Cryptocurrencies,  Innovators

PayPal clamps down on crypto purchases while trying to patent a virtual currency

The U.S. Patent and Trademark Office published PayPal’s request for a virtual currency patent

Over the past month payments giant PayPal has been playing whack-a-mole with many cryptocurrency outlets. First, the Netherlands-based AnyCoinDirect saw its relationship with PayPal severed. Late last month, Coinbase announced it was pulling it support from the PayPal system. Even as far back as 2011, they were freezing nascent exchanges. Now the only exchanges that seem to work with PayPal are complicated, high-fee websites and most only allow you to buy and sell directly for fiat (in other words, they have no wallet function).

And yet earlier this month, the U.S. Patent and Trademark Office published PayPal’s request for a virtual currency patent.

Many users are unaware that PayPal previously require accounts to register as currency dealers to exchange crypto saw their accounts and assets frozen for 180 days.

So this quiet patent filing would come as a surprise to those who heard PayPal CEO Dan Schulman speak at the the Economic Club of New York in Manhattan on March 8.

“Regulations need to be sorted out and a whole number of other things,” he said of cryptocurrencies in general. “It’s an experiment right now that is very unclear which direction it will go.”

Although it should be noted that the payments company filed this patent on August 30, 2016.

The patent works like this: transactions would prompt the system to create a secondary wallet from the buyer and back that wallet with an electronic promissory note. This goes to the system and into the seller’s secondary wallet. It’s a cash-backed virtual currency exchange that doesn’t expose your entire account. Think of it like this: Account 1->Wallet 1-> Cash Register-> Account 2.

Wow, someone in San Jose might get a promotion at PayPal for drawing a picture of how money works.

This patent application does look suspiciously like the Lightning Network whitepaper, published in January of 2016.

But before you get excited about some new PayPalCoin, the patent application is explicit that all payments will be centralized with a single Public Ledger device.

Central network and public ledger. Sound familiar?

PayPal’s clampdown on cryptocurrency is more about protecting its ironclad 60-day buyer protection plan. Some private dealers complained that they were subject to the expensive chargebacks that happen when users receive crypto and then claim their purchase was unauthorized. Buyer protection already does not extend to real estate, automobiles, and art, which is in line with how the IRS currently views cryptocurrencies: they’re possessions, not currencies or securities. Either way, PayPal doesn’t want to be stuck holding the bag.

Just Thursday—again at the Economic Club of New York (guys, are we on your mailing list or what?)—PayPal co-founder Peter Thiel said he is long bitcoin, but not as a network. “I’m not talking about a new payments system,” Thiel said, noting that bitcoin is too cumbersome for that use case. “It’s like bars of gold in a vault that never move, and it’s a sort of hedge of sorts against the whole world going falling apart.”

Former PayPal co-founder Elon Musk saw this problem coming way back in 2014.

“It doesn’t make sense that a global payment system is a subsidiary of an auction website. It’s as if Target owned Visa or something.” PayPal, Musk said to Forbes, “will get cut to pieces by Amazon Payments, or by others like Apple and by startups if it continues to be part of eBay.”

Musk’s biographers also noted his frustration that PayPal didn’t exploit the essentially free PayPal-to-PayPal transactions among users on their own network.

So while it does not seem like PayPal is banning crypto or even losing faith in bitcoin, it seems like they are sick of watching transactions get bungled. To make a difference, PayPal needs to return to its roots and leverage the platform to solve a common problem. If the PayPal of 1998 was the solution to the messy bank transfers required to make an exchange eBay, then PayPal in 2018 need to do the same for crypto.

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Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.