PayPal Holdings Inc. became one of the largest companies in the U.S. to enter the market for digital currencies with its announcement last October that it would allow its millions of U.S. users to sell, buy and hold cryptocurrencies.
The recent stir is likely just the beginning of digital currencies inching closer into the mainstream, experts say.
“The demand is there,” said Oliver Bussmann, chief executive of Bussmann Advisory, which advises financial institutions on digital strategies, and a former group chief information officer at UBS AG and SAP SE. Information technology leaders should start building expert teams, he said, and educate other executives on how it could affect their businesses.
The Morning Download delivers daily insights and news on business technology from the CIO Journal team.
PayPal, with 377 million users globally, is a 22-year-old online payments company that allows individuals and merchants to securely send and receive money.
For PayPal, last year’s launch of its cryptocurrency market was the culmination of putting in place the right talent, working with a trusted regulatory technology provider and having existing executive-level support, said Edwin Aoki, chief technology officer for PayPal Blockchain, Crypto and Digital Currencies.
At some point this year, the company said it expects to allow users to tap their cryptocurrency balances for payments at millions of merchants that use PayPal.
Last October, PayPal became the first company to receive a conditional “Bitlicense” from the New York State Department of Financial Services.
Edwin Aoki, chief technology officer for PayPal Blockchain, Crypto and Digital Currencies. Photo: PayPal
In 2016, PayPal Chief Executive Dan Schulman added cryptocurrency entrepreneur Wences Casares to PayPal’s board of directors and the two began discussing the potential for digital currencies to give more people access to the financial system.
By late 2017, PayPal had a dedicated research group exploring blockchain, the record-keeping system behind cryptocurrencies, Mr. Aoki said.
Blockchain is still an early-stage technology, and there aren’t many experts with several years of experience in the technology under their belt, Mr. Aoki said. Blockchain made Microsoft Corp.’s LinkedIn list of the top in-demand “hard skills” for the first time last year.
It was important, Mr. Aoki said, that new blockchain technology hires were able to share their expertise with other PayPal technologists.
The early blockchain team focused on “fundamental research” related to blockchain technology and wasn’t specifically focused on exploring how PayPal could eventually use it and build it into a product, Mr. Aoki said.
Last year was a turning point. “We saw the pandemic had really accelerated the pace of digital adoption [and] we felt the time was right” to turn the company’s research on blockchain into a product, Mr. Aoki said.
PayPal users can choose to buy bitcoin, ethereum, bitcoin cash and litecoin on the site. Photo: PayPal
The product development process involved combining existing blockchain and cryptocurrency talent with new hires. Mr. Aoki wanted to make sure he brought in new talent who could easily explain what it would mean to buy, sell and hold cryptocurrencies to its existing and new PayPal customers, via its website and mobile application.
When users go on PayPal’s “Crypto” webpage, they can choose to buy bitcoin, ethereum, bitcoin cash and litecoin, and they can also learn more about cryptocurrencies.
PayPal’s venture capital arm has also made investments in blockchain and cryptocurrency-related startups such as Cambridge Blockchain Inc. and TaxBit over the past two years.
Companies such as Coinbase and Robinhood Markets Inc. also offer the ability to buy and sell cryptocurrencies.
PayPal uses Paxos Trust Co. LLC to power the back-end infrastructure that allows its users to buy, hold and sell cryptocurrencies in a way that complies with data privacy rules and financial regulations.
Paxos has spent seven years acquiring the necessary regulatory approvals from federal and state agencies as well as international governments to hold and move people’s cryptocurrency assets and it is still working on more approvals, said Charles Cascarilla, chief executive and co-founder.
“We’ve built scale, tools and specialized knowledge that it would take a long time to accumulate even for somebody like PayPal,” Mr. Cascarilla said.
Founded in 2012, New York-based Paxos has about 150 employees and is backed by $240 million in investor funding to date. It uses cloud services from Amazon.com Inc.’s Amazon Web Services to host the underlying software that enables the buying and selling of cryptocurrencies for clients like PayPal. The software allows digital assets to be held and moved on the blockchain protocols underlying bitcoin and other cryptocurrencies.
PayPal and Paxos exchange information through application-programming interfaces, or APIs, pieces of software that enable apps, platforms and systems to connect with each other and share data.
Digital currencies have gained more traction among bigger, well-known companies and individuals over the last year in part because the pandemic has increased people’s familiarity with technology of all kinds, Mr. Cascarilla said. People are also becoming more interested in new ways to protect their money and be part of the financial system, he said.
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