The world of New Finance is seemingly filled with contradictions. For instance, you would think that bitcoin, which is currently disrupting and redefining the commodities market, would be a perfect fit with Paypal, which did the same with electronic payments. The sad truth, however, is that this is not the case. Why?
During bitcoin’s early years, disingenuous players would make exchange-facilitated bitcoin purchases using Paypal, only to cancel the Paypal transaction after receiving the coins. As coins cannot be forcibly recalled, this left exchanges to cover the loss to the sellers. Even though Paypal has since fixed the chargeback issue, most exchanges steer free of Paypal as a payment option to this day.
This situation leaves those that wish to buy bitcoin via Paypal with only a few options. One would be to buy the coins in-person or peer-to-peer. The other is to use a payment service that will serve as a middleman between you and the exchanges. This article will take a deeper look at both of these options.
Option One: Going Peer-to-Peer
The easiest way to avoid the exchanges’ resistance to Paypal is to avoid the exchanges altogether. A popular option is LocalBitcoins, which allows sellers to list their bitcoins for peer-to-peer sales. This service is, for the most part, a matching service, pairing buyers and sellers in the same marketplace.
Sellers are free to set the terms of payment, including how they would like to receive payment. While Paypal is not a popular option on this site, it is available; a quick glance of the listings at the time of the writing of this article showed nine sellers in the United States who would sell their bitcoin with Paypal. Paxful offers a similar service to LocalBitcoins, but some have argued that it is easier to navigate on the LocalBitcoins site.
Here are the steps to use LocalBitcoins:
- Set up a buyer’s account.
- Run a search on possible sellers, based on where the sellers are located and preferred method of payment (set this to bitcoin).
- Take a look at the buyers that show up. Pay attention to their reputations and how much above the current exchange rate their offer is. When you find someone from whom you are willing to buy, initiate an order.
- Follow the instructions provided by LocalBitcoins and the seller. Rate the seller after the transaction concludes.
Another option is to find a local trading group. You can use services like Meetup to find your local bitcoin enthusiast group, where members are likely to be willing to trade small amounts of bitcoin.
It is important to know that it is unlikely to get exchange prices off of the exchanges. If you buy bitcoin off of the exchange, you should expect to pay more than the currently-quoted bitcoin price.
Option Two: Taking the Exchange Route
The more direct way to use Paypal for bitcoin purchases, however, is to find an exchange willing to accept Paypal.
If you are an American, this route leaves you with one and only one option: VirWox. VirWox uses a workaround that allows users to buy Second Life Lindens, which the exchange will then use to buy bitcoin on the users’ behalf. This is an extremely fuzzy area, as you are technically using fiat currency to buy a game currency to buy a different currency. Depending on the legal definition you use, this can be construed as money laundering. However, there have been no significant legal challenges to this service so far and Second Life is large enough that there is a market for the currency away from the game.
Like any other exchange, you will need to set up a wallet and submit to Know Your Customer vetting. Once you set up your wallet and account, you can transfer money from Paypal to your VirWox account with the intentions of buying SLL. Once you have an SLL balance, you can then buy bitcoin. It should be noted that adding money to VirWox via PayPal incurs a 10 percent transaction fee.
To use VirWox:
- Set up a buyer’s account on VirWox. This will involve submitting a photo of you holding your photo ID, as well as a photo of your ID. Give VirWox one to three days to process your account.
- Once approved, create a bitcoin wallet or input your wallet’s keys into VirWox.
- Transfer the amount you wish to invest (plus the ten percent transaction fee) to your VirWox account.
- Purchase your SLLs.
- Using your SLLs, place a purchase order for bitcoin. The website will transfer your bitcoin keys to your wallet.
Citizens of the Bahamas, Bahrain, Botswana, Bulgaria, Chile, Croatia, Estonia, Georgia, Gibraltar, Honduras, Iceland, Indonesia, Italy, Jordan, Kazakhstan, Latvia, Lesotho, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Moldova, Morocco, Mozambique, Oman, Philippines, Romania, San Marino, Saudi Arabia, Senegal, Serbia, Slovakia, Slovenia, United Arab Emirates and Uruguay can also use their PayPal accounts on WirexApp. WirexApp creates a virtual Visa card that, once linked to your PayPal account, allows for cash deposits to the service via PayPal withdrawals.
Despite PayPal speaking in glowing terms of bitcoin and allowing their merchants to accept the digital currency, it is still difficult to actually buy bitcoin with PayPal. As shown, it is not impossible. While the preferred method remains a cash transfer or a credit card, those that insist on using PayPal to buy bitcoin can do it if they are willing to do the due diligence and the extra work such an effort requires.
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