PayPal and Bitcoin: Behind the scenes

June 13, 2014

Let me begin by nailing my colors firmly to the mast; I like PayPal. I know that this puts me in conflict with a lot of Bitcoin users, but there you go. Looking at PayPal and Bitcoin, both have certain advantages, and it would be difficult, if not foolish, to ignore their relative strengths.

PayPal was established in 1998 in California and, in the intervening years its success demonstrates the fact that it has worked well. Last year I bought a wetsuit, from a business called “The Lime Shop” it didn’t arrive, the cavalry arrived in the form of PayPal, and I got my money back. Now, PayPal and Bitcoin, when seen in contrast, show distinct strengths.


Bitcoin is cheap, fast and offers irreversible transactions. This is an attractive feature to retailers in businesses with small margins, jewellery retailers love it. PayPal is relatively expensive, fast and offers reversible transactions and therein lies its greatest strength. I recently wrote about the need for promoting our experiences with retailers, good and bad; well my experience with Agora Commodities was excellent, I paid with Bitcoin and the goods came. The company is excellent, and I can recommend them. I bought goods from Coinabul on May 3rd, The goods have not come and will never come. The internet is full of warnings about this company, but (yes… I didn’t do the research) the website is still updating prices and taking orders. I paid .76 bitcoins, and there is the problem, if I had paid cash, via PayPal, I would have my money back. Bitcoiners hate PayPal but the general public love it, and the reason is that, simply, it makes sense.

Paypal and Bitcoin, are two successful systems for transferring value commercially. PayPal describes itself as having: “128 million active accounts in 193 markets, and 25 currencies around the world, processing more than 7.5 million payments every day.” If you want to be big in commercial payments then you have to look at PayPal, the incumbent world champion. But, on closer analysis, looking at PayPal and Bitcoin, things in Bitcoin have been going from strength to strength, but things are far from well with Paypal.  President of PayPal, David Marcus, announced this week that he was leaving, poached, well done Facebook! Evenbrite has announced that April Chang, PayPal’s senior engineering director, was joining the company.  But everything is not all bad, in the first quarter of 2014, PayPal and eBay enabled $11 billion of mobile volume, an increase of almost 70%. But PayPal is at the top of the pile, and when you’re at the top, you become the target.

Despite PayPal’s market head-start, a bunch of competitors — Google, Clinkle, Square, Stripe and yes, Bitcoin — are working on products that threaten PayPal, making this a moment when the company is forced to face the reality that it must become more innovative or else it must cede ground  to its competitors. PayPal’s rivals regard its incumbency as a weakness, rather than a sign of strength. When PayPal sold to eBay, eBay’s transactions were roughly two-thirds or more of PayPal’s volume. But today, eBay is a third or probably less of PayPal’s volume, and that percentage is continuing to decrease.

Looking at PayPal and Bitcoin, PayPal offers a great, if expensive, service and Bitcoin offers a great service, if you trust the seller to deliver the goods. If not, change the crypto to cash, and then use Paypal.  Paypal has been conducting surveys, looking for opinions and seeking to know what it is that they do next. There are keywords they identify, and one is Bitcoin. PayPal is still, however, excellent at what they do, and I am still an advocate, but looking at PayPal and Bitcoin, Paypal is expensive, abet safe and expensive. PayPal is in a position of monopoly and like all monopolies, it takes the opportunity to charge supernormal profits and that tends to attract competition. PayPal wants into Bitcoin because it needs the technology, in needs to lead the world in innovation.

Bitcoin suffers from a problem, the general public have a barrier to entry and that barrier is knowledge. Bitcoin is complex and PayPal simple. We simply must learn from PayPal. We must also learn from Apple, remember John Sculley fired Steve Jobs and Apple soon discovered that when you fail to innovate then you simply fail. Perhaps PayPal and Bitcoin, is simply a case of a predator circling a prey or perhaps that bright shining bait may turn out to be the lure of an anglerfish.

Last modified (UTC): June 13, 2014 15:46

Tags: paypal
PJ Delaney @P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.