In a 2014 editorial titled “Bitcoin is the New PayPal,” we made the case that PayPal’s history could provide insight on Bitcoin’s future. Specifically, we argued that, in the short term, the Bitcoin ecosystem would expect a bumpy ride from fraudsters, but with some precautions the various players in the ecosystem could ultimately prevail.
Fast forward three years, and it’s largely mission accomplished. Bitcoin is safe and has entered the mainstream. The fallout from Mt. Gox was short-lived, and the ecosystem is thriving. If you need more proof than Bitcoin’s price soaring past $11,000 this week, then consider the fact that earlier this fall it was added to Google’s payments API.
In some ways our three-year-old editorial is starting to look prescient. Not only has Bitcoin soared past its early stumbles with fraud, but with its current trajectory it really is starting to resemble the new PayPal. And not just in terms of its ubiquity. Yammer cofounder David Sacks — who served as PayPal’s first COO — recently told CNBC:
[Bitcoin] is fulfilling PayPal’s original vision to create “the new world currency.” We actually had T-shirts printed in 1999 with that mission statement. … We believed that, if we could get enough people to participate, money would never need to leave the system. PayPal could become the database of money. … When we got acquired by eBay, that project kind of stopped. But cryptocurrencies like Bitcoin are now fulfilling that original vision.
As Sacks alludes to in his comments, PayPal’s original vision was much more ambitious than just becoming the defacto payment service of eBay. I (Eric) wrote about this vision in my book The PayPal Wars. Here’s my account of a speech given by CEO and cofounder Peter Thiel during a company meeting in late 1999, just a few weeks after PayPal’s product launch:
Everyone in the world needs money — to get paid, to trade, to live. Paper money is an ancient technology and an inconvenient means of payment. …Of course, what we’re calling ‘convenient’ for American users will be revolutionary for the developing world. Many of these countries’ governments play fast and loose with their currencies. … They use inflation and sometimes wholesale currency devaluations … to take wealth away from their citizens. Most of the ordinary people there never have an opportunity to open an offshore account or to get their hands on more than a few bills of a stable currency like U.S. dollars.
Eventually PayPal will be able to change this. … PayPal will give citizens worldwide more direct control over their currencies than they ever had before. It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or pounds or yen, in effect dumping the worthless local currency for something more secure.
Following on the heels of the late-1990s Asian currency crisis that had slammed many of the region’s developing countries, PayPal’s vision of empowerment and liberation resonated.
PayPal ultimately fell short of its original lofty goals. Rapid adoption by merchants selling on eBay led to a symbiotic but tense relationship between the two companies, which led to eBay acquiring PayPal in late-2002. With the change of ownership came a change in vision, and PayPal pursued a digital wallet strategy for small businesses and later for enterprises. After being spun off as an independent company again in 2015, PayPal is now a payments powerhouse accepted by 218 million active users and 17 million merchants.
While impressive, that’s not a “new world currency.” But where PayPal’s centralized service fell short of its original goals, cryptocurrencies have picked up its mantle.
Built on decentralized blockchains, the crypto movement is shaking up incumbents and rolling out new innovations at an unprecedented rate. Bitcoin — first called an “electronic cash system” in Satoshi Nakamoto’s white paper — has evolved into a store of value for many. Services such as GoCoin have made it viable for vendors to accept not just Bitcoin payments but also a host of other digital currencies like Litecoin and Dogecoin. Ethereum has emerged as the second largest cryptocurrency by market cap as well as the platform of choice for companies to issue their own crypto usage tokens. Crypto wallets have become increasingly easy to use. There’s even a blockchain-based PayPal competitor called UTRUST aiming to upset the legacy incumbent.
So if crypto has the best shot at fulfilling PayPal’s original “new world currency” vision, what comes next? PayPal’s experience offers some clues:
1. The establishment will feel threatened — and strike back. As PayPal prepared for an initial public offering of its stock in early 2002, regulators from around the country trained their sights on it. The crime? It was a new technology and it evaded easy classification. Don’t be surprised if we start seeing elites like JPMorgan Chase CEO Jamie Dimon (who calls people who buy Bitcoin stupid) advocate for anti-crypto “protections.”
2. Scalability will be a challenge. PayPal grew so quickly in its early years that the website had several high profile slowdowns and near outages. Ethereum is already experiencing similar problems, as founder Vitalik Buterin candidly admits. It’s a challenge that any new blockchain-based protocol will need to overcome if it’s to successfully grow.
3. The media will switch sides. In its first couple of years, PayPal was hailed in the press as a promising and novel technology. But after the Nasdaq crashed and many dot-coms cratered, the tone changed and PayPal became a high profile target for media criticism. It’s not hard to envision how a prolonged slump in the price of Bitcoin or a string of instances like the Parity wallet freeze could influence media sentiment against crypto.
4. Fraud will remain an issue. Our 2014 editorial, in which we outlined the problems with fraud, applies to all crypto technology, not just Bitcoin.
But in spite of these challenges, there’s real potential for the crypto movement to turn PayPal’s original dream into reality. If it does, the world will be the better for it.