Please ensure Javascript is enabled for purposes of website accessibility

Better Bargain: Ethereum vs. PayPal

By Trevor Jennewine - May 26, 2021 at 6:42AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ethereum has outperformed PayPal in the past year, but is it a better investment?

Thousands of different cryptocurrencies exist, and many have captured the interest of investors. For example, Ethereum (ETH -0.89%) has surged nearly 1,100% over the past 12 months, even after the recent crypto market crash.

Spurred by that popularity, PayPal (PYPL 0.96%) recently integrated cryptocurrency into its platform. In other words, investors can gain exposure to crypto without actually buying digital tokens. But which is the better bargain, Ethereum or PayPal?


In 2009, Satoshi Nakamoto created Bitcoin, a decentralized digital currency built on blockchain technology. In this system, miners gather transaction data into blocks, validate each block by solving a cryptographic puzzle, then add the block to the blockchain. This prevents fraud and double spending while governing the creation of new currency (i.e., miners are awarded Bitcoin for each block they solve). And that was the goal Nakamoto outlined in the Bitcoin White Paper: to create a peer-to-peer electronic payments system that eliminates the need for financial institutions like banks.

Screen bearing the words: DeFi Decentralized Finance, surrounded by Bitcoin logos.

Image source: Getty Images.

In 2015 the Ethereum blockchain expanded on this idea. Specifically, in addition to storing transaction data, it's also designed to support the execution of computer code. This means the Ethereum blockchain can be used to build smart contracts that power decentralized applications (dapps).

For instance, decentralized financial (DeFi) products allow users to borrow, store, lend, and invest money. Moreover, they offer several benefits compared to traditional financial solutions: Transfers happen more quickly, markets never close, the system is more transparent, and DeFi services are available to anyone with a connected device.

But DeFi applications are just one example. Dapps could also be video games, developer tools, or even a social media platform. But the benefits are the same for each: Once they are deployed, anyone can access decentralized applications, but no one can remove or censor them.

User data is secured by cryptography on the Ethereum blockchain rather than being stored on servers owned by a third party. In essence, Ethereum was built to decentralize the internet.

In this system miners are still required to validate transactions. But transactions on the Ethereum blockchain can execute code, which requires computing power, and that isn't free.

That's where Ether enters the picture. Ether is the currency of the Ethereum blockchain, and it's often compared to gas. Just as your car turns gas into mechanical power, Ethereum turns Ether into computing power.

Therefore, the supply of Ether is unlimited by design. Miners earn a fixed amount of Ether each time they validate a block. This system is disinflationary -- over time the amount of new currency created will decline as a percentage of total Ether. That should slow (but not prevent) inflation. Put another way, as with the U.S. dollar, the purchasing power of Ether should decline as supply expands -- especially if supply outpaces demand.


PayPal is a global fintech company that provides payment services to over 392 million users, including 31 million merchants.

Last year, it partnered with Paxos Trust to bring cryptocurrency to the PayPal and Venmo mobile apps, allowing its users to buy, sell, and hold Ethereum, Bitcoin, Bitcoin Cash, and Litecoin.

Person holding smartphone, viewing four different cryptocurrencies in the Venmo app.

Image source: PayPal.

However, PayPal made its boldest move more recently, launching Checkout with Crypto, a service that enables consumers to make purchases with digital currencies. Eventually, PayPal plans to offer this checkout option for all of its 31 million merchants. That's a big step toward mainstream acceptance for cryptocurrency, and it's already impacting PayPal's business in a positive way.

Active accounts growth accelerated to 21% in the first quarter of 2021, up from 17% growth in the prior year. And during the Q1 earnings call, CEO Dan Schulman said: "About half of our crypto users open their app every single day." That level of engagement is encouraging. It suggests strong mindshare, which increases the likelihood that those consumers will use other services as well -- like digital payments, QR Code payments, or the Venmo Credit Card.

However, if cryptocurrency disappears tomorrow, PayPal will still have a viable business. Its payments platforms and mobile apps are critical resources for many merchants and consumers, and that has powered strong financial performance over the long term.



Q1 2021 (TTM)



$13.1 billion

$22.9 billion


Free cash flow

$1.9 billion

$5.3 billion


Source: PayPal SEC filings. TTM: trailing 12 months. CAGR: compound annual growth rate.

As a final thought, PayPal's global network is a significant competitive advantage. Each new consumer adds value for all merchants, and each new merchant creates value for all consumers. Likewise, PayPal's scale and profitability protect its business from rivals, as it can afford to outspend or underprice smaller start-ups. These advantages should make PayPal a relevant player in the digital payments space for many years to come.

The verdict

Both Ethereum and PayPal have compelling qualities, but PayPal is the better long-term investment. Ether tokens were designed to power the Ethereum blockchain, not to increase in value over time. 

That doesn't mean the price won't increase in value over time. It could go up tenfold in the next month. But at some point, supply and demand should reach equilibrium, at which time the price should stabilize. After all, the value proposition of decentralized applications is weakened if the currency required to run those dapps is subject to wild volatility.

Trevor Jennewine owns shares of PayPal Holdings. The Motley Fool owns shares of and recommends Bitcoin and PayPal Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$102.49 (0.96%) $0.98
Ethereum Stock Quote
$1,874.06 (-0.89%) $-16.80
Bitcoin Stock Quote
$23,912.34 (-0.45%) $-108.87
Litecoin Stock Quote
$61.02 (0.30%) $0.18
Bitcoin Cash Stock Quote
Bitcoin Cash
$136.51 (-0.32%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.