Could Ethereum become the internet’s money layer? 

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Ethereum
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Ethereum is the world’s most popular altcoin, second only to Bitcoin itself in terms of market capitalization and user engagement. Over the years, its blockchain became widely recognised as a hub of innovation and development in the world of digital finance, amassing numerous followers in the process. And although 2022 was a challenging year for the marketplace, things have gradually begun recovering since the beginning of 2023. Exchanges such as Binance started noticing the shifts immediately, and investors are now more willing to buy Ethereum again. 

This is especially the case because the crypto environment is currently showing the stirrings of a bullish tendency that will ultimately take the prices significantly higher. For this reason, many investors believe now is the best time to begin putting capital towards boosting their portfolios. But additional changes within the blockchain are also essential to consider, as they will undoubtedly affect the prices in the long-term too. 

PYUSD 

Payment processing and financial technology giant PayPal has long been the most important player on the global scene of online transactions. Through PayPal, users can send money across the border much faster. This is quite similar to cryptocurrencies, which also offer a more efficient alternative to traditional payment methods. It is, therefore, no surprise that the two joined forces. On August 7th, PayPal announced that it is launching a stablecoin that can perform payments. The company first allowed crypto payments on its platform in 2020 and, since then, has been an innovator in the sector. 

Built on Ethereum, the coin was created to be compatible with Web3 applications. Known as PYUSD, the stablecoin will always be fully redeemable for the US dollar. It can also be exchanged for other digital assets on PayPal and is also transferrable on Venmo. Many believe the move will undoubtedly help the platform develop and expand its functionality and appeal to the general public even further. 

The company has already expressed its views that the coin will soon be integrated into the general payment infrastructure. The fact that PayPal chose to release a stablecoin doesn’t come as a surprise, as the platform previously expressed a willingness to introduce its own crypto back in January 2022. At the time, they also discussed how they’re already working with regulators in order to ensure the project can develop well. 

News for Ethereum 

Since the use of Ethereum in this endeavour is no secret, many have also begun to wonder how this will affect the altcoin. For the most part, investors are convinced that the movement might signal the start of mainstream adoption. However, some are concerned about the threats this could pose to decentralisation. Since introducing cryptocurrencies on the financial market, users have begun seeing their decentralised and censorship-resistant characteristics as paramount for the platforms. Any infringement upon this is typically viewed very negatively. 

Yet the launch has been viewed as a highly positive thing for Ethereum overall. The bulls believe that the PayPal stablecoin might be the last nudge the blockchain requires to become the money layer of the internet. According to research, there are approximately 400,000 daily users on the Ethereum blockchain. PayPal, on the other hand, has a staggering 430 million active users. That’s roughly 5% of the world’s population. All of these people could, at least theoretically, become engaged in the Ethereum-backed stablecoin. 

Ethereum’s layer-2 will also interact with PYUSD. Some lawmakers have also discussed the fact that institutions are increasingly starting to include digital tokens and coins as part of their list of holdings. It’s a shift from the traditional payment system and shows that firms and retailers are willing to embrace technological innovations to go forward. 

Criticism 

As with anything that occurs in the cryptocurrency environment, some people disagree with the changes and believe that they are either detrimental to the existing system or won’t hold for long and could therefore be a waste of funds and resources rather than something positive. Some investors have pointed out that PYUSD appears to have the “freezefunds” and “wipefrozenfunds” functions integrated into its smart contracts. 

According to them, these factors could weigh more in favour of centralisation in the long run. This would pose severe risks for decentralised finance. The sector is already reeling due to the adverse events that affected it back in 2021 when attackers exploited the platforms’ weak points in order to drain over $1 billion worth of funds. All of it was lost due to forty-four hacks. 

Other crypto researchers and analysts have also voiced their concern on the subject, claiming that PayPal is likely to use the functions if deemed necessary. Some believe that the system’s characteristics mirror those of a digital currency that is nevertheless enabled by a central bank and which could, therefore, be subjected to censorship. The smart contract can also be changed anytime, and all transactions can be reversed. 

The bottom line 

While many analysts were quick to discuss the potential drawbacks of the PayPal scheme, others took a more neutral view and settled to watch how things will unfold in the near future. The stablecoin is still unavailable to US customers, and there’ll still be some time until it can be seen in action. For instance, some investors have expressed the view that the current engineering choices might not be the best but that the fundamental idea is very good. Over time, the vulnerabilities in the system might very well change to create a better, safer platform. 

Others have addressed the fact that while the coin is indeed centralised, Ethereum users are still entirely free to choose for themselves. They can elect not to get involved with PYUSD if they believe it doesn’t fit well with the rest of their portfolio and financial goals. In the meantime, Ethereum is still looking to gain a firm foothold in the price points that can allow it to grow and overcome its stagnant period. 

The blockchain is still changing and developing, and investors must be aware of all these shifts if they want to enjoy a successful outcome.