Author: Tauren Brown, Graphics: Walton Bullard
The BRB Bottomline:
Cryptocurrency ATMs are becoming abundant, allowing easy and secure entry into the crypto space. How do they compare to other options, and what baggage might come with their ease of use?
Bitcoin ATMs, also known as “Bitcoin Kiosks” and “Cryptocurrency ATMs,” are machines that facilitate the direct conversion of dollar bills to Bitcoin and vice versa, offering the convenience of simple and instant transactions for a fee. These machines may also offer other popular cryptocurrencies in addition to Bitcoin. In the past five years, the number of Cryptocurrency ATMs installed has increased astronomically by over 2200%, reaching a global total of over 33,800 (88% of which are in the U.S.).
Bitcoin ATMs are extremely versatile. Over 30 different companies produce these ATMs, and practically any business with the square footage to spare — from malls to gas stations — can host one. Just a few months ago, a Bitcoin of America Cryptocurrency ATM was installed at a local convenience store on the corner of Blake and Telegraph, joining the many regular bank ATMs near U.C. Berkeley. The store pays nothing to have it there while benefiting from royalties and increased foot traffic! Bitcoin ATMs certainly seems like a good deal for their hosts, but what about consumers who use them? And what do they mean for the cryptocurrency space as a whole?
Much of the appeal of Cryptocurrency ATMs comes from the information security they offer to customers. Users of a conventional online cryptocurrency exchange like Coinbase need to submit sensitive information such as their social security number, personal photos, and government ID as part of the registration process — increasing the risk of identity theft. While no major exchange has experienced a SSN breach, it is worth remembering that just last year, over 400,000 U.C. applicants had their SSNs compromised when hackers infiltrated the secure information transfer service used by the U.C. System. As evidenced by this large-scale security breach of what was believed to be a large and secure network, even the most secure systems and organizations — like crypto exchanges — can fall victim to malicious attacks. Moreover, though not related to SSNs, there are also many concerning examples of security infiltration with even the biggest exchanges; $100 million was stolen from Binance in the monumental hack of October 2022, and $15 million was stolen from Crypto.com in January. With exchanges storing the sensitive information of tens of millions of users, it may only be a matter of time before that data is targeted and inevitably stolen as well.
Crypto ATM transactions, on the other hand, tend to ask only for the user’s ID and phone number — and sometimes only their phone number. Besides allowing for the security of users’ information by asking for less of it, this lower verification threshold could help further democratize finance — allowing entry for those unable to create an exchange, brokerage, or even bank account. Such people, so long as they have a smartphone, could still earn a return on their money while keeping it safe and accessible. Facilitating the exchange from cash to cryptocurrency could also grant those who lack traditional financial accounts the ability to make many online purchases. These benefits relating to accessibility hark back to the original intent behind Bitcoin and other cryptocurrencies — to provide more widespread access to financial services.
Another advantage Cryptocurrency ATMs offer is speed. Let’s say you’ve been on the fence about getting into cryptocurrency for a while, but then you hear some shockingly positive news that makes you absolutely sure you should invest — quick, before everyone else finds out! Well, if customers want to buy Bitcoin today but don’t yet have a verified account with an online exchange, transacting via a Cryptocurrency ATM is likely their best option. While the identity verification process of an online exchange can take several days, an ATM takes just one to five minutes. Even if customers already have a verified account set up with, say, Coinbase, a Cryptocurrency ATM can still be a great option if they are looking to quickly invest in a project not listed on the exchange. This is because exchange users must wait around a week before their purchases can be transferred to be swapped on peer-to-peer marketplaces!
For the crypto space as a whole, having more ATMs can be beneficial beyond their core functionality. In addition to increasing accessibility, the presence of Crypto ATMs lends credence to the legitimacy of digital money. When people see that they can go from physical cash to cryptocurrency and back without the complication of any intermediaries, it may help bridge the gap between physical and digital money and make people feel more secure about using this young, digital currency. After all, much of the fundamental value of money is derived from how it is perceived and the demand for it. These ATMs are big, bold signs, shouting from the rooftops that there is demand for crypto around every corner.
The principal issue with cryptocurrency ATMs for consumers is the fees. While fees for purchasing crypto on major online exchanges hover around 1%, fees at the average Bitcoin Kiosk are around 15%. Bitcoin of America claims to have “zero fees” for Bitcoin purchases specifically; however, the prices they offer may not match the prices offered by major exchanges. That is to say, Crypto ATMs may be profiting by selling Bitcoin at slightly above market price. By doing that, they can claim zero fees while effectively collecting “fees” by pocketing the difference and profiting via arbitrage. It may seem like a scam, but many large exchanges seem to employ the same strategy; as of November 2022, Coinbase offers Bitcoin at a lower price but takes higher fees, while Crypto.com offers lower fees but compensates by asking for a higher price.
It is also worth noting that users of a cryptocurrency ATM need to use their own cryptocurrency wallets to store their money (which is the way cryptocurrency was intended to be used). This means that absolutely nobody without a user’s “keys” (an algorithmically generated list of words) can access that user’s cryptocurrency. Of course, a possible downside to this security is that if someone loses that list of words, they absolutely lose access to their money. While this lack of password resets or special retrieval methods may seem like an alarming disadvantage, at the end of the day it enhances security, and as long as proper precautions are taken to back up the keys and store them in a safe place, users will never be locked out.As Cryptocurrency ATMs generally have minimal customer verification, officials are concerned about them serving as hubs for money laundering. For example, some of these ATMs allow up to a $900 transaction with only a phone number. Once illegal cash is exchanged for cryptocurrency, it can be tumbled between burner wallets, anonymized, and then finally sent to a “clean” wallet to be used. While ATM businesses are required to register with the Financial Crimes Enforcement Network and abide by the Anti-Money Laundering laws of the Bank Secrecy Act, not all comply, and even those who do face gray areas of the law. For example, a man from Los Angeles pled guilty to allowing criminals to launder around $25 million through his Bitcoin ATM business in 2019. Beyond money laundering, the FBI has also reported scammers directing their victims to these ATMs for quick fund transfers. As such, education of basic internet security is a must, and further regulation beyond variably enforced identity verification measures may be needed to ensure the safety of users. As the discussion around the regulatory compliance of Cryptocurrency ATMs heats up, it’s possible that these ATMs end up being as stringent as other major exchanges or banks, perhaps requiring live selfies and personal documents as part of their identity verification processes. Though this change will certainly reduce money laundering and other criminal activity, it would also take away from the most appealing aspects of Crypto ATMs: their speed, increased security, and wider accessibility — leaving these ATMs to function merely as a shortcut for exchanging physical cash for Bitcoin and vice versa. It may even serve as the final blow to Crypto ATMs, which are currently trying to penetrate a very competitive market. While the Cryptocurrency ATM market has been growing rapidly, these machines may very well become mostly obsolete if banks integrate crypto into their own ATMs, as they have already begun to do in their web apps.
Love them or hate them, Cryptocurrency ATMs are popping up everywhere, allowing for quick and secure entry into the world of blockchain. As physical manifestations of abstract virtual technology, these ATMs functionally advertise that cryptocurrency is here for the masses — and serve as an easily available and financially viable medium of exchange. While impending regulation may eventually stifle many of their advantages, before that time, Cryptocurrency ATMs could be just what the space needs to catalyze user onboarding and catapult crypto into the mainstream.
- Bitcoin ATMs:
- Allow the direct conversion of dollar bills to bitcoin.
- Don’t require social security information.
- Allow first-time users to buy crypto faster and with less hassle than other options.
- May make money laundering easier.