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PayPal Looks to "Embrace" Central Bank Digital Currencies

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PayPal made waves in October when the global financial technology giant made public that it would begin supporting Bitcoin alongside a number of other cryptocurrencies. Now it appears that the firm's involvement in the space may be more nuanced than first announced, statements from executives indicate. 

When PayPal announced its entrance into the cryptocurrency space in late October, the news was framed as a way for its millions of users to buy and sell bitcoin and altcoins. The company also said that users would be able to make purchases with their cryptocurrency holdings. 

According to company executives who spoke during PayPal's Q3 2020 earnings call on November 2nd, its interests in the space go deeper than first stated.

Along with support for cryptocurrencies, PayPal CEO Dan Schulman says the company will "embrace" central bank digital currencies (CBDCs):

Finally, I'd like to discuss our recent announcement to increase the utility of cryptocurrencies, as well as, embrace new forms of Central Bank digital currencies. We are entering a new era of financial services where our wallets and all the services around them are moving from physical to digital.

While details surrounding the statement were vague, Schulman further mentioned the propagation of identity management systems and enabling "new forms of commerce," adding that PayPal intends on working "hand in hand with regulators" as the world undergoes the shift to a "digital economy." 

PayPal's interest in working closely with regulators isn't unexpected. In May, PayPal was reported by Bloomberg to have made an attempt to convince the U.S. government to allow it to distribute the $1,200 stimulus cheques given out to U.S. citizens. 

If Schulman's comments are anything to go by, PayPal will try and convince governments to leverage its network to test, then potentially distribute CBDCs. 

PayPal's Isn't Really Integrating Cryptocurrency Payments

When PayPal revealed it would allow its millions of consumers to use cryptocurrencies to transact with its merchants, one may have thought it would actually include sending and receiving bitcoin.

This is not the case. 

Schulman explained that PayPal's feature enables users to "transfer that crypto into fiat currency at a step rate," meaning that merchants accept the fiat value of a cryptocurrency used to pay, as opposed to the cryptocurrency itself. 

This process of conversion purportedly results in a reduction of fees internally, which should improve PayPal's user experience: 

We will immediately settle in fiat with all 28 million of our merchants at our current take rates and so you have no additional integration needed at any of our merchants. And this is just an elegant way of using cryptocurrencies as a funding mechanism. And yes, it is a lower-cost funding mechanism for us in terms of those transactions.

Prompted by this system, some in the space have joked that PayPal has become a Bitcoin 'sidechain.' 

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Nick is a writer and analyst who has been following Bitcoin since 2013. When he is not writing, he works on HTC's Bitcoin phone, EXODUS.