• Blockchain technology originally was created to facilitate the cryptocurrency Bitcoin and can be utilized to facilitate, record and verify transactions using cryptography to ensure that data recorded is trusted and unable to be changed or removed.
  • Blockchain technology, while still in its early days, has the potential to disrupt major industries. Many mainstream companies and investors are exploring or investing in blockchain technology.
  • PayPal was one of the first payment companies to enable merchants to accept Bitcoin through Braintree, by way of partnerships with payment processors BitPay, GoCoin, and Coinbase. We’re working to understand how to leverage blockchain to better serve merchants and users.

As of Q1 2016, total venture capital investment in bitcoin and blockchain startups exceeded $1.1 billion

Blockchain Uses a Consensus Model to Manage Data

  • A blockchain is an implementation of a digital ledger. Like a database, a digital ledger can record information of various types, but unlike most databases, blockchain implementations use cryptography to ensure that the information recorded is immutable and trusted. Data on a blockchain is immutable because it cannot be changed or removed, and it can be trusted because it is immutable. A blockchain achieves this by sharing instances of the ledger among all the different parties on a network and using a consensus model that requires multiple parties to agree and verify each time an addition is made to the chain.
    • Broadly speaking, blockchains can be implemented as a:
      • Private blockchain: internal to a single entity. Because the control of the blockchain and its consensus model lies with a single entity, this model has limited benefits compared to traditional data storage models.
      • Consortium blockchain: a ledger shared across a preselected or closed set of entities. The consensus model is agreed upon in advance by the participants in the blockchain who use it to exchange data with one another.
      • Fully public blockchain: a massively distributed ledger operates by having a large number of participants that can independently verify each transaction, resulting in trust by numbers. Bitcoin is an example of an application of a public blockchain.

Blockchain Technology Has the Potential to Disrupt Industries

  • Blockchains, like all new technologies, have the potential to disrupt multiple industries. In finance, for instance, consortium blockchains between banks could establish a distributed network controlled by participating financial institutions and disintermediate the SWIFT network for international transfers and settlements.

Technology Still in its Early Days

  • PayPal believes that blockchains, while holding interesting potential, particularly in the world of finance, are still in their early days. We have not yet seen use cases in the financial space that are highly differentiated and particularly compelling, but we remain engaged with the broader ecosystem and are interested in how blockchain may result in demonstrable benefits for financial services.
  • PayPal teams are creating proofs of concept to learn about and gain experience with blockchain technologies and players to improve our view of the ecosystem and any potential impacts on our business.
    • We suspect some of the areas of greatest interest to us may be around the identity/KYC space rather than around value exchange.
    • We are also exploring Hyperledger (created to advance cross-industry blockchain technologies), Ethereum (a decentralized platform that runs smart contracts), Chain (enterprise-grade blockchain infrastructure that enables organizations to build better financial services from the ground up), and Bitcoin (cryptocurrency or digital currency).

PayPal One of the First to Enable Merchants to Accept Bitcoin

  • Blockchain technology originally was created to facilitate the cryptocurrency Bitcoin.  Blockchains can be utilized for many things but Bitcoin could not exist without blockchain to facilitate, record and verify transactions.
    • PayPal was one of the first payment companies to enable merchants to accept Bitcoin through Braintree, by way of partnerships with payment processors BitPay, GoCoin, and Coinbase. We also have integrated with Coinbase’s virtual currency wallet and exchange so CoinBase users who sell Bitcoin can withdraw those proceeds to their PayPal accounts. These partnerships have provided us with valuable expertise and market insights that will shape our strategy and investments around Bitcoin and blockchain going forward.
  • CoinBase is a mobile Bitcoin wallet that allows customers to buy, store and accept Bitcoin currency from the web or their mobile device. With investments by various tech companies and the NYSE, the market is signaling that more mainstream companies are warming to the idea of cryptocurrencies.
    • The company currently reports $5.08 billion in digital currency exchanged, serving 4.9 million customers in 32 countries. [link]

Blockchain Technology Creating New Possibilities, Attracting Capital

  • Some blockchain proponents see the technology being useful for the creation of Smart Contracts. Smart Contracts allow for validation by leveraging a broad-based trust model rather than entrusting individual banks or third-party agents. [link]
  • The digital currency is gaining traction both in the consumer marketplace, as a tradeable security, and with regulators. As of Q1 2016, total venture capital investment in bitcoin and blockchain startups exceeded $1.1 billion. [link]

Major Companies Joining the Blockchain Ecosystem

  • Public reports indicated that incumbent players are getting involved with the blockchain ecosystem.
    • Visa B2B Connect is a new platform that Visa is developing to give financial institutions a simple, fast and secure way to process high-value business-to-business payments globally. Visa is partnering with Chain to build Visa B2B Connect on the Chain Core foundation. Chain Core is an enterprise blockchain infrastructure that facilitates financial transactions on scalable, private blockchain networks. [link]
    • R3 is a financial innovation firm that leads a consortium partnership with over 40 of the world's leading banks to design and deliver advanced distributed ledger technologies to global financial markets. R3CEV has completed a trial of five different blockchain solutions. The blockchain concept tests were presented by Eris Industries, Ethereum, IBM, Intel and Chain. The goal of the test was to give those banks an opportunity to compare and contrast different blockchain offerings on the market today. [link]
    • Capital One announced in October that they will be partnering with blockchain startup Gem and the health care API platform firm PokitDok to build a new claims service that uses blockchain to track claims for medical clients. [link]

Our Vision

Governments and regulators should be careful not to rush into regulating blockchain. Rather, as other technological-based solutions (i.e., One Touch, tokenization), governments and regulators should look at how the technology is utilized in order to determine whether regulation is necessary. Where blockchains are used as a fully distributed platform, governments and regulators should also be aware that it will be challenging to regulate their use on a national or sub-national level, and we encourage standardization and consistency across the regulatory landscape.