This is due to repeated cases where someone pays for Bitcoins with Paypal, receives their Bitcoins, and then fraudulently complains to Paypal that they never received their goods. Paypal too often sides with the fraudulent buyer in this case, and so exchangers no longer allow this method of funding.
quote: Traditionally deflation is very bad for a currency, because it means that people won't want to spend the currency because it's so "valuable". But this is largely an effect of the particular currency's limitations imposed by its smallest denomination.
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