The flaw of “just use paypal/coinbase” arguments

For the millionth time I read somewhere that “custodial bitcoin is not bitcoin” and that “if you’re going to use custodial, better use Paypal”. No, actually it was “better use Coinbase”, but I had heard the “PayPal” version in the past.

There are many reasons why using PayPal is not the same as using a custodial Bitcoin service or wallet that are obvious and not relevant here, such as the fact that you can’t have Bitcoin balances on Bitcoin (or maybe now you can? but you can’t send it around); plus all the reasons that are also valid for Coinbase such as you having to give all your data and selfies of yourself and your government documents and so on – but let’s ignore these reasons for now.

The most important reason why it isn’t the same thing is that when you’re using Coinbase you are stuck in Coinbase. Your Coinbase coins cannot be used to pay anyone that isn’t in Coinbase. So Coinbase-style custodianship doesn’t help Bitcoin. If you want to move out of Coinbase you have to withdraw from Coinbase.

Custodianship on Lightning is of a very different nature. You can pay people from other custodial platforms and people that are hosting their own Lightning nodes and so on.

That kind of custodianship doesn’t do any harm to anyone, doesn’t fracture the network, doesn’t reduce the network effect of Lightning, in fact it increases it.