PayPal and Bitcoin: How the Payment Processor Question Played Out

Braintree Went First, and Chose Differently

Two weeks earlier, Braintree had already announced it.

PayPal had acquired the payments company in September 2013 for 800 million dollars, and Braintree announced bitcoin acceptance through its v.zero SDK in partnership with Coinbase alone. One processor, where PayPal would shortly name three.

Nobody involved explained the divergence. Two arms of the same company, working the same problem inside a single month, arrived at opposite integration strategies: Braintree bet on one partner, PayPal spread the exposure across several. The public record from 2014 does not say whether that was deliberate hedging, an artefact of the autonomy Braintree kept after the acquisition, or two teams that simply did not compare notes. It is a small thing, and it was never resolved.

2020: PayPal Brings Crypto In-House

Six years later the arrangement inverted. On 21 October 2020 PayPal announced that account holders in the United States could buy, hold and sell bitcoin, ether, bitcoin cash and litecoin directly inside a PayPal account. Paxos Trust Company handled the trading and the custody behind the scenes, and the New York State Department of Financial Services granted PayPal a first-of-its-kind conditional BitLicense to make it possible.

The scale was already visible years earlier: the archived 2016 version of this site cited 188 million active users. PayPal's 2020 announcement put its platform at more than 300 million consumers and merchants across more than 200 markets, 26 million of them merchants, and waived service fees on buying and selling through the end of that year.

What the release did not say was that merchants could now be paid in bitcoin. They could not. The 2020 change was a consumer feature; the merchant side of it did not arrive until the following March.

Checkout with Crypto, and What the Merchant Receives

That came on 30 March 2021. Checkout with Crypto let a customer in the United States pay at any PayPal merchant from a crypto balance, and it is the change people usually have in mind when they ask whether you can pay with bitcoin on PayPal. You can. The merchant, however, never touches it.

PayPal converts the crypto to fiat on the customer's behalf at the moment of purchase. Settlement happens in US dollars and then converts to the merchant's own currency at standard PayPal rates. The merchant carries no volatility exposure and no custody obligation. One cryptocurrency may be used per purchase, and there is no separate transaction fee, though a conversion spread is built into the crypto-to-dollar rate, which is where the cost actually sits.

At launch the feature covered millions of online businesses, with a staged rollout over the months that followed. Acceptance was not something those businesses opted into. The payment arrived on the same dollar rail they were already being settled on.

The Settlement Currency Never Changed

Seven years separate the Payments Hub announcement from Checkout with Crypto. Across them PayPal went from outsourcing bitcoin to three processors it did not own to performing the conversion itself. What it absorbed over that period was the processor role, not bitcoin as a settlement currency. A merchant paid through the Payments Hub in 2014 received dollars, and a merchant paid through Checkout with Crypto in 2021 received dollars. The consumer-facing surface was remade twice and the accounting behind it did not move.

NYDFS upgraded the conditional licence to a full BitLicense in June 2022. In August 2023 PayPal launched PYUSD, a stablecoin issued by Paxos as an ERC-20 token on Ethereum, backed by dollar deposits and short-term US Treasuries and redeemable one for one, with Paxos publishing a monthly reserve report from that September. The company's own token, nine years after the BitPay deal, is denominated in dollars.