Bitcoin ATMs

In recent passages through airports, I have noticed a few bitcoin ATMs.  I am told that there are nowadays bitcoin ATMs in some 24-hour gas stations, convenience stores, liquor stores, vape shops and smoke shops.

There are, I suppose, two distinct ways that person might use a bitcoin ATM. One thing is you might have a bunch of cash in your pocket and you decide to try to get some bitcoin for it. The other would be that you have some bitcoin and you decide you would like to exchange it for cash.  How might this work?

Getting bitcoin for cash.  Let’s suppose you have a bunch of cash in your pocket and you decide to try to get some bitcoin for it.  What might you do next?

Using an online exchange?  You might start by clicking around and looking at the online bitcoin exchanges that are available in your location.  In the US there are quite a few online bitcoin exchanges, including Coinbase, Kraken, Gemini, and Strike.me.  (The one I have actually used is Strike.me.)  What you will immediately see is that they don’t take cash.  You will also see that each of these exchanges has strict KYC (know your customer) requirements.

Going to a bricks-and-mortar bank.  So the next thing you could do is go in person to a bricks-and-mortar bank where you have an account.  (To open the account, which was probably a long time ago, you did what was needed to comply with your bank’s KYC requirements.)  You deposit the cash into your account.  I am not aware of any bricks-and-mortar banks that are willing to convert dollars to bitcoin.  So probably the only available next step is to transfer the dollars to an online exchange as mentioned above.  At the exchange, you convert the dollars to bitcoin.

What to do next at the exchange?  Once you have your bitcoin at the exchange, the general rule is not to “park” the bitcoin there.  Instead, the prudent thing to do is to transfer the bitcoin to your cold storage.

Using a bitcoin ATM?  Which brings us to the topic of this blog article.  Yes, one imagines that a bitcoin ATM might be a way to accomplish this task of converting cash to bitcoin.  You might wonder if maybe the ATM does not have KYC requirements.  (I have no experience with any bitcoin ATMs, so I do not know about this from personal experience.)  Maybe you can tap on the screen of the ATM, enter the cold-wallet address to which you want the bitcoin to be sent, feed the cash into the ATM, click “send”, and be done with it.  But as I click around on the Internet, the impression that I get is that non-KYC bitcoin ATMs are very rare in the US, and that people think they are a bit shady and risky.

It seems that most bitcoin ATMs in the US have KYC requirements that are as strict as any bank.  You can expect to have to scan an ID, take three selfies, and have a confirmation code sent to your phone or email.  I have to assume that a seemingly simple deposit of cash and conversion to bitcoin could take a quarter of an hour or more, standing in front of the ATM.  It seems that with many bitcoin ATM service providers, you are forced to “create an account” into which your bitcoin are deposited.  Only after this is done would you be able to do the necessary and smart thing, which is to transfer your bitcoin to your cold-wallet address.

I find, clicking around in discussion groups, that bitcoin ATMs charge non-negligible fees.  I cannot shake the suspicion that the operator of a bitcoin ATM also uses an exchange rate that is significantly less favorable than the exchange rate that a normal online exchange would use.

My impression is that if you have a modest amount of cash that you wish to convert to bitcoin, the absolute best and easiest way to do this would be to find a trusted friend who will take your cash and transfer bitcoin to your cold-wallet address.  To say this another way, I think a bitcoin ATM should be used only as a very last resort if no other way can be found.

Getting cash for bitcoin.  Let’s suppose you have some bitcoin (probably in your cold-storage wallet) and you decide to try to get cash for it.  What might you do next?

Sending your bitcoin to a bricks-and-mortar bank?  You might think of sending your bitcoin to a bricks-and-mortar bank where you already have an account.  You transfer your bitcoin to the bank.  The bank converts the bitcoin to dollars.  Then you withdraw cash in person, or withdraw cash at the bank’s ATM.  But no, I am not aware of any bricks-and-mortar bank in the US that is willing to receive transfers of bitcoin.

Using an online exchange?  You might think maybe you could transfer the bitcoin to an ordinary online bitcoin exchange and then somehow receive cash.  But they all seem to be allergic to cash.  You can’t give them cash, and there is no way to get them to give cash to you.  But the exchange could get you a step closer by at least converting the bitcoin to dollars, and then could transfer the dollars to a bricks-and-mortar bank.  This goes hand in hand with the general rule which is not to “park” any bitcoin in any exchange.

Once you have transferred the dollars from the exchange to your bricks-and-mortar bank, then you could withdraw cash in person or from the bank’s ATM.

Using a bitcoin ATM?  Which brings us once again to the topic of this blog article.  Yes, one imagines that a bitcoin ATM might be a way to accomplish this task of converting bitcoin to cash.  As I click around on the Internet, I get an impression that at many bitcoin ATMs, this direction is unavailable (the only available transaction is depositing cash and purchasing bitcoin).  But yes, as I click around, I get an impression that there are some ATMs where you can convert bitcoin to cash.  You arrive at the ATM with your cold-storage wallet, click around to satisfy KYC requirements, and transfer the bitcoin to the on-chain address of the bitcoin ATM service provider.

And then wait, maybe ten minutes, maybe an hour, for the transfer to be “confirmed”.  This could really be a problem, since you don’t dare walk away from the ATM.  It might spit out the cash while you are taking a bathroom break.

But yes, assuming things go well, maybe you would receive the cash from the bitcoin ATM.

The impression that I get is that bitcoin ATMs that convert bitcoin to cash charge substantial fees.  And again I cannot shake the suspicion that the operator of a bitcoin ATM also uses an exchange rate that is significantly less favorable than the mid-market rate.

My impression is that if you have a modest amount of bitcoin that you wish to convert to cash, the absolute best and easiest way to do this would be to find a trusted friend who will receive your bitcoin and hand you the cash.