PayPal and Bitcoin aren't mutually exclusive at all, in one area that's pretty important for many buyers and sellers alike: Bitcoin is irreversible and that can be a big plus, but there are a lot of people who only use PayPal or similar when buying stuff because they want to be able to protect themselves. There are a lot of solutions to the problem -- reversible transactions is simply one. PayPal, Visa, and so forth, they take a cut in exchange for some measure of protection: Visa, for example, protects buyers from fraudulent merchants AND protects merchants from the loss when someone fraudulently makes a purchase with someone else's money. While there are a lot of people who would choose to have a no-fee transaction on both sides, and there are some people who would prefer things to be irreversible... Honestly, I've been burned enough times that the reality is the only way I'd ever use Bitcoins for a majority of my larger purchases is if I have a way of recovering my funds when a merchant rips me off. At the moment I often jump through a shitload of hoops to transfer everything I have into a specific bank account I have, just so that I have that bank's Visa fraud department to call if I have a problem with the purchase.

And that would simply be another case of free market offering multiple approaches, and individual consumers (in this case, both end-purchasers and merchants) can choose what they want.