As interest in Bitcoin (BTC) and crypto has increased in recent years, Bitcoin owners are no longer “early adopters” but more and more the mainstream public. As not all of the mainstream public is technology savvy and cash is still king (more than 50% of payments worldwide are still via a physical interchange), the opportunity for Bitcoin ATMs is enormous. However, there are also downsides to their usage and further expansion.

The rise of Bitcoin ATMs

According to Coin ATM Radar (https://coinatmradar.com/), as of January 20th, 2022, there are 34.943 Crypto ATMs worldwide. In the first half of 2021, there has been a spike in Crypto ATM installations. In fact, from January 1st, 2021, until the time of reporting, mid-2021, the increase has been over 71%.

Comparing the data of total installed Crypto ATM installations from mid-2021 until today, we can observe an additional increase of over 50%. Some data sources speak of an installation rate of about 52 new machines per day.

The above figures show the general public’s interest in acquiring Bitcoin and other cryptocurrencies (usually, Crypto ATMs sell 4-5 different cryptos) by paying with cash. There are several reasons people want to accept cryptos with good old cash:

  1. Although online crypto exchanges have increased user-friendliness in recent years, a large part of the population is not technology savvy and still hesitates to buy crypto online (although they usually buy groceries and books online, do their banking online, etc.
  2. There is a lack of trust in the exchanges, usually because the public does not know which crypto exchanges to trust. They prefer going to a physical location such as a shop with a Crypto ATM and converting a limited amount of fiat currencies into crypto.
  3. As cash is still kinging, many people still manage cash daily or payout cash. Instead of buying a lottery ticket or spending money in a shop, people want to participate in recent years’ crypto boom and keep up with their friends and neighbors who talk about Bitcoin at birthday parties and other social gatherings.

Risks of Bitcoin ATMs

As with all new phenomena, the increase of Bitcoin ATMs also poses several risks. Let’s look at a few of them:

  • Identification of the buyers. As there is no face-to-face interaction between the provider of crypto and the buyers, there are risks related to money laundering and fraud. To mitigate this risk, buyers must identify themselves with official documentation. The ATM scans and camera footage can be used to record the entire process and compare the video with the buyer´s photo ID.
  • Knowledge of the buyers, in general, the managers of Bitcoin ATMs have little understanding of their buyers (economic activity, wealth, personal circumstances, etc.). Does one person (or several related persons) buy a lot of Bitcoin on separate days or at different ATMs? Although regulated recently in AML laws, the KYC processes are still very poor in most cases.
  • Source of funds, when paying with cash (unlike credit card or debit card payments which some Bitcoin ATMs also allow), it is much more difficult from an Anti Money Laundering (AML) point of view to trace the origin and the destination of transactions. When introducing cash in the ATMs, criminals can be in the first phase of money laundering, called “placement.”
  • Cyber attacks can attack the ATMs to then physically steal the fiat or virtual crypto.
  • In several cases, the robbing of Bitcoin ATMs has been caused by vandalizing and destroying the machines. To avoid this, there are several (physical) safeguards to be put in place such as to build a strong structure with proper weight, placement of machines within closed areas like shopping centers and gas stations, and also marker spray for the physical money inside the ATM which explodes in case of a non-authorized opening.
  • Lack of regulation in many countries at this moment can lead to fraud, money laundering, market abuse, competition law, and other legal issues for the consumer, the providers, and the general public.

Regulatory developments

In 2019, in the U.S.A., FinCEN published a guidance document which establishes that owners/operators of virtual currency kiosks who use an electronic terminal to accept currency from a customer and transmit the equivalent value in virtual currency (or vice versa) qualify as a money transmitter both for transactions receiving and dispensing fiat currency or virtual currency. As a result, according to Bank Secrecy Act (BSA) regulations, owner-operators of virtual currency kiosks are considered money transmitters. They must comply with BSA regulations, such as verifying and collecting customer information on specific transactions and maintaining an AML program.

As of 2018, the 5th EU AML Directive also included Virtual Asset Service Providers such as exchanges (and Bitcoin ATMs can be considered such) as obligated subjects, and in 2020 and 2021, they have been included in the national EU member state AML laws. In October 2021, the Bank of Spain, like other EU countries, also established an obligation for these operators to register themselves and provide evidence of AML compliance formally.

Conclusions

As Bitcoin (BTC) and crypto, in general, are going mainstream, we will see a further rise of physical Bitcoin ATMs near our homes. It is a good thing and will further facilitate the adoption of crypto. However, it is essential to adequately manage the physical and cyber risks related to Bitcoin ATMs to protect the general public. Furthermore, significant money laundering-related risks should be mitigated by applying a risk-based approach to customers and transactions.

This document was created by
Team Core