While most Bitcoin transactions take place online, sometimes cryptocurrency users have physical cash that they want to convert to Bitcoin. In that case, they’d want to use a Bitcoin ATM.
What is a Bitcoin ATM?
A bitcoin ATM is a standalone machine or kiosk that serves as a portal for customers to deposit cash and receive bitcoins. Some crypto ATMs offer only bitcoin, while others also allow users to take out other cryptocurrencies.
Around the United States and the world, bitcoin ATMs are popping up in gas stations, convenience stores and other locations. As of October 2020, there were more than 9,000 bitcoin ATMs, according to Coin ATM Radar. Some estimates list a total of 14,000 bitcoin ATMs in the world. The companies that operate these ATMs sometimes require that you use their particular cryptocurrency trading platform, or their proprietary wallet. For this reason, some bitcoin ATMs only work for customers who have an account with a particular platform.
Many bitcoin ATMs have strict minimums and maximums for each transaction. The Financial Crimes Enforcement Network (FinCEN) requires that all bitcoin ATM operators in the United States observe and follow the anti-money laundering provisions of the Bank Secrecy Act (BSA). As a result, users who make larger transactions on a bitcoin ATM may have to provide personal information. That information may include a mobile phone number to use for transaction verification. In addition, some users may have to scan a government-issued identification, such as a passport or driver’s license, to verify the identity of the person making the transaction.
A bitcoin ATM provides a fast and easy way to buy bitcoin with physical cash. Otherwise, users would need to deposit the cash into a traditional account and then transfer it into a crypto exchange in order to do the transaction.
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How Do Bitcoin ATMs Work?
Despite the name, a bitcoin ATM doesn’t work like a bank’s automated teller machine (ATM). Those traditional ATMs typically allow customers to withdraw cash, deposit cash and checks, or to transfer the money between accounts in the same bank.
Like a traditional ATM, a bitcoin ATM is connected to the internet. But bitcoin ATMs, by contrast, receive hard fiat currency, such as dollars, from the user, and give them bitcoin or other types of cryptocurrencies in return.
It delivers that cryptocurrency to the user’s crypto wallet, which the user identifies by scanning a unique quick response (QR) code into the machine. Most ATMs offer a real-time exchange rate, but they also charge users a fee for the convenience of the bitcoin transaction.
The dollar-to-bitcoin rate changes from minute to minute. And the rate offered by a machine may carry a larger financial impact on the transaction than the fees themselves. So, investors who plan to use a bitcoin ATM on a regular basis to turn cash into crypto may want to take a close look at the exchange rates offered by different bitcoin ATM providers, in addition to their fees, as they may be significantly higher than what you’d see in a crypto exchange.
While most machines do not dispense cash in exchange for the bitcoin a user owns, some newer machines have begun to offer this capability. A user can confirm that their cash purchased bitcoin or another form of crypto by checking their crypto wallet. But the transaction may take several minutes to show up.
For users who want to buy bitcoin from a bitcoin ATM but don’t have a crypto wallet, some bitcoin ATMs will generate a new wallet for them.
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How to Use a Bitcoin ATM
Using a bitcoin ATM requires several steps:
1. Get a crypto wallet.
Before using a bitcoin ATM, you’ll need a wallet in which to deposit the bitcoin that you purchase. Those assets live on the blockchain, but the crypto wallet tracks your balance and lets you access your cryptocurrency with an alphanumeric key. Those wallets can be web-based or can be hardware devices.
2. Prepare the wallet.
Make a note of the alphanumeric code for your wallet, or download a QR code to allow for quicker access.
3. Find a bitcoin ATM.
There are many guides, such as this one , to help you find a nearby bitcoin ATM machine. Many work like maps, in which you simply type in your ZIP code to receive a list of addresses where you can find a bitcoin ATMs and the company that operates the bitcoin ATM. They also list the company that operates the bitcoin ATM.
4. Set up an account.
To use a bitcoin ATM, set up an account with the ATM operator. This process will require you to enter some personal information.
5. Enter your wallet information.
At the ATM you will follow a prompt to indicate your wallet – via QR code or alphanumeric key.
6. Insert cash.
When you physically deposit cash, the bitcoin ATM operator transfers that into bitcoin or the other forms of crypto you requested. If you insert $200, for example, you’ll receive $200 of bitcoin at its current market price, minus the ATM provider’s operating fee. Some ATMs also charge a miner’s fee, which they deduct from the deposit amount.
7. Confirm the purchase.
This is your last chance to review and confirm your purchase and what fees you’re paying, before making the transaction.
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Bitcoin ATM Fees
When users buy bitcoin or other forms of crypto at a bitcoin ATM, they have to pay a fee. While you may be familiar with the single-digit percent-of-withdrawal fees charged by traditional ATMs, the fees are much higher for bitcoin ATMs.
Like the fees charged by cash ATMs, the fees charged by a bitcoin ATM are not a flat dollar amount, but a percentage of the transaction. According to Coin ATM Radar, the average fee for buying crypto at a bitcoin ATM is 8.4%. Some research shows that there are bitcoin ATMs that charge fees of more than 25%, while others commonly charge between 10-15%, so it can pay to shop around.
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The Future of Bitcoin ATMs
Most bitcoin ATMs only allow users to deposit cash, often at very high fees. But there has been a movement among some operators to make them more like traditional ATMs and allow for cash withdrawals. Some bitcoin ATMs have the capability for both types of transactions.
The process for converting crypto into cash and withdrawing the cash will work like the current deposit process, but in reverse.
Given the high fees available to bitcoin ATM operators, it’s likely that these machines will continue popping up with greater frequency, offering more features, and hopefully competing more aggressively on the prices they charge for their services.
The Takeaway
Bitcoin ATMs are increasingly common. They offer convenience to some crypto investors, but often they also charge extremely high fees and require the user to have a crypto wallet.
Photo credit: iStock/farakos
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