When the world’s first automated teller machine was installed in 1969, futurists predicted the end of traditional banking. That didn’t happen.
However, nearly a half-century later, ATMs are going through another change, being used to transact in bitcoin (BTC) and providing an on-ramp for the unbanked, underbanked and curious to buy and sell cryptocurrency.
This is not just a city phenomenon. These particular ATMs are on the increase, showing up across the country and world.
Bitcoin ATMs don’t require their users to have a traditional checking or savings account, so people can insert cash and instantly buy bitcoin.
“What we have found is that, sometimes to our surprise, there really are economically justifiable levels of demand for bitcoin teller machines across the United States,” Arnold Spencer, general counsel at Coinsource, one of the biggest bitcoin ATM operators, tells ThirtyK. “We found that people were traveling great distances to get to those machines, and that we could put them in smaller markets.”
The first bitcoin ATM went into service in November 2013, according to Coin ATM Radar, a website that tracks their use. As of the end of November there were just over 4,000 bitcoin ATMs worldwide, nearly double the number at the beginning of 2018, according to the website. Slightly more than half (about 2,200) of those bitcoin ATMs are in the U.S. Bitcoin ATMs represent 13.5 percent of all venues transacting in the digital currency worldwide, according to research by Larry Cermak, head of analysis at The Block.
Coinsource began its own network of bitcoin ATMs in large cities with considerable foot traffic, including New York and Las Vegas, but is now shifting its focus to the top 200 U.S. cities, according to Spencer. The company announced last week it was expanding its existing network of more than 200 ATMs in 23 states to four more (North Carolina, Virginia, Maryland and Delaware) as well as smaller cities in upstate New York.
“Some markets are starting to show maturation,” Spencer says.
The ecosystem of bitcoin ATM providers also may be maturing. Besides Coinsource, large companies in the space include Genesis Coin, General Bytes, Lamassau and BitAccess, but a significant percentage of bitcoin ATMs are provided by smaller companies, often with networks of a dozen or so machines in a single city.
Spencer predicts that as usage continues to grow, larger companies will have an advantage in terms of servicing far-flung machines and navigating different state and local regulations governing not just cryptocurrencies, but also the use of ATMs more broadly.
“We’re able to go into much smaller communities than a lot of competitors,” Spencer says.
Not Your Parent’s ATM
Bitcoin ATMs operate in different ways from traditional, fiat-focused, ATMs. Anti-money laundering and know your customer regulations (AML/KYC) require users of Coinsource’s ATMs to demonstrate proof of identity with a smartphone app before using the physical machine. However, once that’s done, transactions are instantaneous unlike many cryptocurrency exchanges that place a hold on transactions for new users until their banking details are verified.
During last year’s jump in cryptocurrency prices, “we had a number of people waiting for major exchanges to open their accounts and watched the price of bitcoin double while they waited,” Spencer says. “They went to a [bitcoin ATM] where they could open an account and complete the transactions.”
Because bitcoin ATMs don’t require their users to have a traditional checking or savings account, people can insert cash and instantly buy bitcoin. They can then exchange their bitcoin for other cryptocurrencies, keep it as a store of value or purchase goods online. A small but growing number of Coinsource’s ATMs are now also dispensing cash when customers sell their crypto, according to Spencer.
That’s important for the 8.4 million American families with no traditional bank accounts. Along with these “unbanked” families, another 24 million households are underbanked, meaning they have but rarely use traditional accounts because of high fees, according to a 2017 survey by the Federal Deposit Insurance Corporation.
Many bitcoin ATM users are using the networks to send remittances overseas, avoiding international wire fees, according to Spencer. Small businesses also are using bitcoin ATMs to settle bills from small import firms, particularly in Asia, to “cut the inventory cycle,” Spencer says.
Rules and Regulations
In the U.S., bitcoin ATM operators have to follow the same rules and regulations as other companies transacting in cryptocurrency, including compliance with AML/KYC. State regulators are increasingly beginning to pay attention to whether these machines follow state laws governing ATMs and other money transactions, according to Spencer. “Law enforcement is catching up on the learning curve,” he says. “I think you’ll see that a lot of [providers] not spending the money on compliance and AML are going to exit.”
Last month, Coinsource became the first bitcoin ATM operator to be granted New York state’s full BitLicense, required for companies doing business in virtual currency in the state. But Spencer says the implications go beyond the Empire State’s borders. “It gives us an enormous amount of credibility, and we can fairly go to any other state or country in the world and say … you should be comfortable dealing with us because we’ve already passed this high standard,” he says.