December 09, 2021 - 9 min read
With bitcoin reaching a market cap of nearly $1.3 trillion as of November 2021, the first and largest cryptocurrency has never been more popular. While many either invest in bitcoin long-term through the HODL (hold on for dear life) strategy, or actively trade the coin, many actually use bitcoin to pay for the expenses of daily life.
With the popularity of bitcoin increasing so quickly, it’s no surprise that the demand for bitcoin ATM machines has skyrocketed in recent years. Bitcoin vending machines typically work like this; a user deposits cash into the machine, and, in return, bitcoin is sent to their crypto wallet. Unlike traditional ATM machines, bitcoin ATMs do not give out cash. Often, a machine will ask for a customer’s cellphone number, generating and sending a QR code in order to facilitate the transaction process.
In general, users can also use bitcoin ATM machines to deposit cash and send it to other people’s wallets, making it useful not only for purchases but also as a form of money transfer.
While online bitcoin users benefit from a lot of anonymity and very high limits on transaction sizes, the users of bitcoin ATM machines aren’t so lucky. This is particularly the case in the United States, which has a wide variety of laws regarding banking and money transfers. For this reason, most U.S.-based bitcoin ATMs have strict lower and upper thresholds regarding how much cash can be converted to bitcoin per transaction.
In addition, U.S.-based bitcoin machine operators are required to officially register with the Financial Crimes Enforcement Network (FinCEN). They must also follow each of the AML (anti-money laundering) clauses of the Bank Secrecy Act (BSA) of 1970.
This law mandates that banks and other financial institutions show regulatory documentation whenever customers attempt to deposit $10,000 or more. Therefore, in general, no U.S.-based bitcoin ATMs allow transactions of more than $9,999, with most machines setting limits far, far lower.
Many have decried cryptocurrencies like bitcoin for their ability to facilitate fraud, crime, and other illicit activities. Bitcoin ATMs are no different in their ability to be utilized by criminals, particularly online scammers. In many cases, scammers will direct a victim to use a specific QR code associated with the criminal’s wallet, instead of the user’s own QR code. This way, the bitcoin will be sent not to the customer’s crypto wallet, but instead sent to the criminal’s wallet.
In November 2021, Pennsylvania state police warned citizens about a bitcoin scam involving scammers sending texts claiming to be from PayPal regarding false charges on their account. The scammers would then ask for personal information tell victims to purchase bitcoin at an ATM to send it to an address, purportedly owned by PayPal (but really owned by the scammer) in order to rebalance their account.
Since they allow customers to convert cash to bitcoin with little friction, bitcoin ATMs can also be used to facilitate a variety of ordinary crimes, such as illegal drug and weapons sales or purchases of stolen goods. In fact, one study by Chainanalysis showed that up to 75% of illicit funds transacted through bitcoin ATMs were used at “fraud shops” dark web “stores” that sell customers stolen credit card and identity data.
While major bitcoin ATM companies like Coinstar require government IDs to exchange cash for bitcoin, many smaller bitcoin ATM providers require even less documentation, which can make it even easier for criminals to send and receive money using bitcoin ATMs. In fact, some smaller bitcoin ATMs only require a phone number, provided the transaction is $900 or less.
Some bitcoin ATMs are unlicensed (and therefore illegal)– and these machines can facilitate fraud on an even larger scale. For example, last year, a California man was charged with laundering millions of dollars via a series of unlicensed bitcoin ATMs,
Since many consider Walmart to be a traditional retail company, many readers may be surprised that they have been quietly incorporating bitcoin ATM machines into their stores at a rapid pace. The bitcoin machines are provided by Coinstar, one of the largest bitcoin ATM providers in the United States. To provide the service, Coinstar has partnered with Coinme, an online exchange that currently powers over 20,000 bitcoin ATMs around the world.
After a customer inserts money into a Coinstar ATM, they are given a paper voucher. If they do not already have a Coinme account, the customer will need to set one up and pass a KYC (know-your-customer) verification stage before they can redeem their voucher. This usually involves a customer scanning their driver’s license or other government ID to prove their identity.
While convenient, Coinstar’s ATMs are pricey, charging 4% for bitcoin exchanges and an additional 7% fee for cash exchanges. Like many other bitcoin ATMs, Coinstar/Coinme ATMs set a strict deposit limit of $2,500 per day.
Unfortunately for customers, bitcoin machines typically do not offer reverse functionality– in essence, they do not allow a user to sell bitcoin and take out cash. This is arguably a much more convenient use for a bitcoin ATM machine, but only around 20% of the bitcoin machines in the U.S. allow for cash withdrawals.
This is typically due to the steep increase in costs that running a “real” ATM machine requires, including enhanced device security and the necessary utilization of armored truck services.
However, using the Coinme app, companies including Moneygram allow users to get around this, permitting them to sell up to $500 of bitcoin per day. Transactions must be completed at an open Moneygram location, which is somewhat limiting, however, customers still have many options, considering that there are currently more than 22,000 Moneygram locations in the United States alone.
While most of the bitcoin ATM machines in the United States only allow the purchase of bitcoin, some devices allow for the purchase of other cryptocurrencies, most prominently, Ethereum.
If you want to use an Ethereum capable ATM to purchase Ethereum, you will need to have an Ethereum compatible wallet. If you attempt to purchase ETH and send it to a bitcoin-only or non-ETH compatible wallet, your funds will generally be lost in the transaction.
One company, Localcoin, operates ATMs that are compatible with bitcoin, ETH, and litecoin, in states including Florida, Illinois, Pennsylvania, and Texas. Another company, Bitcoin of America, recently added ETH functionality to its U.S.-based crypto ATMs. Bitcoin of America has 1300 locations throughout the U.S., and unlike most crypto ATMs, allows customers to withdraw cash by selling their currency.
Other currencies that can be bought and sold via bitcoin ATMs, albeit more rarely, include bitcoin cash and dash.
After learning so much about bitcoin ATM machines, you might be wondering where you can find one to use yourself. Since ATMs are physical businesses, you can easily use Google to get a good idea of where most bitcoin ATMs are located in your area. However, new machines are popping up by the day, and some haven’t listed themselves on Google, so you may want to check out the sites of major bitcoin ATM operators and guides in order to get the most up-to-date information.
Sites to check out include:
Bitcoin ATMs are growing in popularity, and it’s possible, as a small business owner, to open your own bitcoin vending machine. Basic bitcoin ATM machines can be purchased online for under $5,000, while more advanced models are available for $7,000. Both one-way (buying) and two-way (buying and selling) bitcoin ATMs are available. Interested buyers will need to review local, state, and federal regulations, file for their registration with FinCEN, and will need to provide written evidence of a KYC/AML program. Templates for these programs can easily be purchased from consulting firms like BTMcompliance.
Before installing the machine, you will need to select an appropriate location with high foot traffic, ensure that you pick up the machine’s cash on a regular basis, and ensure that you have enough bitcoin in a hot wallet to service your potential customers’ needs.
Since blockchains are closed-end systems, they need third-party information providers, called oracles, to pull in real-world, off-chain information. Oracles are particularly useful when protocols, products, or services need “real-time” cryptocurrency prices from exchanges.
This is especially important for bitcoin and crypto ATMs, which need up-to-date pricing information, as otherwise, they could dispense too much or too little bitcoin into a customer’s wallet. An excess distribution of funds due to poor pricing data would lead to losses for the ATM owner, while a lack of funds would lead to the customer being ripped off. Neither is an ideal situation for the ATM operator.
In a study of nearly 200 DeFi founders, founders said that the most important factors for oracles were accuracy, speed, reliability, and decentralization. Decentralized oracles pull data from multiple sources to ensure greater data accuracy, and typically use complex consensus mechanisms to ensure the accuracy of their data and incentivize good behavior among data providers and node operators.
SupraOracles addresses all of these issues and more, with a powerful decentralized architecture of clans and tribes, allowing for highly randomized node selection and an efficient consensus process. By providing finality in 3-5 seconds, instead of minutes, while using powerful cryptography such as parallel processing, SupraOracles can provide bitcoin ATMs, crypto exchanges, crypto games, and other emerging protocols the fast, accurate, and secure information they need to usher in the next generation of finance.
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