PayPal is determined to innovate with crypto

As the frenzy of speculation subsides — the price of bitcoin has fallen 50 percent in the past six months, including a 15 percent drop in the past fortnight — Aoki says it’s still very early days for the technology that was born just a dozen years ago .

But ultimately, he believes it could bring benefits, such as programmable money and “atomic” settlement to allow asset title and payments to be exchanged simultaneously and instantly.

“We fundamentally believe that digital currencies writ large represent the next wave of tools that enable the financial system to meet challenges we’ve seen around efficiency, speed and transparency,” he says. “Whether you look at digital currencies, or other forms of digital assets, they’re starting to lay a new set of foundations that will enable us to get to this next level. We think there are tons of opportunities around.”

Consumer protection push

PayPal has not extended bitcoin or any crypto offering to Australia, where the Commonwealth Bank remains engaged with the Australian Securities and Investments Commission to determine appropriate disclosures and which group of customers crypto can be offered.

Since PayPal, which is regulated as a bank in Australia, allows CBA to do the heavy lifting with local regulators, Aoki says in the US and UK, seeing it as “part of our mission to educate consumers around this area, along with the rest of the industry”.

A new PayPal e-commerce index to be released on Tuesday finds 10 per cent of Australians own cryptocurrencies, 20 per cent want to learn more about them and non-fungible tokens [NFTs]26 percent believe cryptocurrencies and NFTs should be regulated to protect consumers from harm, and 32 percent are concerned about the safety and security of trading cryptocurrencies.

During his 20-year history in online payments, “there was a lot of education that had to happen to get people comfortable, and the whole ethos underpins every room we go into,” he says. “Education, a great experience and consumer protection are part of why people trust PayPal, as opposed to [digital currency exchanges] and some of the other firms.”

Meanwhile, PayPal is closely watching developments in “central bank digital currencies” (CBDCs) and “stablecoins”, digital assets whose value is tied to a fiat currency and which RBA governor Phil Lowe says should be regulated like bank deposits.

PayPal remains open to allowing both to move on their networks. “We are certainly looking at stablecoins and we have our eye on conversations in a number of capitals around the CBDC,” says Aoki.

“If it’s a great CBDC with benefits, we’ll support it, if it’s a viable stablecoin that can be a medium of exchange, we’ll certainly take a look at it, and if there are ways we can facilitate the movement of traditional cryptocurrencies, we want to be involved in these conversations as well.

“These different forms of currencies or assets will coexist. There is definitely a meaningful role for CBDCs, for cryptocurrencies and, certainly, for stablecoins. They may not be used for the same thing, but there is plenty of room in the ecosystem for these the things can exist side by side.”

Biden’s task force

Last week, the Australian government said the Treasury Department will press ahead with a project to define the functionality and utility of various crypto “tokens” as it considers new regulation and stronger consumer protections. It was an example of walking the line between innovation and protecting users, which the US government under President Joe Biden also balances, says Aoki.

President Biden’s executive order on crypto, signed in March, was a breakthrough, Aoki says, because it advocated a “whole of government” approach that has created a catalyst for a richer set of discussions, as the U.S. seeks to attract innovative Web3 -businesses while minimizing fraud and scams that are common in the space.

“There’s always a balance between making sure the right safeguards are in place to prevent abuse and the worse excesses that take hold, but at the same time we see a lot of opportunity for innovation to happen responsibly in the space,” he says. “If you can create the right guardrails and allow innovation to flourish … that’s the balance regulators in the U.S. and most other places are trying to find.

“There’s been a subtle shift over the last six months in the U.S. toward a pro-innovation attitude, saying this industry and these tools and technologies exist, there are opportunities and positive things that can come out of this, and let’s now make sure we have the right structures in place to ensure the risks and negatives are minimised.”

Ethereum is merging

Like others in the crypto community, Mr Aoki is awaiting the “merger” of the Ethereum blockchain, expected in mid-September, which will massively reduce energy consumption and be a step towards allowing it to process higher volumes.

“For this space to become mainstream, it needs to address issues of scale, cost and environmental impact, and it’s encouraging to see the Ethereum community starting to tackle this head-on, trying to move the protocol to a place that promises marked improvements in all these areas, he says.

“Assuming they are successful – and tests have been – it sets up the Ethereum network to be a real contender in the next generation of activity in this space.”

When it comes to decentralized finance (DeFi), which allows traditional banking functions such as borrowing and lending to happen on blockchains including Etheruem, he says the need for more consumer education is clear and the need for “return farming” (staking crypto to earn returns) can having learned in the higher interest rate environment, “if you come back to get access, a system that works with the people has a lot of value”.

“Maybe not in its existing form, but we definitely want to see DeFi continue to grow. We want to see new and innovative applications come from it,” says Aoki.

“One of the most exciting things is the programmability of tokens. We’ve just scratched the surface of what smart contrast and programmability can bring. It will lead to really interesting innovations in the future.”