What is Bitcoin ATM?
A bitcoin ATM is an internet machine that allows a person to exchange bitcoins and cash. Some Bitcoin ATMs offer bi-directional functionality enabling both the purchase of Bitcoin as well as the redemption of Bitcoin for cash. In some cases, Bitcoin ATM providers require users to have an existing account to transact on the machine.
Bitcoin machines are not ATMs in the traditional sense and probably use the wording ATM as a neologism. Bitcoin kiosks are machines which are connected to the Internet, allowing the insertion of cash in exchange for bitcoins given as a paper receipt or by moving money to a public key on the blockchain. They look like traditional ATMs, but Bitcoin kiosks do not connect to a bank account and instead connect the user directly to a Bitcoin exchange. According to an advisory issued by the Consumer Financial Protection Bureau, “they may also charge high transaction fees – media reports describe transaction fees as high as 7% and exchange rates $50 over rates you could get elsewhere”.
How to use a Bitcoin ATM?
A Bitcoin ATM allows users to buy and sell Bitcoins for cash.
Bitcoin ATM’s can be more expensive than online transactions as the infrastructure cost is higher – i.e. building an actual ATM and the steps that are actually needed to transfer the money and Bitcoins.
The first step is to scan her identification which the ATM then validates.
Then the user feeds in some cash and generates a QR code from her wallet – a QR code being a large square of black and white pixels. Then the user sends the Bitcoins to the presented address.
Some ATM’s generate a paper wallet – or offline wallet – essentially a bearer instrument of the Bitcoins.
Bitcoin ATM’s are essentially money transmitting tools and as such the businesses come under FinCEN rulings and have to comply with Know Your Client and Anti Money Laundering procedures, or AML and KYC. Registering for money transmitter status can be costly and this means ATM providers have to knudge up fees.
Typically fees are in the range of 5% and quoted prices are taken from large exchanges on a live basis. The company will try to manage its cash and Bitcoin exposure by balancing its inputs and outputs through live trading with its exchange – holding too much Bitcoin without hedging can introduce the possibility of large profits or losses. Other problems come with banking facilities as it has been extremely hard for bitcoin related businesses to get traditional banking facilities – so moving cash in and out can be problematic – hedging using various Bitcoin futures can be one method of mitigating risks involved due to volatile price fluctuations.
Although the initial users of Bitcoin have been aficionados and enthusiasts, there are persuasive arguments for the spread of Bitcoin ATM’s. One major use is for travellers when faced with high fees at traditional bureau de changes – so buy bitcoin before the flight and sell it afterwards – although with 5% fees each way and large volatility this is quite risky.
The other potential use for access is allowing the unbanked to gain access to digital currency and partake in international ecommerce. Essentially giving them the chance to become their own global bank as the spread of Bitcoin and crypto currency reaches all corners of the world. A Kenyan shilling won’t get very far whilst a milli Bitcoin will.