Why PayPal is NOT the Answer for Converting Everyone’s Favorite Cryptocurrency
It’s not hard to understand why one might want to convert Bitcoins into US Dollars, Euros, Yen or some other currency. Bitcoins are currently exchanging at a rate of more than $400 each, and despite the incredible exchange rate, Bitcoin acceptance, especially outside of the net realm, is still pretty limited.
This pressure has led many Bitcoin holders to attempt to exchange their Bitcoins for other currencies using PayPal as an intermediary. However, although PayPal may be willing to automatically exchange currencies between USD and Euros, they do not offer the same service for Bitcoins, which means that exchanging your Bitcoins means trading with other individuals.
The Danger for Bitcoin Holders
Unlike other currencies such as US Dollars, which are backed up by the government who prints them and the creditors who guarantee them, Bitcoin has no creditor’s guarantee. Much like gold, a Bitcoin’s value is determined solely by its desirability to those who trade in Bitcoins.
As such, PayPal does not recognize Bitcoins as a form of currency; rather, the company views them as a digital item, like software. Trading software via PayPal is against the company’s Terms of Service – with very good reason.
Let’s say that a person would like to sell ten Bitcoins, with a value of $400 each – that’s a grand total $4,000 dollars. They find a buyer, the buyer sends them $4,000 via PayPal, and then the seller sends them the Bitcoins. A few days later, the seller receives a message informing him that the buyer claims to have never received his item and demands a chargeback.
Because there is no record of any tangible purchase, PayPal simply refunds the money, meaning that the seller has just been ripped off for $4,000 worth of non-refundable Bitcoins.
A nightmare, right?
Is There a Way to Exchange Bitcoins for Cash?
Even though trading Bitcoins for PayPal funds from a private buyer is prohibitively dangerous, as the risk of the seller being ripped off is more than considerable, that is not to say that trading Bitcoins via PayPal is impossible.
There are certain third party services who offer the ability to trade Bitcoins for other currencies; however, they will take a cut as a service fee:
- BitWala: A popular new service, BitWala simply buys your Bitcoins at a slightly below market value, then transfers the value of those Bitcoins to your specified bank account.
- VirWox: Short for “Virtual World Exchange,” VirWox offers you the opportunity to trade your Bitcoins in an online exchange market for a third currency, Lindens, the form of digital currency used in the ‘Second Life’ MMO. You can then trade those Lindens for Euros, which can be deposited into your PayPal account.
- LocalBitcoins: This site offers a P2P marketplace for direct private Bitcoin trades. There is a Trusted User & user feedback system on the site to offer some measure of protection, but ultimately users are still engaging in private Bitcoin trades via PayPal.
Paying the service fees for each transaction may be annoying, especially when you’re dealing in a higher volume of Bitcoins. However, if your goal is to make money by speculating on Bitcoins, you will probably just have to accept these fees in exchange for greater security as a cost of doing business. Otherwise, you leave yourself vulnerable to very damaging fraud.
