay taxes all through their platform? If this is the case, then there is absolutely zero chance that they won't report every crypto "purchase" to the government ("purchase" in quotation marks since we've already established you aren't actually buying crypto with PayPal, you are just buying fake price exposure). All the more reason to avoid this if you have any sense at all. It's all the worst parts of a privacy invading centralized exchange, with the added disadvantage that you don't actually get to own, withdraw, transfer, use, or spend actual bitcoin.

In order for a government to control a product, service, type of currency - they have to track it first.

Absolutely, and they are already doing this quite well with centralized exchanges reporting all your activity to them and by leasing blockchain analysis software from a variety of companies, such as Coinbase.

They absolutely do.  One of the biggest issues I have is this is prime territory for seizure of assets, and Paypal has done it numerous times in fiat.  For example, if you sell an item they can hold the funds up to 21 days.  This might not be long term seizure, but if they can do this then they can absolutely seize in other areas.  Another prime example is if their is a dispute between two parties, they place the transaction on lockdown until they can review (had a friend they did an 18 month review on for $312 USD). 

Their new prime way of dealing with people is through the use of the "friends and family" transfer.  If people don't realize this was a way to arbitrage accounts, I can't help you, lol.  First thing they started doing was "temporarily suspending" accounts to investigate if the person was really you friend or not (priceless).

All I can say is if you are going to use Paypal for any type of crypto, proceed with extreme caution.  People don't understand the tricks that Paypal use in order profit, why else would they hold you money or crypto for weeks other than to collect off of the interest. 

[NotATether]

Old, but...

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

In theory they could, but they'd only be able to do that to whatever bonds or derivative or another instrument they're using to represent BTC, and not the BTC itself. This would wreck Paypal's exchange rate for BTC however so this is never going to happen in practice.

~

All I can say is if you are going to use Paypal for any type of crypto, proceed with extreme caution.  People don't understand the tricks that Paypal use in order profit, why else would they hold you money or crypto for weeks other than to collect off of the interest. 

Don't forget paypal even makes it difficult to check out with some debit cards too when they're the payment processor for the purchase. It's almost as if the only people who can use it smoothly are those with a paypal account.

[lovesmayfamilis]

I do not know if this news was on other topics, but apparently, PayPal is going to allow the withdrawal of cryptocurrencies to third-party wallets. When it will not be specified yet, the idea is in development.
Although the fact that the holders of the cryptocurrency will be known is undeniable.

https://www.coindesk.com/paypal-will-let-customers-withdraw-crypto-exec-says

[Pmalek]

<Snip>

Something similar was introduced by Skrill at the end of February, so I guess PayPal is copying their approach. It's good that their customers will finally have the ability to possess some real bitcoin. Paypal will certainly use this opportunity to earn even more money on the withdrawal fees it is going to charge its users. I doubt they will be cheap.   

[Pmalek]

Bump