The Internet was a novelty for most in the 1990s. In that period, trust was not something that the general population had in the technology. Many were proclaiming they would never put their credit card online.
PayPal is a multi-national financial corporation that took the challenge of online payments. The original protocols did not provide for commerce since it was designed as an information sharing medium.
The company provided money transfers, serving as an digital alternative to physical forms of payment such as cash or checks.
The company was formed through the merging of two companies, Confinity and X.com. Elon Musk was named the CEO of the newly formed entity. Musk had a vision for PayPal that did not mesh with the Board of Directors. His tenure lasted less than a year.
Peter Thiel took over as CEO and there was a initial public offering (IPO) in 2002.
PayPal processed transactions for all websites. The primary user was eBay, the online auction site which accounted for 1 in 4 transactions at one point.
Shortly after the IPO, the company bought PayPal for $1.5 billion. The IPO went out at $13 per share and raised $61 million.
In 2014, investor Carl Icahn and other prominent shareholders pushed eBay to spin of PayPal. It was done into its own entity. eBay retained a minority interest in the new company, something it has since divested.
Over the years, they did a series of acquisitions. In 2021, the company pushed ahead with the idea of a "Super App". The goal is to combine payments, savings, bills, cryptocurrency, shopping, and other financial items into one single experience.
PayPal is trying to branch out into businesses that are more sustainable than just payments.
Even though the company started to integrate cryptocurrency into its platform, it is not a necessary requirement for that technology.
Blockchains provide the ability to offer a medium of exchange and transfer of value without a centralized entity such as PayPal. This intermediary provides friction in the process while raising costs of transacting. This is a problem that cryptocurrency seeks to resolve.
By operating in a peer-to-peer fashion, wallets can interact directly. This means payments are validated by the blockchain, establishing the trust in a trust-less system.
On top of blockchain, applications are built especially wallets. Metamask is an example of a wallet that is tied to Ethereum Virtual Machines (EVMs).
PayPal is an example of a Web 2.0 corporation. According to many, this is the problem with how the Internet is designed now. It is a system that ended up siloed, with major technology companies controlling what people do. Data is another component that has people upset as these companies monitor everything that occurs on their platforms.
Web 3.0 utilizes blockchain and other open source solutions. It idea is to provide people with account ownership. PayPal and other Web 2.0 companies can close people's account down. This is something that is done regularly on social media platforms. With PayPal, it affects individuals (and businesses) financially and monetarily.
One of the keys to Web 3.0 is that applications and communities will have payments and other financial services built-in. This eliminates the need for a company such as PayPal since we see economies forming through the tokenization process. Each can have its own token to use for transfer purposes.
Being shut out is nothing new to PayPal. Retailers such as Amazon, Alibaba, and Walmart created their own payment systems. The same was true for technology companies such as Google and Apple. Both were opportunities that PayPal missed out on.
The two companies comprised people who became some of the most influential in Silicon Valley.
Confinity was founded by Max Levchin, Peter Thiel, and Luke Nosek. Originally, it developed security software for hand-held devices, a business model that did not evolve. It then switched to digital wallets.
X.Com was an online financial services company founded in March 1999 by Elon Musk, Harris Fricker, Christopher Payne, and Ed Ho. Musk believed the future was payments, opting to eliminate PayPal's other online banking operations.
Since the formation of PayPal, early members have gone on to start or influence the following companies:
The PayPal Mafia is credited with reviving interest in consumer focused Internet companies after the bursting of the Dot-Com bubble in 2001. These people also accumulated a huge amount of wealth through the different start ups and ventures they got involved with.
On August 7, 2023, PayPal announced that it was going to create its own stablecoin. In doing so, it became the first major U.S. financial institutions to take that step.
It is PayPal USD (PYUSD) and is issued by the Paxos Trust Company. This is an asset backed currency, meaning that it has a reserve as compared to an algorithmic stablecoin. In this instance, US dollars, short term US Treasuries (likely bills) and other cash equivalents are used.
PYUSD can be acquired using USD from any external wallet. This gets on into the digital asset portion of the platform. From there, PYUSD can be swapped for any cryptocurrency on the PayPal system.
It is in this regard that PayPal is operating similar to a centralized exchange (CEX). People can ultimately use the platform to bring in fiat currency and end up with cryptocurrency.
The Securities and Exchange Commission (SEC) has been cracking down on these type of businesses. This is something to watch to see what the agency will do in regards to litigation.
PYUSD can be used to transfer between individuals, to make select payments, and to send to compatible external wallets.
