The Bitcoin ATM: An objective view
In recent years, virtual currency — bitcoin in particular — has withstood questions about legality, volatility, durability and more. And it now appears that this alternative store of value is going to be with us awhile. In fact, some of the world’s largest banks are now investigating the viability of block chain technology — the fundamental principle behind bitcoin — as a longer-term funds transfer solution.
Since bitcoin seems to be establishing itself as a genuine trend rather than a fleeting fad, ATM Marketplace and sister publication Virtual Currency Today commissioned fintech writer Robin Arnfield to take a close look at both the profit-building opportunities and the potential liabilities associated with the operation of bitcoin ATMs — or the integration of bitcoin transaction functionality into traditional machines. The result is our latest guide, “Bitcoin ATMs 101.”
To download the guide, please visit http://www.atmmarketplace.com/whitepapers/bitcoin-atms-101/
Following is the introduction to the guide:
Bitcoin is a digital representation of value — not issued by a central bank, credit institution or e-money institution — that can be used instead of money. It allows people to send and receive payments within a decentralized peer-to-peer computer network and quickly has become the world’s prominent virtual currency.
A growing number of major online retailers — including Overstock.com, Dell and Microsoft — accept bitcoin, while PayPal allows U.S. consumers to purchase digital goods via bitcoin.
“The [bitcoin ATM] concept emerged after bitcoin enthusiasts concluded that the easiest way to exchange cash for bitcoin locally and instantly is to complete transactions using an ATM-like device,” Sam Ditzion, CEO of U.S. ATM and payment industry investment firm Tremont Capital Group, said in the Virtual Currency Today article, “What’s on the horizon for the bitcoin ATM?”
“Some of the machines that have been developed are also capable of the reverse: converting digital currency into physical currency. The devices are typically sold to individual operators who own and operate the machines in high foot-traffic retail locations in an effort to make money from conversion rate spreads.”
Prior to the advent of bitcoin ATMs, the only ways to buy and sell bitcoins were to use a bitcoin currency exchange, or transact face-to-face or online with another bitcoin user. However, those methods could be challenging for less tech-savvy consumers, not to mention their security risks — e.g., fraud and hacking — and a lack of regulatory protection for consumers’ bitcoins.
“While still in its infancy, the deployment of bitcoin ATMs addresses some of the most significant challenges associated with exchanging cash for bitcoin in an easy, instant, safe and fully transparent way,” according to an ATM Industry Association report written by Tremont, “An Introduction to Bitcoin ATMs.”
By acting as the intermediary between consumers and bitcoin exchanges, bitcoin ATM operators shoulder the credit, counterparty and volatility risk associated with dealing with bitcoin exchanges, according to “Bitcoin: Virtual Currency with Real Opportunities,” a report from the ATMIA and the Electronic Funds Transfer Association.
Bitcoin ATM statistics
The world’s first bitcoin ATM was installed at a Vancouver, Canada, coffee shop owned by Waves Coffee House in October 2013. The ATM, was manufactured by Las Vegas-based Robocoin, and supplied by Bitcoiniacs. Customers can insert cash into the ATM and receive bitcoins, or convert bitcoins to cash, with currency conversion taking place through a Canadian bitcoin exchange.
As of March 2015, 356 bitcoin ATMs had been installed worldwide, according to Coin ATM Radar, including 119 in the U.S., 60 in Canada, 20 in Australia and 20 in the U.K.
Coin ATM Radar estimated that Lamassu had 33 percent of the global bitcoin ATM market in March 2015, with 120 machines installed, followed by Skyhook with 16.8 percent (61 machines).
Nearly two-thirds (61.8 percent) of bitcoin ATMs installed worldwide in March 2015 were one-way (selling bitcoin for cash), compared with 38.2 percent that were two-way (buying and selling bitcoin) ATMs.
According to Juniper Research, there were 1.3 million active bitcoin users worldwide in 2014. The U.K.-based consultancy predicts that the global number of active bitcoin users will reach 4.7 million in 2019. It says the total value of all cryptocurrency transactions will fall to $30 billion in 2015 from $71 billion in 2014, due to bitcoin exchange collapses and concerns about security.
“While average daily [bitcoin] transaction volumes have increased by around 50 percent since March 2014, the indications are that much of this growth results from higher transaction levels by established users rather than from any substantial uplift in consumer adoption,” said Dr. Windsor Holden, author of Juniper Research’s “The Future of Cryptocurrency: Bitcoin & Altcoin Impact & Opportunities 2015–2019.”
As bitcoin and other virtual currencies become increasingly mainstream, they can present traditional ATM deployers with additional revenue opportunities.
This is particularly the case with bitcoin, which has the widest acceptance among consumers and retailers of all the virtual currencies in existence.
Globally, bitcoin ATM transaction fees average 6 percent, according to Coin ATM Radar.
“While many consider it a fringe currency, bitcoin — or another similar digital currency with extraordinarily low transaction costs that may emerge in the future — could have a significant impact on the global payments industry,” Tremont’s Ditzion said. “If bitcoin gains traction to become a more widely accepted alternative currency, bitcoin ATMs could become one of the most convenient distribution channels available to consumers for exchanging bitcoin from and into cash.”