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Whether you’re just hopping onto the bitcoin craze or if you’ve been buying cryptocurrencies since they were first invented, you might be wondering if it makes sense to buy your digital currencies with PayPal. At first glance, you might think PayPal is the perfect buying solution for cryptocurrencies. After all, PayPal protects buyers in case they are scammed when they purchase physical goods.
You might have been ripped off by someone selling a used coat on eBay and gotten your money back from PayPal fairly quickly and so, if you’re concerned about potentially being scammed when buying bitcoin, PayPal might seem like a great way to protect yourself.
But you should actually avoid buying Bitcoin with PayPal. Why? You’re actually more likely to get scammed and PayPal is unable to do anything about it.
Bitcoin PayPal Scams
You won’t find a lot of opportunities to buy bitcoins using PayPal as most of the best Bitcoin exchanges don’t allow you to do it.
When it comes to buying Bitcoin with PayPal, the first thing that you need to know is that it goes against PayPal’s terms of service. PayPal explicitly says that you cannot use their service to purchase or sell digital goods. Since bitcoin is a digital currency that does not have a physical manifestation, that makes it a digital good.
PayPal prohibits the purchase of digital currencies because they can’t verify whether digital goods have been exchanged. It’s relatively easy to see if someone you purchased a shovel from online actually sent you that shovel because there are shipping records and you can show them a picture of the shovel when you receive it. But digital goods do not allow you to do that.
Adding an extra complication is the fact that, when it comes to bitcoin, privacy is sacred. That means that the encryption and blockchain technology that secures bitcoins also ensures that it’s impossible to check that a bitcoin transfer was either sent or arrived at the right destination.
Without being able to verify a sale, companies like PayPal that have built their reputation on being able to make e-commerce safe by ensuring that buyers and sellers don’t get scammed, have no way to ensure the transaction was completed. For that reason, PayPal doesn’t extend its consumer protections to people buying or selling bitcoins.
That means that if you were to buy bitcoins using PayPal and not receive your bitcoins, you would be out of luck and PayPal would not help you.
How You Can Use PayPal to Buy Bitcoins
But if, as previously stated, the top digital currency exchanges don’t support PayPal, where are people even using it? Good question. A limited number of sites do allow you to purchase bitcoins using PayPal, however, doing so means they take on a very significant risk. That’s because hacked PayPal accounts are often used to buy bitcoins.
Many bitcoin scammers will send phishing e-mails to people with PayPal accounts in order to get their passwords. Once they have that, they log into their PayPal account and use it to purchase bitcoins in order to launder the money. Because the whole transaction is secure and cannot be traced, all PayPal knows is that there was an unauthorized transaction where someone accessed one of their account holders’ accounts and bought bitcoins with it.
PayPal will then refund the person who had their account hacked and ask the seller for the money back. If you’re selling the bitcoins you won’t just have lost your bitcoins, but you’ll also owe PayPal money. That’s why few exchanges are willing to take on that risk and if they are they will pass that cost onto you with high fees. These exchanges include sites like Virwox and Wirex.
Aside from these legitimate exchanges, there are also scammer sites that offer you the option to buy bitcoins using PayPal but are actually phishing sites trying to steal your credit card details.
Many people also sell bitcoins on Ebay or via sites that allow you to meet up in person to exchange bitcoins like Local Bitcoins. In that case, you might decide to use PayPal because you mistakenly believe it will offer you financial protections only to later find out that you’ve been scammed.
Think bitcoin scams using PayPal are rare and you’re unlikely to fall for one? Think again! According to LendEDU, there was an increase in complaints to the Consumer Financial Protection Bureau about bitcoin this year. While many were directed at large banks, there were a number aimed squarely at PayPal. The total number was more than 250 complaints. Of those complaints, about 15% were related to fraud.
Alternatives to PayPal
Rather than using PayPal to buy bitcoins and potentially losing your shirt, you might want to look into reputable digital currency exchanges. The key word, of course, is reputable. After all, there have been bitcoin scams that have seen highly trafficked bitcoin exchanges suddenly lose millions of bitcoins like with what happened with Mt. Gox.
One reputable company to consider is Coinbase, which is backed by a number of well respected Silicon Valley investors. Over $6 billion in digital currency has been exchanged on Coinbase since it was founded in 2012 and it services digital currency buyers in over 30 countries. They allow you to pay for bitcoin in a number of different ways including a bank transfer and via a credit card or debit card. When it comes to how much they charge, they offer great rates starting at just 1.49% when you pay via a bank transfer and going up to 3.99% if you use a credit or debit card.
The best thing about Coinbase is that they help protect you against bitcoin scams. They offer you a digital wallet to allow you to store your bitcoins – which is something that not all digital currency exchanges offer. In addition, they offer you the option of storing your bitcoins in a vault. For those who don’t plan to spend their bitcoins but are holding them as an investment, this is one of the safest ways to keep your bitcoins safe.
The Bottom Line
Using PayPal to buy bitcoins is a very costly and potentially risky move. You’re much better off buying bitcoin via a bank account or credit or debit card on a reputable digital currency exchange.
Author: Jeff Gitlen