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Comment by buildbuildbuild | Hacker News Reader

This is not a BitPay competitor until PayPal allows users to deposit cryptocurrency. Until then it is a closed loop system, users and merchants cannot yet deposit or withdraw crypto itself, similar to Robinhood.

Highly disappointed that Square (Cash) has not launched a BitPay competitor and still only supports Bitcoin. They’ve allowed BTC deposits and withdrawals for years (with great UX!) yet are lagging far behind in release cadence.

The biggest barrier to spending crypto is still finding merchants that accept it, even through third parties. PayPal’s huge merchant userbase will allow dominance if/when they flip the switch to an open loop, “deposit your crypto” approach.

Only PayPal and Stripe can flip that switch at scale with a hosted checkout experience. Merchants don’t care how a user paid, they want fiat.

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If paypal allows people to deposit their crypto and pay merchants in fiat, you can be sure that they’ll quickly become the biggest seller of bitcoin out there. With the illiquidity of the btc => usd conversion, they’ll have to pay the merchant before selling the btc, which means they’ll have to take a huge margin to cover potential slippage.

No one wants to be the guy who sells bitcoin on a massive scale.

PayPal also does not need to hold the underlying assets. They can buy Bitcoin derivates instead of spot Bitcoin to maintain the reserves. Not sure if they are doing this, though, but it could be more capital efficient.

At some point someone needs to sell the spot though...

There are always debit cards that let you 'spend' crypto, paypal is obviously less useful than that. The volume would also be nowhere near big exchangers since trading is by far the biggest activity in crypto

> With the illiquidity of the btc => usd conversion, they’ll have to pay the merchant before selling the btc, which means they’ll have to take a huge margin to cover potential slippage.

Bitcoin sell liquidity is currently $162MM USD on Bitfinex at 0.5% slippage. Buy liquidity is $543MM USD (at 0.5% slippage). For comparison, the sell liquidity on Coinbase Pro at the same slippage is only $4.5MM USD.

My site https://cryptomarketdepth.com/ tracks the liquidity of various cryptocurrencies over time (for the exchanges: Binance, Bitfinex, Bitstamp, Bittrex, Coinbase Pro).

The problem isn't volume, it is latency. It can take 30m for a btc transaction to settle. That's a nontrivial amount of volatility to exposure yourself to.

Could PayPal make this the customer's problem, by only allowing them to exchange or spend settled funds?

Can't they sell before confirmation? Probably on the order of 99% of transactions that propagate to the whole network with a sufficient fee end up being confirmed, and that only takes a few seconds to happen.

I would go further to say that for a large portion of merchant transactions, confirmations are a non-issue. It is not trivial to pull off a double spend and no one is going to do it for a cup of coffee. The miniscule number of times that it might happen could be written off as the cost of doing business, the same way the big credit card companies quietly eat all the credit card fraud that happens.

Also, and I could be mistaken, my understanding is the double spend can only happen when the person trying to double spend controls the private/public key to the coins. Normally when you deposit crypto in an exchange (or this hypothetical Paypal wallet) you lose that access and your balance is just a row in a database while "your" coins are swept into a large hot/cold wallet run by the service you are depositing into.

This is correct. Customer double spend risk is not what’s ring discussed here. The risk is PayPal losing money on the spread. A user buys a pair of shoes with bitcoin, PayPal pays the shop owner fiat and takes ownership of the bitcoin. Now PayPal is on the hook for selling that bitcoin if they want to keep their cash flow in fiat. The price of bitcoin can move wildly in the time it takes for a Bitcoin transaction to settle. In reality PayPal is a huge company and can sell to many brokers who will take on the risk for PayPal.

Then use the lightning network, it's really what should be used for smaller payments like this anyways. You don't pay for coffee with a wire transfer, for the same reason you shouldn't be using layer 1 for small everyday purchases like this.

Lightning requires the bitcoin network to verify the transaction though. It's like using a personal check - until the bank clears it you're at risk.

That's not true at all. You can perform lots of transactions over lightning, and settle with a single on chain transaction. The money clears instantly, and is not at risk, even if you keep the funds on layer 2.

No, the previous comment was correct, in that an open lightning channel balance is inherently at risk, if you're wallet software isn't monitoring that the lightning nodes you're dealing with follow the protocol. If a node broadcasts an older HTLC transaction to bitcoin's main chain and your software isn't watching, you may loose some/all of your channel balance.

That is correct, but the GP said:

> It's like using a personal check - until the bank clears it you're at risk.

Which is 100% not true, it's not like a personal check. You are only at risk if:

* your counterparty decides to try and cheat you (despite knowing they will lose even more money if they attempt to screw you and you notice, so some game theory is involved)

* you are not watching onchain for a period longer than the monitor period (typically several days)

* you have not elected to have someone else monitor on your behalf (in exchange for a small cut of the "profits" if your counterparty tries to cheat you)

My point being - it's nowhere near the same as a personal check.

That's just like a personal check. The same methods you cheat someone with a scam check applies to the IOUs on Lightning.

* Bad actors exist and will do this with checks or lightning, game theory applies to both

* It doesn't matter if you're watching the chain, you've already transacted with the buyer

* 3P Escrow is not unique to Lightning and is sometimes used with checks too

> Bad actors exist and will do this with checks or lightning, game theory applies to both

It does, but with lightning, as long as you are watching the chain periodically, you are guaranteed to not lose money. The same cannot be said for checks.

> It doesn't matter if you're watching the chain, you've already transacted with the buyer

It does matter if you watch the chain - this is how you determine if your counterparty is trying to close out the channel with an out of date state (at which point you can submit an onchain transaction that corrects the problem + collects a penalty from your counterparty).

> 3P Escrow is not unique to Lightning and is sometimes used with checks too

Watchtowers are not anything like escrow. It's simply allowing a third party to submit penalty transaction iff your counterparty attempts to submit an out of date state. They do not take custody of your funds.

People watch for bad checks as well. Plenty of cash registers used to have example bad checks laminated on them, back when the modern financial system was still using IOUs like that.

You can make a lightning transaction, drain your bitcoin wallet before it verifies, and no amount of watching the chain will get the seller back whatever they traded you for that transaction. Just because you identify the fraudulent transaction before it finally verifies doesn't mean that the fraud wasn't committed. Same with bad checks.

I thought you were talking about 3P escrow, because watchtowers are even worse than escrow in fighting fraud, for reasons outlined above.

> You can make a lightning transaction, drain your bitcoin wallet before it verifies, and no amount of watching the chain will get the seller back whatever they traded you for that transaction. Just because you identify the fraudulent transaction before it finally verifies doesn't mean that the fraud wasn't committed. Same with bad checks.

No you cannot, again, that's not how it works. You commit funds to a channel on chain before you can spend funds in a channel. I don't think you understand how lightning works.

Yes, you commit funds before the initial transaction, but loop allows you to move them to another wallet before the channel closes.

Wait, for real?

Lightning is even dumber than I thought - and I already thought it was DOA.

It pretty much is - Lightning plateaued out and has been known to have empty channels.

https://bitcoinvisuals.com/ln-channels

But you need dollars on the other side. For this to work without PayPal hosting the BTC you need the following:

1. You send BTC to PayPal 2. PayPal sends equivalent dollars to the merchant.

But what is "equivalent"? What is the price of BTC at any given moment? It fluctuates a lot and you can't "lock-in" a price without waiting minutes (as opposed to milliseconds in other financial systems). So between the time that you sent dollars to the merchant and when you sold the coins you are exposed to risk of holding BTC.

Lightning does not help with this.

That's a fair point. In order to use lightning, PayPal would either need to hold some BTC in reserves on layer 2, or work with an exchange that accepts lightning transactions.

I am probably way out of my depth here. But if Paypal or Square have a large enough market/volume of transactions couldn't they act as their own market maker, settle immediately internally? Kind of like the whole storm over Citadel GME. And then also not have to pay the BTC fees?

That'd require them to hold your Bitcoin for you, so they could just move some from one person to another. Isn't that counter to the Bitcoin philosophy?

Ideally everything would be self hosted p2p btcpayserver like technology. But mass adoption requires some compromises. Not everyone wants to self host and self custody, and if you’re willing to compromise a little on that you can have massive UX gains, especially if you’re looking to swap to fiat on either end anyways. As long as you retain the ability to self custody your currency should you desire, it’s not even that big of a compromise IMO.

So it does exactly what paypal already does only with more steps and volatility...

AH crypto don't ever change or do you're a fucking waste.

I believe that’s what they do currently. I made the mistake of buying some LTC recently on PayPal. Turns out you can’t actually send it to any other LTC address ... your options are only “buy” and “sell”.

But Bitpay and others provide instant settlement and manage the volatility on their side. Merchants don't have to risk anything.

Probably by being an authorized participant in GBTC - is the premium still negative? Wonder how long they can keep their business going that way.

If I’m interpreting this right, it means the bitcoin market on bitfinex is a bit over 3x more sensitive to sells than to buys? And the possible sell volume on coinbase before slippage is tiny.

That is correct. But this is only for March 30. On the day before the buy/sell liquidity were roughly equal.

You can click on a point in the time series graph to see this.

I am curious how in the world does Bitfinex offer USD liquidity these days?

I mean lets say you trade USD/USDT on Bitfinex.

How do you get USD (not USDT) out of Bitfinex?

A Regular bank wire withdrawal is sent out from Bitfinex within 5-10 business days and credited to your account following processing by the receiving party.

2. An Express bank wire withdrawal is sent out from Bitfinex within 1 business day and incurs a 1% processing fee.

Is that USD or USDT?

The fiat on-ramp is probably a pretty big blocker for many new adopters. If paypal fixes that, it could have a large effect.

It’s USD, not USDT.

They can hold the BTC forever and pay the merchant with their massive cash reserve or 0% interest debt. Profit

They could also accept pebbles and sand as payment, hold them forever, and pay the merchant with their massive cash reserve or 0% interest debt. Profit.

Pebbles and sand might be safer to hold if they are less volatile than BTC. A company like Paypal needs stability, not a directional bet on an asset.

USD is very stable in it's decline. Good luck

The USD is suffering from a savings glut. The domestic financial markets are already fully developed. Any additional savings from foreign nations is not helping the USA and merely forces an exorbitant downside. Investments have to match savings. All the potentially productive investments have already been made for the current level of inflation. There is nowhere for the money to go so you have two options: Unproductive investments, reduce the savings rate.

Unproductive investments are basically the constant increase in stock and housing prices over the last decade. You're not buying those to make more money, there simply is no other place for the money to go. The only way the savings rate can be reduced domestically is through unemployment or underemployment. Unemployed people don't earn money but they still have to spend, which reduces savings.

It's a truly hopeless situation for the humans living the USA. But hey, at least the dollar is still "good".

Oh right, presidents are taking on debt to cancel the savings glut that was forced upon them. That's a bad thing.

The potential downside on this is 100%. The potential upside on this is... Unknowable.

They would never get away with this as a publicly traded company.

Why would they not? This is effectively buying Bitcoin, slowly, at a discount (they'll surely slap hefty fees/unfavorable exchange rates on it, because there are many people who will happily pay extra for the privilege of paying with crypto, just like people will pay a lot more for anything slapped with an "organic" label).

Tesla, a publicly traded company, got away with buying $1.5 billion in Bitcoin just fine.

PayPal can also sell that Bitcoin to customers who want to buy Bitcoin.

Tesla is not a payment processor. Nor is it in the business of profiting off of crypto as a fundamental change in it's business model.

I'm replying to a comment saying they should use their cash reserve to buy bitcoin instead of dividends/buybacks.

And yes, they can sell it and have some level of "float" to support crypto buy/sell exchange. But the comment was a hodl comment to "make them more money."

See Microstrategy... speculative attack on fiat.

The problem of slippage/margins is overstated.

Other websites already support this. They just charge a 1% fee and call it a day.

Average credit card fees are already much larger than any fee that would be required to cover price changes.

> The biggest barrier to spending crypto is still finding merchants that accept it

I am a huge fan of BTC and have held some for many years. But it seems to me the reason this hasn't really happened yet is just that it's not really a big problem that needs solving. Why do people need to spend crypto on online purchases, as opposed to converting to fiat and spending that?

I'm sure it'll happen eventually, it's not a bad thing to give people more options of how to pay. It just doesn't seem like a huge need for anybody in countries like the US, Canada, UK, Europe, Australia, Japan (which are the vast majority of the market for companies like Paypal, Stripe, and Square).

Being able to spend crypto at any merchant massively increases the liquidity of crypto - it provides more places where one can convert their crypto assets into goods and services. Reducing dependence on a small number of centralized crypto exchanges for liquidity provision is good for the decentralization and robustness of the crypto market as well.

Also fiat networks can be censored by financial institutions and government, as we saw with the financial blockade on WikiLeaks a few years ago, and have seen happen against pro-democracy protestors in Hong Kong recently. Direct merchant acceptance of crypto provides an alternative when such financial controls are put in place.

Merchant adoption of crypto is an unmitigated good for crypto, from any perspective you look at it from. It's puzzling to me when some crypto enthusiasts see no point in it, when it is really the entire point of cryptocurrency.

I would certainly disagree that being able to online shop using Paypal is the whole point of cryptocurrency. Having the ability to easily and securely exchange with others is the whole point, but doing it conveniently on a daily basis over existing payment rails is not the whole point or even that important.

If a government decides to censor fiat networks to prevent certain transactions, the fact that paypal accepts bitcoin for those transactions is irrelevant. The company you're buying from as well as Paypall will still need to follow KYC laws and will be obligated not to transact with you.

In that scenario you're already fully living outside the law, you'll have to transact as anonymously as possible, exchanging crypto in secret in person or over the dark web or what have you. It doesn't matter whether major above board institutions like Paypal or Stripe accept bitcoin or not.

If paypal only allowed users to pay for things in USD it would also greatly defeat the purpose of Paypal.

Instead, they offer automatic conversion (at a rate favourable to them no doubt) from other currencies. They certainly wouldn't say "If you hold EUR you can take it to a currency exchange and change it for USD, then send it to us". They would have no global hold if they did that.

Likewise, barring access to users of a certain national currency damages the global utility of that country's currency; it's silly of them to do that if there are no regulatory obstacles, and I'd argue they're strongly incentivized to find ways around those obstacles.

Whether it's paypal or not, it's greatly useful to have some way to pay for things with cryptocurrency, and payment companies have an economic incentive to add support for crypto payments as well

I've found that OpenNode is a pretty reasonable hosted-checkout bitcoin processor. They support Lightning, and BTC to Fiat at time of purchase.

BitPay is already pretty irrelevant thanks to BTCPayServer

This is not a BitPay competitor until PayPal allows users to deposit cryptocurrency.

Yes, I don't see much point to this service without the ability to send crypto to your Paypal account. I don't buy crypto through Paypal, and I suspect nobody else that knows what they are doing does either. They've tiptoed around the idea of allowing crypto deposits by allowing instant, free, fiat withdrawals to Paypal from Coinbase (where it can then be spent). But they absolutely refuse to allow it directly.

> allows users to deposit

And exchange crypto for fiat or at least USDT/USDC/some other stablecoin. Without that nobody will use the platform.

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