The world's first automated teller machine, introduced on June 27,
1967, was inset into the side of a North London Barclays Bank. The device's
debut gave banks a way "to offer working people access to their money when
they were closed," according to the BBC.
These machines have since become commonplace for mobile banking.
Today, over a half-century later, these machines are being crypto-fied as
Bitcoin ATMs, and they're heading to a corner store near you.
What Is a Bitcoin ATM?
Bitcoin ATMs, also known as crypto ATMs or BTMs, are automated
teller machines that allow users to buy or sell Bitcoin using cash, debit, or a
cryptocurrency wallet on the move.
Whereas regular fiat kiosks connect a user to their bank account to
conduct a variety of services, Bitcoin ATMs are still essentially one-way
transactions in which customers pump cash into the machine to purchase digital
currency. Newer types, such as Coin Cloud ATMs, allow customers to withdraw
cash in exchange for cryptocurrency, generate a printed paper wallet, and
transfer purchased Bitcoin to a hardware wallet.
These internet-connected freestanding kiosks typically have a touchscreen
interface, QR scanner, bill acceptor, and dispenser.
ATMs that accept cryptocurrency can be found near specialty
stores, grocery stores, gas stations, airports, restaurants, banks, and
shopping malls. Users can use online resources, such as this map on Bitcoin's
website, to find one of the 38,638 Bitcoin ATMs globally that are closest to
them.
"Cryptocurrency ATMs make bitcoin accessible through its
simple technologies while also lowering entry barriers for investors,"
said Daniel Polotsky, founder and chairman of the board of CoinFlip, the
third-largest Bitcoin ATM operator in the United States. CoinFlip operates 10%
of the nation's crypto ATMs, which provide rapid access to a variety of popular
digital currencies.
"Unlike standard ATMs, crypto ATMs do not require clients to
have a bank account," Polotsky explained, "so anyone interested in
investing [in crypto] can do so."
How Do Bitcoin ATMs Operate?
The installation of Bitcoin ATMs brought passers-by within a few
steps of cryptocurrency exchanges. There are instructions to help consumers
through a pretty intuitive process, similar to a standard bank auto-teller.
.jpg "Bitcoin ATMs What You Should Know Before Purchasing Bitcoin from an ATM")
"Depending on the magnitude of your transaction [and the ATM
type], all you need is cash, a cryptocurrency wallet, and a phone number,"
Polotsky explained. For larger transactions, identification may be required.
Aside from that, Polotsky advised setting up a crypto wallet before visiting a
kiosk.
How to Make Use of a Bitcoin ATM
The first step is for the user to activate the screen by touching
the monitor. Then, on the following screen, users would choose whether to
purchase or sell Bitcoin and disclose the price range within which they desire
to buy or sell.
Step 2: Based on the option chosen, the user may be asked to
produce identification. To prevent fraud on all transactions, some Bitcoin ATMs
demand you to verify your phone number, snap a photo, and/or scan a
government-issued ID, such as a driver's license or passport. Lower-value
transactions, on the other hand, often require little to no identification.
This machine, for example, found in a Canadian mall, has a
predetermined barrier of 3,000 Canadian dollars, or roughly $2,250 US dollars,
and simply requires the user's crypto wallet address to complete the
transaction.
The stages that follow will vary depending on the needs of the
user.
WHEN BUYING?
Step 3: Crypto wallet addresses are necessary to record a
transaction on the Bitcoin blockchain. At this level, a user would then provide
their wallet address by scanning the QR code connected to the account.
Step 4: Insert the desired quantity of Bitcoin into the ATM's bill
feeder.
Step 5: The transaction is processed by the ATM. The ATM will
deposit bitcoin into the user's bitcoin wallet, which could take up to 10
minutes depending on network traffic.
WHILE SELLING
Step 6: After submitting the necessary degree of identification,
the user would enter the exact quantity they want to sell. If they haven't
already done so in the previous step, the user may be asked to enter a phone
number to get an SMS notification after the transaction has been completed.
Step 7: Once the sale price is finalized, a receipt with
instructions and a QR code is printed. After stepping away from the machine,
the user must use a smartphone to send their Bitcoin to the code provided, an
address linked to the ATM. Here, the user accesses their crypto wallet using
their preferred app, scans the QR code, deposits funds send the
transaction, and authorizes it.
Step 8: The transaction will then be processed by the ATM, which
could take up to 10 minutes. If the user provided a phone number, they will
receive a text message when the withdrawal is complete.
Step 9: Returning to the machine with the ticket in hand, the user
picks "redeem ticket" rather than "sell" from the choices
menu. When a user scans the QR code, the ATM processes the request and cashes
out the sale amount.
The Advantages of Bitcoin ATMs
According to Shuo Chen, a blockchain expert at Singularity Group,
a business training company that offers executive educational programs, part of
the appeal of adapting crypto to regular banking processes — such as an ATM —
is all about comfort, speed, and ease of use.
ADVANTAGES OF USING A BITCOIN ATM
- Convenience
- Transactions that are completed quickly
- A well-known procedure
- There is no need for a bank account or identity.
"[Crypto ATMs] can be a handy way to purchase and sell
Bitcoin since they allow rapid access to cash," she added, stressing the
ubiquity and 24/7 availability that prompted the development of auto-teller
technology in the first place. Before Bitcoin ATMs, it was impossible to
convert cryptocurrency to cash. Reintroducing new technology in recognized
forms aids those who wish to engage but are too afraid to do so.
"ATMs are a familiar way for individuals to interact with
making financial transactions," Chen explained, stressing that they have
the potential to attract a new wave of cryptocurrency investors.
Certain crypto ATMs, like ordering a Frappuccino before entering
Starbucks, can save you a seat in advance, according to David Kemmerer,
co-founder, and CEO of Coin Ledger, a crypto wallet, and NFT tax software
service.
"People who wish to sell Bitcoin may also use a wallet program
to reserve cash at ATMs ahead of time," Kemmerer noted. This allows users
to purchase and sell Bitcoin fast and easily without having to wait for lengthy
verification processes... "Transactions with these machines are frequently
almost instantaneous," he noted.
Chen, who is also an early-stage Silicon Valley investor and
teaches about the future of finance and entrepreneurship at the University of
California, Berkeley, also mentioned that some people may choose to use a
Bitcoin ATM because their ability to work in cash allows users to avoid any
type of banking that may be required before a transaction.
On that note, Bitcoin ATMs provide unrivaled levels of privacy. To
purchase and sell Bitcoin on internet exchanges, consumers must submit
sensitive information such as debit or credit card data or bank account
information. Users of Bitcoin ATMs just need to provide basic information.
Additionally, Chen emphasizes the new level of anonymity — or
pseudonymity — that Bitcoin ATMs allow customers, as some machines just require
a phone number and no personal identification at all.
Bitcoin ATM Risks And Challenges
At a time when governments are still grappling with cryptocurrency
in general, Bitcoin ATMs offer another degree of complication that regulators
must consider. Thankfully, because traditional banking networks are well
established, a regulatory structure already exists.
THE DIFFICULTIES AND RISKS OF USING A BITCOIN ATM
- EXPENSIVE FEES
- UNINSURED FUNDS
- LIMITATIONS ON TRANSACTIONS
- AVAILABILITY
- SCAMS AND FRAUD
In the United States, for example, all Bitcoin ATM companies are
subject to federal anti-money laundering legislation. This means that all
operators must register with the Financial Crimes Enforcement Network and
follow the Bank Secrecy Act. Even still, as a New Jersey oversight body
discovered, regulation has been inadequate at best, with law enforcement
officials believing that the machines are aiding in illegal activity such as
money laundering and drug trafficking. According to Politico, "most of
these machines are run by legitimate companies, but some are put up by
unlicensed operators."
EXPENSIVE FEES
When it comes to visiting a Bitcoin ATM, the major barrier for
active crypto users is the exorbitant costs.
Out-of-network usage is charged at a set rate in traditional
banking. According to Bankrate's 2022 study, these rates have an average
combined cost of $4.66 and a fee of $3.14 for each transaction.
Bitcoin ATMs, on the other hand, charge a percentage of the transaction
amount. Most operators charge a 15 percent fee to acquire Bitcoin and range
from 0 to 15 percent to sell, according to crypto kiosk mapping firm Coin ATM
Radar. In comparison, the identical transaction on an online crypto exchange
would most likely incur a 1.5 percent transaction, or "gas," cost,
which has historically fluctuated from less than 1% to 5%.
UNINSURED FUNDS
Bitcoin ATMs do not protect against theft or loss in the absence
of bank backing. If there are problems with a transaction, customer help may be
more limited than with well-established institutions.
"Investors must conduct their research and examine
self-custodial methods," Polotsky said, adding that this might be as
simple as evaluating any third-party involvement — such as an exchange or
digital wallet provider — and routinely putting one's crypto offline, in cold
storage. Accountability is desired from both ends, users, and providers.
LIMITATIONS ON TRANSACTIONS
Bitcoin ATMs, like regular bank auto-tellers and online crypto
exchanges, have a daily transaction restriction. According to Investopedia,
this range normally ranges between $10 and $10,000, depending on the operator.
Polotsky's startup, CoinFlip, for example, has four tiers, with the lowest
ranging from $20 to $900 and the highest ranging from $8,005 to a maximum of
$16,000 each day.
AVAILABILITY
While Bitcoin ATMs have proliferated by the hundreds in the decade
since their birth, they are no match for online exchanges, which are still just
a web search away.
SCAMS AND FRAUD
The FBI uncovered a pattern in which scammers used Bitcoin ATMs,
phishing emails, and QR code technology to dupe people into fraudulent schemes.
According to the FBI, these cybercriminals would send a QR code containing the
scammer's wallet address along with an urgent email, then direct the victim to
a physical crypto ATM to complete the transaction.
Bitcoin ATMs also provide easily accessible, difficult-to-trace
outlets for malicious cryptocurrency users. If their private key is discovered,
whether via their misuse or covert methods, unwitting victims may lose their
funds due to a lack of identity.
"Data sniffers and spy cameras can be installed in these
ATMs, allowing thieves to obtain a user's personal information, which can later
be exploited to steal their bitcoin," stated CoinLedger's Kemmerer.
Furthermore, to defend their business, crypto ATM operators may attempt to
complicate monitoring measures aimed at preventing fraud and protecting user
data.