A Bitcoin ATM is a kiosk or a physical access point that enables buying or selling of Bitcoins using physical cash.
Instead of interacting with the centralized servers of banks, the ATM service providers enable buy/sell of specific cryptocurrencies, which can be used as a medium of exchange globally. Apart from Bitcoin, there are ‘cryptocurrency ATMs’,which provide cash-based transactions for other cryptocurrencies like Litecoin [LTC] and Ethereum [ETH].
Moreover, there are some teller machines which allow for purchase via debit cards as well. There is usually a percentage charge involved in the process which varies from 3-10% globally.
Buying Bitcoins
The ATM either generates a new offline wallet (paper wallet) with the purchase, or funds are transferred to a user specified wallet.
The service providers more often than not need to comply with KYC/AML rules on these ATMs. Therefore, along with physical cash, it also requires a document for identity proof. The machines come with an optional scanner which performs the verification process, and scans QR codes as well.
After the verification process is complete, the user can buy Bitcoins using cash bills. Nevertheless, there is usually a daily limit to the buying amount using an ATM. It varies between $3,000-$10,000 depending on the service provider, and levels of verification cleared by each customer.
Selling Bitcoins
Entering the full Bitcoin private key can be a cumbersome process, and also creates a security risk. Moreover, transferring funds using one’s mobile or hardware wallet to the ATM address can create various disputes. Hence, selling Bitcoins using the ATMs can be tricky.
Therefore, the basic operation of Bitcoin ATMs usually allow buying of Bitcoins only.
The ‘selling’ process usually requires registration with the service providers of the ATM. KYC and AML verification along with regulatory adherence is mandatory. Moreover, the wallet on the service provider’s account can be used to sell Bitcoin without any hassle. However, in this case it is required to trust a third party with your private keys.
Bitcoin ATM History
Canada is credited for installing the first ever Bitcoin ATM on 29th October 2013. Nevertheless, there was an attempt to launch an ATM in the US earlier that year. A cigar bar in Albuquerque, New Mexico opened the unit in February. However, it was shut down in the next 30 days due to lack of regulatory compliance.
The initial idea of Bitcoin ATMs included the anonymity feature providing for direct purchase with cash. However, it opens up opportunities for converting and sending unaccounted wealth world-wide, which can be a challenge for authorities.
Eventually, in April 2014, the first ever regulatory complaint ATM was launched in the US in Seattle, Washington. Operating an ATM requires a money transmitter’s license and the provider must comply with other specific regulations in the country as well.
However, in India no progress has been made, the founders of Unocoin attempted to bypass the ban by the country’s central bank in providing banking services to firms engaging in virtual currency by the ATM. It was seized within weeks of installation and the founders were arrested by the police as well.
Bitcoin ATMs Around the World
According to Coinatmradar, the total number of ATMs in the world is just short of one short of 7000 at press time – 6999.
You can find ATM nearby on Coinatmradar.
Beginning in 2013, it took around 4 years for the number to reach a 1000 in February 2017. Nevertheless, it has increased 7 seven fold in the following years; growing at a rate of 166 new units every month.
Furthermore, the US is currently leading the race for the total number of ATM units around the world. Out of 6997 ATM units, more than 5000 units are in the US alone (> 70%). Whereas, Europe hosts around 831 ATM units and the United Kingdom has around 303 ATM locations in the country.
Canada, which installed the first ever Bitcoin ATM, currently has over 750 ATM units. In the east, Hong-Kong and Russia have both more than 50 ATM units. There are other small scattered units in China, Australia, Japan and South Korea as well.
A large number of manufactures and service providers have also entered the space.
Regulations
Bitcoin ATM access points record the transactions directly onto the public ledger; Hence, no custody or banking license is involved per se. However, like Western Union and MoneyGram they must adhere to the compliance under Money Transmitter Business (MSB).
Currently, the FinCEN (Financial Crimes Enforcement Network) and Office of Foreign Assets Control (OFAC) in the US oversee the law and regulations related to Bitcoin ATM.
Like Venmo and Western Union, the Bitcoin ATM providers must comply with “Non-bank money transmitter” rules under state and federal law as well. According to them, since Bitcoin/crypto ATM provides an exchange of FIAT to cryptocurrencies or vice versa, it comes under Money Service Business (MSB).
There is still considerable ambiguity on the classification of specific cryptocurrency as a security or a commodity. Hence, in the US the CFTC and SEC do not currently restrict some crypto ATM.
Nevertheless, the SEC oversees the activities related to investment assets. Hence, while there are no specific licenses to be procured from them, the SEC FinHub must be notified of the operations.
The FAFT (Financial Action Task Force) is the international organization that draws out guidelines and rules for the 39 member countries, including the US and European countries.
Manufacturers and Service Providers
To set up an ATM, the business owner must contact both the manufacturers and service providers to enable the service.
Genesis Coin and General Bytes are two leading firms that perform manufacturing of the units. These firms have offices primarily in the US and Europe. Lamassu and Coinsource have also been recognized as reliable sources for ATM units.
Nevertheless, the electronic city of Shenzhen plays a role in providing for the basic unit, which are later customized by the manufacturers.
The price of each ATM unit varies between $3500 – $10,000 per unit. The older and cheaper models are usually unidirectional i.e. provides for buying only. The price also varies in relation to the size and other added functionalities.
Apart from the importance of actual manufacturers of the machine, it’s the service operator that acts as the ‘exchange‘.
Usually, the banks install ATM machines’ which enable interaction with centralized servers world-wide using an electronic chip card.
Similarly, the ATM operators provide a link to the decentralized Blockchain Networks. They charge a certain percentage over the price of Bitcoins for providing digital assistance. In some two-way ATM, the operators also manage temporary or long-term custody of the coins or share the private keys of their users.
Pros and Cons of Using a Bitcoin ATM
The global adoption and awareness of Bitcoin and cryptocurrency is still below 5%, optimistically. Moreover, even now these are primarily used as an investment asset, rather than a medium of exchange. Hence, there is seldom an immediate need to buy Bitcoins using an ATM, an online exchange can be used for considerably cheaper.
Furthermore, less than 50% of the ATM units currently allow selling of Bitcoins, which in-turn requires registration with specific service providers. Hence, the actual use of the ATM is highly limited.
Using and operating an ATM can be expensive for both the customer, and service providers.
Nevertheless, there are various benefits of the ATM for the community. It provides for,
- Ease of Use: in obtaining cash, which would otherwise require an intermediary step of transferring FIAT to a bank account. In theory, Bitcoin ATMs eliminate the use of banks.
- Increasing Adoption: The presence of Bitcoin ATM units around the world help in increasing the adoption of Bitcoin for first time users. The units are now installed at airports, malls and so on establishing the cryptocurrency brand.
- Remittance: In small amounts, the ATM units can act as a convenient medium for sending money across borders. The growing adoption of cryptocurrency in Latin America, Africa and other third world countries can enable low cost/hassle free remittance via these units.
Final Verdict
The rate of increase in adoption and price of Bitcoin could eventually reduce the cost of operating and manufacturing units due to economies of scale. Moreover, the innovation of Bitcoin ATM alone in the past couple of years suggests that growth is prevalent.
Currently, VISA and Mastercard along with the banks dominate the money transmission business. According to popular estimates, there are more than 3 million ‘traditional ATMs’ in the world. Nevertheless, in their cross border use these usually require a lot of clearances and permissions.
In theory, with Bitcoin and other cryptocurrencies as a global medium of transfer the ATMs would increase globalization, tourism and even help in the development of trade and commerce without any restrictions.
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