Cash could be king when buying Bitcoin (BTC) as recent data says crypto ATM installations increased in 2021, showing a 71.3% increase from Jan 1, 2021 at the time of reporting. Specifically, there are currently over 24,000 crypto ATMs around the world. The data also suggests that crypto ATMs are being installed at the rate of around 52.3 machines per day.
While the cryptocurrency sector is clearly growing, the reason for the surge in crypto ATMs could be the demand for cash to buy bitcoin. Alona Lubovnaya, Director of Product Operations at Bitcoin Depot – a Bitcoin ATM operator – told Cointelegraph that more and more people from all walks of life are becoming interested in crypto, especially the under-banked community. “We have entered a new era where traditional bank accounts can be replaced with digital wallets, and because of this, more and more people are choosing to buy crypto with cash.”
Cash is simple and familiar to the mainstream
While there are many reasons why certain people might want to buy cryptocurrency from an ATM or an exchange, most of the most common use cases seem to center around easy and quick access to crypto.
For example, one study claims that over 50 million Americans are likely to buy cryptocurrencies in the next year. The results also suggest that lack of understanding is the biggest barrier to new investors. Specifically, 20% of respondents said they still don’t understand how to buy cryptocurrency.
Derek Muhney, Director of Marketing and Strategy at Coinsource – a Bitcoin ATM provider – told Cointelegraph that many people looking to get started with crypto appreciate the haptic element of a physical machine like an ATM. According to Muhney, Bitcoin ATMs are the best way to buy Bitcoin for a growing audience of un- and under-banks. While this may be obvious, Muhney went on to point out that this is the case with baby boomers and millennials, noting that these users account for the lion’s share of Bitcoin ATMs’ transaction volume to date.
Echoing Muhney, Ben Weiss, CEO of CoinFlip – a Chicago-based Bitcoin ATM operator – told Cointelegraph that the main purpose of Bitcoin ATMs is to make crypto digestible and accessible to new users who can learn the intricacies of cryptocurrency or blockchain. May not understand technology. To demonstrate this point, CoinFlip carried out a twitter poll to find out how many people on crypto twitter used a bitcoin ATM. CoinFlip’s survey found that 72.2% of people have never used a Bitcoin ATM, while only 27.8% said they did.
Explaining that he was not surprised by these results, Weiss stated that Crypto Twitter is made up of people who are passionate about cryptocurrencies and have a relatively deep understanding of the technology. Hence, Weiss commented that mainstream users are the main customers of Bitcoin ATMs:
“Using a crypto ATM is the easiest way to buy crypto. You don’t have to wait weeks or months for verification and you will usually receive your cryptocurrency before getting back to your car. People understand ATMs, and crypto ATMs are not too different from a concept. “
Alex Mashinsky, CEO and co-founder of Celsius – a centralized cryptocurrency lending platform – went on to say that there are many customer groups in the crypto space. For example, Mashinsky stated that while Hodlers will never sell their cryptos, speculators aim to time the market. However, Mashinsky noted that “tourist” users will likely be the ones who will use a Bitcoin ATM. Mashinsky added:
“For temporary workers and the 25% of those who don’t have a bank account, a Bitcoin ATM is cheaper than Western Union or a wire transfer. This segment will continue to grow and steal market shares from traditional financial companies that their customers have inflated. “
Bitcoin ATMs will grow, but security concerns remain
Given that over 6% of US households, or a total of 14.1 million American adults, currently do not have a bank account, Bitcoin ATMs will undoubtedly multiply in the future. The estimate, supported by Muhney, suggests that “by 2025, more than 100,000 Bitcoin ATMs will be installed and the industry will grow to over 1.7 billion US dollars”.
While this is noteworthy for the growing cryptocurrency sector, security challenges can hinder adoption. John Jefferies, chief financial analyst at CipherTrace – a cryptocurrency intelligence company – told Cointelegraph that Bitcoin ATMs operating in Canada have not required any form of know-your-customer or KYC processes as of last year. “None of these bitcoin ATMs needed KYC, which made them the Wild West,” Jefferies said. As the crypto space matured, Jefferies found that the majority of Bitcoin ATMs in the US now require KYC from users:
“KYC is vital for these money services companies to become part of the traditional financial system. We are now seeing many Bitcoin ATM providers (those who make the hardware) along with the operators focusing on compliance. “
Jefferies added that this was also the case due to audits by institutions such as the Internal Revenue Service or IRS: “Similar to traditional money services companies, Bitcoin ATM providers are visited by auditors. The IRS does this for the Financial Crimes Enforcement Network. “
Additionally, Jefferies pointed out that CipherTrace is beginning to show an interest in Bitcoin ATM providers in a solution to help them comply with the travel rule. The Travel Rule of the Financial Action Task Force (FATF) came into effect for Virtual Asset Service Providers (VASPs) in 2020. The Travel Rule requires regulators and VASPs to collect and share customer data during transactions.
According to Jefferies, CipherTrace is working with six Bitcoin ATM operators to implement a travel policy solution called “Traveler” specifically to meet the due diligence requirements of the counterparty, VASP, as required by the FATF guidelines. While the Traveler tool was recently implemented by some exchanges like Binance and Crypto.com, Jefferies announced that CipherTrace is making the product more suitable for Bitcoin ATM operators to be compliant.
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While this may be the case, some industry experts believe that Bitcoin ATMs are just as secure as traditional ATMs. Jonathan Ovadia, CEO and co-founder of Ovex – a South African cryptocurrency exchange – told Cointelegraph that based on the company’s research, “we don’t believe Bitcoin ATMs are being used for extremely large transactions”. As a result, Ovadia found that compared to regular ATMs, no special security is required, both in terms of physical and cybersecurity.
Eric Grill, CEO of Chainbytes – a maker of bitcoin ATMs – told Cointelegraph that the company operates HippoAtm.com and charges a hefty 17% fee per transaction. Grill announced that the average transaction amount on HippoAtm.com devices was $ 1,183.92 for July 2021 and $ 1,325.98 for June 2021.
This is an important point to consider when it comes to safety. Jefferies said that Bitcoin ATMs that process large transactions could be suspicious. Jefferies pointed out, for example, that Kunal Kalra, also known as “shecklemayne”, ran an unlicensed money services business in August 2019 in which he exchanged US dollars for Bitcoin and vice versa. According to Jefferies, Kalra worked on a commission basis and only dealt with customers who were willing to convert at least $ 5,000 per transaction.
Despite these concerns, Bitcoin ATM providers remain optimistic. Muhney stated that Coinsource’s end users have already invested “hundreds of millions” in Bitcoin. “That is why we are extremely optimistic about the next phase of the introduction of spikes, similar to 2017/2018, which we expect for the second half of 2021.”