Coinbase vs. PayPal: Which Crypto Exchange Is Right for You?

If you're considering buying cryptocurrency from Coinbase or PayPal, both are easy to use and extremely beginner friendly. But there are some important differences, especially in terms of the available cryptocurrencies and functionality. Below, we take a look at Coinbase vs. PayPal side by side to see how they stack up.

There's no nice way to say this. Neither Coinbase nor PayPal are low-cost crypto platforms. Both charge a fee as well as an additional spread that gets calculated when you make the transaction. Coinbase offers both simple and advanced trading tools, the simple feature is more costly but easier to use for a first-time investor. On the advanced platform, you'll pay maker/taker fees as you would on other top cryptocurrency apps and exchanges. These get lower if you have a high trading volume.

The simple Coinbase platform is more similar to the PayPal interface, so let's compare the fees on the two:

In addition to fees, both Coinbase and PayPal charge a spread that's calculated when you make the transaction and is built into the price you see. This is essentially the difference between the market price and the price you pay to buy or sell the coin or token. For example, I bought Bitcoin (BTC) worth $20 on PayPal, but I received less BTC as I paid a 0.85% spread as well as the fee. Ultimately, depending on the size of the transaction, you get more crypto for your money with PayPal, but there's not much in it.

Coinbase outshines PayPal in a big way in terms of the available cryptocurrencies. It offers over 200 cryptos, including almost all of the top 50 coins and stablecoins. Coinbase's strategy is to include every crypto it is legally able to list and has aggressively added new coins and tokens since 2021. Coinbase also has much more functionality for crypto, including advanced trading tools and ways to earn interest on certain cryptos.

In contrast, PayPal only has four available cryptos: Bitcoin, Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). Bitcoin and Ethereum are the two biggest cryptocurrencies, and many investors don't want to venture beyond these two giants. But if you want to branch out into for example, smart contract, metaverse gaming, or other popular cryptos, Coinbase would be a better bet.

READ MORE: Cryptocurrency availability

There are various different types of crypto wallets. The most common type is a custodial wallet, which is when you leave your crypto on the exchange where you bought it. This option is popular because it means investors don't need to worry about lost passwords or understanding crypto storage. However, it can bring additional risks -- particularly if your exchange fails or gets hacked. As a result, many long-term investors prefer to move their digital assets to a non-custodial wallet that they control.

The Coinbase Wallet is a standalone app, so you can use it even if you're not a Coinbase customer. It is easy to connect the Coinbase Wallet to your Coinbase account. One thing to watch out for is that the wallet may not support all the tokens you can buy on the exchange.

In June, PayPal launched limited wallet functionality for U.S. customers. It gives customers a lot more flexibility in how they manage their digital assets, including moving crypto to external addresses and sending it to friends and family, without fees. It isn't a full wallet, but it does mean U.S. customers can withdraw assets without first converting them into dollars.

PayPal also has a Checkout with Crypto function, which lets you use your cryptocurrency assets to pay with certain merchants. PayPal will convert your crypto into a fiat currency such as dollars to make the payment.

There are several ways cryptocurrency platforms ensure the security of the assets they hold. These can include holding a certain percentage of funds offline in what's called cold storage, taking out third party insurance, and participating in bug bounty programs that reward ethical hackers for finding security flaws.

Coinbase stands out for both its security measures and transparency about what steps it takes to protect your funds. It says 98% of customer funds are kept in cold storage. It also employs several other measures such as criminal background checks on employees, a bug bounty program, and user level protections. It has also taken out extra insurance against theft or hacking, giving users extra reassurance.

PayPal does not give many details about how it secures user assets. It does have various user level protections and uses various encryption and other security measures. However, it's changed the messaging on its website. When we first compared Coinbase and PayPal in 2021 it said: "There's no digital key to lose and we'll replace your crypto in whole if your account gets hacked." Now it says: "There's no digital key to lose and you can trust us to hold your crypto." Personally, I'd like to see a lot more information about why we should trust them to hold our crypto.

Coinbase and PayPal are very different crypto platforms, because they are different businesses. PayPal is a payment app that also trades some crypto. In fact, you can use PayPal to deposit money on several crypto platforms, including Coinbase. For Coinbase, buying and selling crypto is its bread and butter -- it is a fully functioning cryptocurrency exchange.

The big advantage of PayPal is that it's extremely easy to use. If you're a PayPal customer who wants to get some exposure to cryptocurrency without any hassle, it may be a good option. However, if you want to dive deeper into the cryptocurrency waters, Coinbase has a lot to offer. It has a wider selection of coins, similar costs, and it's easy to move your assets to an external wallet. Coinbase also has excellent educational resources for those who want to learn more.