Whether you ever use PayPal or not, if someone steals your credit card number, PayPal is just one way the thief can put charges on your card. Other merchants may not limit the thief to $500. Paypal is no more responsible or culpable in this than Allan is.

As to whether or not you use PayPal, I believe there is a risk in using that service. But I do not believe it is that they might someday use your credit card number fraudulently. The biggest risk is that they might suddenly go out of business, taking the float, whatever cash money is in your "account," with them. For $10 chip sales, I'm no more afraid of that than I am of someone not paying me when I send the chip up front. It can happen. It's a risk I take all the time. I wouldn't send a $1000 chip so easily, or take PayPal for a $1000 transaction.