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Bitcoin ATMs might make it easier for the mainstream and the unbanked individuals to access cryptocurrency. But, will security risks limit adoption?
When it comes to acquiring bitcoin (BTC), cash might be king as recent data suggests that there has been a significant spike in cryptocurrency ATM installations in 2021, representing a 71.3% increase from January 1, 2021, until the time of writing.
Particularly speaking, there are more than 24,000 crypto ATMs located throughout the world. Data also suggests that cryptocurrency ATMs are getting installed at a rate of nearly 52.3 machines in a day.
While growth is now underway for the crypto industry, the reason behind this surge in cryptocurrency ATMs might be as a result of an increase in demand for using cash to acquire Bitcoin.
The director of product operations for Bitcoin Depot, Alona Lubovnaya, said that more people from all walks of life are becoming interested in cryptocurrency, mainly the underbanked community. Bitcoin Depot is a Bitcoin ATM operator. Lubovnaya said:
“We’ve entered a new era where traditional bank accounts can be replaced with digital wallets, and because of this, more people are choosing to buy crypto with cash.”
Cash Is Easy For Mainstream Economy
While many reasons exist as to why some people would want to acquire crypto from an ATM compared to an exchange, most of the common use cases appear to be focused on quick and easy access to cryptocurrency.
For example, a piece of research alleges that more than 50 million Americans might buy cryptocurrency in the next year. Findings also indicate that lack of understanding is the largest barrier for the new investors. Mainly, 20% of the people surveyed said that they still do not understand how they can buy crypto.
The director of marketing and strategy at Coinsource, Derek Muhney, told reporters that many people are seeking to get started with cryptocurrency value the haptic element of a physical machine like an ATM. Coinsource is a provider of Bitcoin ATMs.
Muhney is convinced that Bitcoin ATMs are the best way to acquire Bitcoin for a growing target group of the unbanked and underbanked. While all that might be obvious, he also pointed out that it has now become the case with the millennials and baby boomers, saying that these users make up the biggest chunk of BTC ATM transaction volumes to date.
While reiterating Muhney’s statement, the CEO of CoinFlip, Ben Weiss, said that BTC ATMs function mainly to ensure that crypto is digestible and attainable to the new users that may not understand the intricacies of crypto or the underlying blockchain technology. CoinFlip is a Chicago-based Bitcoin ATM operator.
To demonstrate that point, CoinFlip did a Twitter poll to determine how many people on Crypto Twitter have ever used a Bitcoin ATM. This survey revealed that72.2% of the people had never used a Bitcoin ATM while just 27.8% said that they had used the machines.
Weiss mentioned that he was not even surprised by the results, saying that Crypto Twitter comprises people who are quite passionate about crypto and have a deep understanding of the technology. In that context, Weiss said that mainstream users are the main customers of these bitcoin ATMs.
“Using a crypto ATM is the simplest way of purchasing crypto. You don’t have to wait weeks or months for verification and will normally receive your crypto before you get back to your car. People understand ATMs, and crypto ATMs are not too different of a concept.”
The CEO and co-founder of Celsius, Alex Mashinsky, also explained this issue, saying that there are many groups of clients in the crypto space. Celsius is a centralized crypto lending platform. Mashinsky insisted that the holders will never sell their crypto, while the speculators strive to time the market perfectly. But, he noted that ‘tourist’ users might be the ones that might leverage a Bitcoin ATM. Mashinsky explained:
“For temp workers and the 25% of those who do not have a bank account, a Bitcoin ATM is cheaper than Western Union or a bank wire. This segment will continue to grow and take market share from traditional finance companies that overcharge their clients.”
Bitcoin ATMs Are Growing, But Security Worries Remain
Taking into account the fact that more than 6% of the US households, or nearly 14.1 million American adults, are still unbanked, Bitcoin ATMs are expected to multiply moving forward. The estimate that was supported by Muhney, suggests:
“more than 100,000 Bitcoin ATMs will be installed by 2025 and that the industry will grow to beyond $1.7 billion.”
While these figures are significant for the budding crypto industry, security challenges might limit adoption. The chief financial analyst of CipherTrace, John Jefferies, said that as recently as 2021, BTC ATMs operating in Canada did not need any type of Know Your Customer (KYC) processes.
“None of these Bitcoin ATMs required KYC, making these the wild west.”
While the crypto space continues to mature, Jefferies said that most of the Bitcoin ATMs in the United States now need some form of KYC from the users:
“KYC is critical for these money service businesses to become a part of the traditional financial system. We are now seeing a lot of Bitcoin ATM vendors (those who make the hardware), along with the operators, focused on compliance.”
Jefferies mentioned that this seems to have become the norm due to examinations from various entities, including the Internal Revenue Service (IRS):
“Similar to traditional money services businesses, Bitcoin ATM providers will get visited by examiners. The IRS does this for the Financial Crimes Enforcement Network.”
Additionally, Jefferies said that CipherTrace is beginning to see Bitcoin ATM providers take some interest in a solution that strives to comply with the travel rule. In the same case, the Financial Action Task Force’s (FATF’s) Travel Rule was implemented for Virtual Asset Service Providers in 2021.
The Travel Rule needs the VASPs and regulators to collect and also share customer data during the transactions. Jefferies believes that CipherTrace is working with six bitcoin ATM operators to apply a travel rule solution known as ‘Traveler’ to mainly address the counterparty VASP’s due diligence that is demanded by the FATF guidelines.
While some exchanges like Crypto.com and Binance implemented this Traveler tool recently, Jefferies said that CipherTrace is now making the product quite viable for the BTC ATM operators to be compliant.
This might be the case but the industry experts think that Bitcoin ATMs are just as safe as the traditional ATMs. The CEO and co-founder of Ovex, Jonathan Ovadia, said:
“ According to the company’s research, we don’t believe Bitcoin ATMs will be used for extremely large transactions.”
In that case, Ovadia, a South African crypto exchange, said that there is no need to install specialized security when compared to the regular ATMs, in terms of cyber and physical security.
The CEO of Chainbytes a Bitcoin ATM manufacturer, Eric Grill, said that the firm operates HippoAtm.com, which charges a huge 17% fee per transaction. Grill said that the average transaction amount on HippoAtm.com machines was $1183.92 for July and $1325.98 for June.
That is an important point to consider when matters about security are being discussed. Jefferies highlighted that Bitcoin ATMs that process huge transactions might be suspicious. For instance, he referenced that in August 2019, Kunal Kalra (shecklemayne) operated an unlicensed money services firm where he exchanged Bitcoin for US dollars and vice versa.
Jefferies said that Kalra worked mainly on commission and just dealt with clients willing to exchange more than $5,000 for each transaction. Despite these worries, Bitcoin ATM providers are still optimistic.
Muhney said that the Coinsource end-users have so far invested several hundreds of millions into Bitcoin.
“This is why we are extremely bullish about the next phase of spike adoption, similar to 2017/2018, which we expect for the second half of 2021.”