Robinhood's Brand Fake vs. PayPal's Crypto Corruption

[Gunnar Larson]

https://thecapital.io/article/robinhoods-brand-fake-vs-paypals-crypto-corruption-MLic2ot6v5Vurqr5xBT

Graduate research conducted over the last five years by preeminent global
industry scholars, who embody a strong sense of integrity and pride in the
social importance and credibility of good institutional design, tease out
the following incidents.

With friendly intentions, there is no way out of us moving forward.

Corruption occurs when the private search for economic advantage and
personal advancement clashes with laws and norms that condemn such
behavior. Further complicating the picture, some illegal corrupt
transactions drain public resources away from education, health care, and
effective infrastructure—the kinds of investments that can improve economic
performance and raise living standards for all.

It is easy to prove Robinhood Markets (the financial services company) is a
brand fake. Perhaps even more significant, there is no reason to think that
PayPal, one of the more convenient and commonly-used online payment methods
out there, will behave any better given their clear anti-cryptocurrency
policy history. Paypal will likely further exploit their monopoly position
and risk undermining a pure environment that maximizes the socially
beneficial conditions of virtual currencies.

Our estimation strategy so far has been predicated on the assumption that
political and legal institutions affect sustainability directly and that
the effect of corruption can be estimated conditionally on the
institutional context.

As we previously reported, it is perhaps no coincidence that the systemic
risk to cryptocurrency and blockchain systems are tethered to activities of
BitLicensees.

The cost of corruption is greater than the sum of lost money: distortions
in spending priorities undermine the ability of the state to promote
sustainable and inclusive growth. This is possible in a framework already
characterized by "weak law" that creates both a certain alteration of the
rules of the market and perverse dynamics distorting the economy and
inhibiting free competition.

Robinhood’s Brand Fake
The legend of Robin Hood portrays a man who robbed the rich and gave to the
poor. His partisanship of the common people and his hostility to the
Sheriff of Nottingham branded Robin Hood as one of the world’s best known
folk heroes.

According to a Forbes investigation earlier this month, despite its
proclamations about democratizing finance, Robinhood's entire business has
been built since its inception on selling its customers’ orders—known as
“payment for order flow”—to Wall Street’s most notorious sharks, accounting
for 70% of its $130 million in revenue during the first quarter of 2020.

Robinhood’s SEC civil fraud investigation more or less points out the
essence of potential brand fakery.

A Robinhood spokeswoman declined to comment on the investigation or any
talks with regulators, but stated: “We strive to maintain constructive
relationships with our regulators and to cooperate fully with them.”

PayPal’s Crypto Corruption
The heads of enterprises must curb corruption by setting a clear tone at
the top. A statement from the founding CEO of Paypal Holdings Inc., Bill
Harris, described Bitcoin as a “scam” and a “colossal pump-and-dump
scheme”. “I’m tired of saying, ‘Be careful, it’s speculative.’ Then, ‘Be
careful, it’s gambling.’ Then, ‘Be careful, it’s a bubble.’ Okay, I’ll say
it: Bitcoin is a scam,” he wrote in June 2019.

Later in October 2019 Fortune asked PayPal’s current CEO, Daniel Schulman
if he could share some details of the projects Paypal is working on.
However, he replied: “Yes and no. Some of this is competitive, and we don’t
really want to,” but noted that what Paypal is working on is “not
necessarily competitive with Libra.”

Emphasizing that cryptocurrency is “still very volatile,” the CEO revealed,
“we don’t have much demand for it by merchants because merchants operate on
very small margins.” He continued: “Until it becomes less volatile, it
won’t be a currency that is widely accepted by merchants on the web — not
the dark web, but the web.”

PayPal’s fundamental longtime assault on the crypto industry policy was to
freeze user accounts connected with any cryptocurrency-related activity.
While some people may consider this to be borderline illegal, the company
can close user accounts or freeze funds for extended periods of time
whenever they feel the need to.

In less than a year, everything changed for PayPal with the October 2020
announcement of achieving another regulatory first: through Paxos, PayPal
has been granted the first virtual currency conditional license from the
New York State Department of Financial Services. It seems that PayPal’s
dance with “regulatory arbitrage” now engages the ability to provide crypto
to their customers.

Turn this matter as we will, and look at it from any side whatsoever, and
it presents the appearance of anti-competitive behavior. PayPal’s deception
and corruption in building its crypto business infrastructure now acts as a
cartel sponsored by regulators.

PayPal forbids user access to their own private keys. What’s more, users
will not be able to transfer their crypto holdings out of their PayPal
account, nor will they be able to send crypto to other PayPal users.

In other words, PayPal more or less dictates what users can do with their
cryptocurrencies, and could presumably freeze accounts if they see fit.

Additionally, merchant processors exist to assist merchants in processing
transactions, converting bitcoins to fiat currency and depositing funds
directly into merchants' bank accounts daily. As these services are based
on Bitcoin, they can be offered for much lower fees than with PayPal or
credit card networks.

Note, however, that this potential monopoly could arise not from corruption
but simply from a revenue-maximizing government that does not factor in the
social benefits of competition or of effective natural monopoly regulation.
Second, the hope of corrupt gains might lead government officials to
privatize the wrong firms. That is, regulators may grant license(s) to
firms that are operating at a high level as state firms and so appear
valuable to private markets.

Universal BitLicense Declaration
People should not be presented with their only option being a binary choice
between inclusion and giving up their data and privacy OR
non-participation, exclusion and privacy, thereby effectively becoming a
modern day 21st century outcast. The obvious consequences on the emotional
level are often associated with economic risks, often linked to the
obligation in respect of some banking institution or regulatory body from
which the entrepreneur is required to interact.

The basic mechanism of embeddedness is the “protection.” It may take
different forms: the protection/extortion mechanism, which concerns the
regulation of licit and illicit economic activities; the patronage
mechanism, which involves the distribution of goods or services in exchange
for votes, goods, services or other benefits; or the brokerage mechanism
for the resolution of disputes. The protection function concerns, in
general, all those activities which involve the maintenance of the order
and the exercise of authority within a territory. On the contrary, the
mechanisms of infiltration are: the management of trafficking, the money
laundering in legal economic activities, and the interception of public
funds.

If the basic problem is monopoly power, policy should address that issue
directly. If the problem is a lack of transparency and accountability in
government activities, one should find ways to open up the public sector to
oversight from outsiders. If the problem is an opaque and confusing
regulatory structure, rules should be simplified and clarified.

90+ days from initial submission to begin “Conditional BitLicense” review:
New York is not supported by a good faith argument for an extension,
modification of or delay of granting “Conditional BitLicense” approval
specific to review and consideration for approval of any reasonable version
of the proposed “Universal Declaration on Virtual Currency & Human Rights.”

Where the superintendent makes a determination that a regulated group has
engaged in or is engaging in any of the practices outlined, the
superintendent is empowered to issue appropriate Declarations pursuant to
innovation and mandates clarification.

Such orders may be issued without the necessity of a complaint being filed
by an aggrieved person.

Following the official announcement of New York’s conditional licence
framework, we have submitted various communications that outline our clear
ambition and intent to earn “Conditional BitLicense” and other approvals.

- to save succeeding generations from financial fraud and corruption, which
in our lifetime has brought untold sorrow to humanity, and

- to reaffirm New York’s faith in fundamental human rights, in the dignity
and worth of the human person, in the equal rights of men and women and of
nations large and small, and

- to establish conditions under which justice and respect for the
obligations arising from BitLicence regulation and other sources of
financial services law can be maintained, and

- to promote larger social progress by leading global standards, given that
New York remains the center of technological innovation and forward-looking
virtual currency regulation

Nothing in this Declaration may be interpreted as implying for any State,
group or person any right to engage in any activity or to perform any act
aimed at the destruction of human rights or degradation of the BitLicense’s
virtual currency statute or mandates set forth in this Declaration.
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