PayPal announced today that it will take a tentative step toward supporting Bitcoin. Thanks to a partnership with three Bitcoin startups, merchants who use PayPal's platform to sell virtual goods such as ringtones, games and music will be able to accept Bitcoin payments in addition to conventional methods such as credit cards.
The announcement does not represent a full embrace of Bitcoin by PayPal. For example, PayPal customers won't be able to store their balances in Bitcoins or send people Bitcoin payments. Still, helping merchants accept Bitcoin payments expands the Bitcoin market.
The move is ironic because PayPal itself was founded with a goal of disrupting the conventional banking system by building a cheap, global, internet-native payment network. PayPal's executives quickly found that this was harder than they thought — both because of regulatory hostility and more conventional problems such as fraud — and so they scaled back their ambitions and made peace with the conventional banking system. Today, PayPal poses little threat to big banks.
Bitcoin can be seen as picking up where PayPal left off. Many people in the Bitcoin movement see themselves as building a new, internet-native payment network that will disrupt and eventually replace conventional banking and credit card networks. And because Bitcoin is a decentralized network not owned or controlled by anyone, it's less likely to be coopted by the banking establishment the way PayPal was.
Of course, it's far from guaranteed that the Bitcoin community will succeed where PayPal failed. But at a minimum, it's making steady progress toward broad acceptance among merchants. Bitpay, one of the vendors that's now working with PayPal, helps merchants accept Bitcoin payments. It had 40,000 customers in August, up from 10,000 in September 2013.