PayPal and Square have recently been positioning themselves as leaders in securing transactions of cryptocurrencies – with the latter being particularly vocal about its involvement.
It’s the right noise to make right now: digital currency asset manager CoinShares estimated that total investor inflows into cryptocurrency funds and products hit $5.6 billion by December 2020, a 6X increase from 2019. Relative to 2019, when total assets under management (AUM) was a little under $2 billion, AUM as of March 16, 2021 was estimated to be $55.8 billion.
But how do PayPal and Square align with global interest in cryptocurrencies? This article will outline their positions and discuss the viability of their ambitions.
Cryptocurencies: A Primer
“Crypto” enthusiasts argue that government intervention and relief measures (bailouts, stimulus packages, etc) often lead to the inherent loss in value of existing currencies (called “fiats”), which translates to loss of purchasing power. The best alternative, thus, would be to invest in tightly-defined cryptocurrencies. The best-known “cryptos” are Bitcoin Core (BTC) and Ethereum (ETH).
Core to every popular cryptocurrency (or network) is the immutable “ledger” of blockchain technology. Network transactions executed during a given period of time are recorded into a file called a “block” – itself a part of the ledger. Each block also holds a reference to the block that preceded it. The level of security via the network’s verification system makes tampering prior transaction data ranges from very difficult to virtually impossible.
The verification system has users typically solving a mathematical problem in the course of validating the legitimacy of each block of transactions. At the dawn of 2020, it was estimated that an average of 10 minutes is required for a miner to be awarded 12.5 (new) BTC.
Note: It is, however, not necessary for an investor to “mine” for a cryptocurrency. They can simply be purchased using “fiat” currency.
The mining is the crux of recent mainstream media outcry over crypto’s “energy wastage”: a large number of users trying to quickly solve/guess a 64-digit number would inevitably amount to substantial power consumption. Every miner’s attempt does not result in BTC being awarded; for every success, there are many, many failed “guesses”.
Now, several enthusiasts argue that BTC and ETH are incomparable. While BTC was created as a transparent and coercion-free alternative to national currencies, ETH was intended to be a ledger technology platform to facilitate immutable programmatic contracts and applications. The underlying currency (Ether) is used to buy computation power to run code written to execute “real-world” agreements (known as smart contracts) in the ledger.
On August 1 2017, Bitcoin “forked” (split into separate networks by consensus) into BTC and Bitcoin Cash (BCH). BCH increased block size to 32MB with a capacity to process up to 60 transactions per second. To further improve on this and in protest over BCH’s frequent protocol changes, Bitcoin Satoshi’s Vision (BSV) forked from BCH on November 15, 2018. BSV made block sizes scalable to 2 GB along with a miniscule fee added to entice enterprises into using BSV without having to wait for verification success – all in line with the stated goals of the August 2008 whitepaper that inspired the Bitcoin network on February 4, 2020.
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