It’s a lot harder to buy Bitcoin with PayPal than you would think. Most cryptocurrency exchanges refuse to accept PayPal as a funding method because PayPal fraud costs them too much money. Wire transfers, direct bank transfers and credit cards are the most common ways exchanges let you fund your cryptocurrency purchases.
But what if that isn’t an option? Does that mean people who do not have bank accounts or can’t get credit cards are blocked from the blockchain economy? Not at all. Our guide will show you how you can use Paypal to buy Bitcoins.
Peer-to-Peer is the Best Option for Most People
The best way to use buy Bitcoin with PayPal is to use one of the peer-to-peer matching services, Paxful or LocalBitcoins. These companies work a lot like eBay. Bitcoin sellers pay to list ads on these sites. You can search for the sellers who deal in your local currency and accept PayPal. After sending your payment to the seller, the Bitcoins are transferred to your digital wallet.
Paxful and LocalBitcoins go a step beyond just listing Bitcoins-for-sale advertisements. You never really know the sellers you’re dealing with, so these companies provide tools that reduce fraud and build trust between buyers and sellers.
Both exchanges use seller profiles to let you know how many trades a seller has made with how many people. Also, both exchanges use reputation scores. Reputation scores let you know how many customers had good things to say about the seller.
More importantly, Paxful and LocalBitcoins operate what’s called an escrow system to prevent fraud. When you and a seller agree to the deal — but before you send any money — the seller has to put the Bitcoins into an escrow account that the matching service controls. Once the seller gets your money, the matching service transfers the Bitcoin to you.
Paxful is an American company founded in 2014. The company’s leadership defines Paxful’s mission as helping to bring people into the financial system.
You can find Bitcoin sellers on Paxful who accept PayPal and more than 300 other payment methods. This quick overview will give you an idea of how easy it is to buy Bitcoins through Paxful. For more details, check out our article Paxful Review: Bitcoin Buying for the World’s Unbanked.
As the buyer, you do not have to pay Paxful anything to use its service. The company makes its money from the fees it charges Bitcoin sellers to advertise on their site.
However, you may have to pay fees to the Bitcoin seller. In some cases, the seller will require you to cover the PayPal fees. In other cases, the seller will build their costs into the Bitcoin price they quote.
All you need to set up a Paxful account is an email address. Although it isn’t required, you should activate the Paxful security system. It uses what’s called two-factor authentication (2FA) which makes you enter an authentication code whenever you log in to your Paxful account.
You can search for Bitcoin offers right from the Paxful homepage by clicking on the PayPal option and entering the amount of money you want to spend. If you don’t use dollars, you can switch to a wide range of other currencies.
The search results include all of the different payment methods. Click on the PayPal filter to just see the offers that accept PayPal. This search taken at the time of writing produced offers from nine sellers.
One thing you will notice is how different the prices are, in this case ranging from 10,830 to $54,799 All of these are higher than the rate you’ll find on the main Bitcoin exchanges. GDAX, for example, charged $9,245 per Bitcoin at the time of this Paxful search.
Bitcoin’s higher costs on Paxful reflects the amount of risk the seller faces in accepting PayPal. At the high end of the range, the seller does not ask for any personal information. You get the lowest rates by providing proof of identity and jumping through a few more hoops.
LocalBitcoins appeared two years earlier than Paxful at a time when it was a lot harder to buy Bitcoins. In its original form, LocalBitcoins was more of a meetup service so people who had Bitcoins could find people nearby who wanted Bitcoins. The buyer and seller would arrange to meet somewhere to make the exchange.
Things are less community-centric these days. LocalBitcoins buyers and sellers mostly do their business online. Check out our article LocalBitcoins Review: No Frills Peer-to-Peer Bitcoin Trading to find out more details than we provide here.
The fee structure at LocalBitcoins is just like Paxful’s. Sellers pay to advertise their Bitcoin offers. Buyers don’t pay LocalBitcoins anything, but they will have to pay the seller — usually in the form of above-market exchange rates.
LocalBitcoins search system is slightly different from Paxful’s. You will need to select the payment method you want in addition to entering how much you want to spend.
This search produced 15 listings for the combination of PayPal and US dollars, with Bitcoin prices ranging from $8,782 to $11,998 At the same time, the Bitcoin price on Bisq was $9,085
When you click through to the offer page, you’ll find the terms the seller requires to get that price. In this case, you must have a trading history on LocalBitcoins, a verified PayPal personal account and provide identification information.
Your Last Resort Options
Wirex and VirWoX are the only centralized exchanges that accept PayPal. Unfortunately, they don’t let you pay with PayPal directly. You have to go through intermediate steps that make your Bitcoin purchase more expensive.
In addition to being a Bitcoin exchange, Wirex tries to be a cryptocurrency-based payment system. The company issues its own credit cards which let you make purchases at retailers that accept Bitcoins as well as those that only accept normal money.
Wirex’s founders believe that their “hybrid personal banking system” will help turn Bitcoin into a mainstream alternative to the dollars or euros people normally use. Unfortunately, they hit a big roadblock last year. The company that actually provides the cards for Wirex got booted out by Visa.
Wirex is scrambling to get a new card provider up and running. You read more details in our article Wirex Review: a User Friendly Exchange with Low Fees and Crypto Debit Cards.
You won’t be able to follow Wirex’s approach to PayPal purchases until the company gets things fixed. That was supposed to happen in March or April, so you’ll want to check the Wirex site for the latest updates.
Every Wirex customer has to pay a monthly fee. In addition, anyone using dollars on Wirex has to pay transaction fees for deposits and withdrawals.
You will not pay any fees for the Bitcoin trades you make on the Wirex exchange. You don’t even have to pay network fees. Wimax records the trades on its internal accounting system rather than sending each one to the blockchain.
The only time you’ll have to pay the blockchain network fee is when you withdraw your Bitcoins to another exchange or to your digital wallet.
The biggest issue with Wirex’s system for using PayPal to buy Bitcoin is how long it takes to set up. You may have to wait several weeks to get through the entire process.
Wirex requires all new customers to go through a verification process. You have to make a scan a government-issued photo identification such as a passport or driver’s license. You also have to scan a proof of residency like a utility bill that lists your name and address.
Wirex may have to run the verification manually. If that happens to you, then you may have to wait ten business days before you can use your Wirex account.
The next step is to sign up for a Wirex Visa card, assuming the company is accepting new applications. You may have to wait a few days more for the application to get approved. Once you get the card, you enter the card number into your PayPal account.
PayPal lets you withdraw funds — for a fee — from your balance and deposit them to credit cards linked to your account. This may vary from country to country, so check with Paypal.
The transfer from PayPal to Wirex can take as long as a week to go through.
This is a lot of work to go through and doesn’t make a lot of sense. If you can qualify for a credit card, then you don’t really need Wirex. Many of the Bitcoin exchanges accept credit cards so there’s no need to go the PayPal route. To see how to do that, check out our guide: How to Buy Bitcoin with a Credit Card – Your Top 5 Options.
VirWoX is the most obscure option in this guide. The exchange happens to deal in Bitcoin, but its primary purpose is to let gamers exchange the virtual currencies used inside massively multiplayer online games.
Using PayPal to buy Bitcoin is a two-step process that requires you to buy something called Lindens. This is the virtual currency used in the virtual world, Second Life.
Our article VirWox Review: Still Relevant Because of PayPal Funding Option will give you more details than this quick summary.
All of the fees you’ll end up paying makes VirWoX a very expensive way to buy Bitcoins.
VirWoX does not absorb the cost of doing business with PayPal. It will subtract its PayPal fees from the money you deposit into your VirWox account. Unfortunately, the way PayPal works means neither you or VirWoX know what the fees will be in advance.
The size of the PayPal fees depends on the amount you’re pulling from your PayPal account, your PayPal transaction history and several other factors. According to VirWoX, euro-based deposits get charged 3.4% of the transaction plus a €0.35 fee.
You have to pay VirWoX every time you make an exchange from one currency to another. That means you have to pay the fees twice since you can’t use dollars or euros to buy Bitcoin directly. In addition to a flat 50-Linden fee, you have to pay a percentage of the transaction. Euro-based trades only cost 2.9%, while a 3.9% fee applies to British pound, Swiss franc and US dollar transactions. The exchange from Lindens to Bitcoins get hit with the same fees.
Finally, withdrawing your Bitcoins out of VirWoX will trigger a 0.0005 Bitcoin withdrawal fee. At current Bitcoin prices, that’s another $4-$5.
Let’s say you transfer $100 from your PayPal account to VirWoX. By the time you withdraw your Bitcoins, your digital wallet will have a little more than 0.009618 Bitcoins in it. That’s about $88.84 which means VirWox has taken nearly 12% in fees.
Once you’ve created your VirWoX account, you can choose PayPal from a list of deposit options. This works just like any PayPal-based purchase.
Next, you’ll go to the VirWoX exchange and select the right currency-to-Linden pair.
You then repeat the process to convert those Lindens into Bitcoins.
Why is Bitcoin so Hard to Buy with PayPal?
Fraud is the unfortunate answer. It’s so easy for dishonest people to cheat that the exchanges can’t afford to accept PayPal. As a PayPal customer, the fraudster can dispute a charge by saying they never received what they paid for. PayPal almost automatically reverses the charge.
Bitcoin transfers, on the other hand, only go one way. When a PayPal charge gets reversed, there’s no way for the exchange to get the Bitcoins back from the fraudster.
The unbanked or people whose bad credit rating keeps them from getting a credit card have very few options to enter the crypto economy. PayPal gives them a way to invest in Bitcoins thanks to match-making services like Paxful and LocalBitcoins.