A Bitcoin ATM in the wild (Ursula Sommer)
The last time you went to your corner bodega, perhaps you noticed an inconspicuous machine with a large, vertical screen, and a bill acceptor but no cash dispenser. Behold, the Bitcoin ATM.
Currently, there are at least 130 Bitcoin ATMs in New York City, and around 60 in Brooklyn alone. This kind of convenience opens up a new market for cryptocurrency. Unlike popular platforms like Coinbase, which require that a consumer purchase Bitcoin through their bank account online, these ATMs allow anyone with cash and a cell phone to purchase Bitcoin immediately.
Bitcoin is a digital currency with a fixed number of “coins” that are “mined” at all times by an algorithm, which allows for more of the currency to be released. We can think of mining as a way of processing any Bitcoin transaction. Bitcoin has no set price — it fluctuates based on supply and demand, so the prices set by ATM companies are determined in different ways.
The currency became widely known because of its use on the dark web by sites like Silk Road, a now defunct website known as an illicit marketplace for buying drugs that was shut down by the FBI in 2013. While Bitcoin has gained a reputation for being a novel kind of investment, the currency is also slowly coming into use in the physical world, with some stores and restaurants now accepting Bitcoin as payment.
Bitcoin ATMs are marketed by their creators as a way for unbanked populations to gain access to Bitcoin as both an investment strategy and a way of safely keeping funds outside of a banking system. For people without a bank account, this access is critical, and may be one explanation as to why many of Brooklyn’s Bitcoin ATMs are in neighborhoods like Brownsville and East New York. A 2013 study from the Urban Institute showed that almost 30% of Brownsville residents lack bank accounts.
While several deli workers in downtown Manhattan told Gothamist they only saw around six people using these ATMs in an average shift, in Brooklyn, the number jumped to between 10 and 20 people per shift. Sam, a 19-year-old working at a bodega in Bedford-Stuyvesant said that he has seen 15 people use their ATM in just a half hour.
Sam (whose name has been changed to protect his privacy and his quasi-legal business operation) explained that he was the reason that the store has a Bitcoin ATM. “The machine is basically a portal to one of our personal Bitcoin accounts,” Sam said. “We actually transfer money to people’s Bitcoin Wallet and accept the fee for it.”
Despite his age, Sam told me that he’s “been in Bitcoin a very long time—since, like, 2013” when Bitcoin cost around “$6.80 a coin.”
Before the bodega had a Bitcoin ATM, Sam said that they had customers who requested cryptocurrency.
“I’d have to travel to them. And I’ll send it to them and they will give me a fee, and I’ll just make money like that,” Sam said. “It’s the same thing with the ATM—because I don’t have to travel anymore, they can just come right here and get it done.”
The ATMs make Bitcoin available within 30 minutes, whereas online transactions can take days to become available. But the ATMs typically charge a higher transaction fee—between 6% and 25% of the total transaction amount—than if a customer used an online platform, which connects directly to a bank account and can charge between 0.26% and 3%.
Bodegas get paid a flat monthly fee of around $500 to have a Bitcoin ATM installed. In almost all the stores we visited, the Bitcoin is owned by the company operating the machine.
When we went with a friend to see how the system worked, he purchased $10 worth of Bitcoin from an ATM, or 0.00100249 of a Bitcoin, which that particular ATM company was trading at $9,9975.16 per bitcoin when the transaction was made. We only spent a minute at the ATM, but the process of transferring the Bitcoin to his digital wallet took around a half hour. After fees, it was worth $7.99, roughly 20% less than what he purchased.
A group of young men using Sam’s ATM explained to me that they use it because “not everyone has a bank card, [and the ATM is] right here.” They said they “use it to buy clothes. Other people use it for investments.”
Another man explained that his relative who lives abroad will send him money via Western Union. This man then purchases Bitcoin using the ATM and puts it into a digital wallet that he shares with his relative. While online trading platforms would need to link this transaction to one person’s bank account, using the ATM allows them to share a digital wallet.
Most of the ATM users were vague about the nature of their transactions. One man said that he used the ATM to pay his bills, but there is actually a sign that appears on the ATM’s screen warning: “Do not allow anyone else to use your account. Beware online scams! Do not use for ConEd, eBay or PayPal payments! We cannot recover lost funds.”
Despite this limitation, it seems easy to use the ATMs in unintended ways that may not be in line with the recent regulations imposed on the industry by the New York State Department of Financial Services, which issues a BitLicense, or business license of virtual currency activities. No one appears to be monitoring the ways in which people use the ATMs on a day-to-day basis, potentially creating easy access for questionable activity.
Joshua Garcia, an attorney specializing in blockchain and cryptocurrency, said the BitLicense “covers a broad range of activity,” from custodial services like digital wallets, to hedge fund activity, to payment processing that uses cryptocurrency.
While NYSDFS says this license costs $5,000, it has been reported of costing up to $100,000 to obtain after legal fees. This has limited the number of startups who can apply. In an email, NYSDFS stated that to date, they have “approved seven firms for virtual currency charters or licenses, while denying those applications that did not meet DFS’s standards. DFS has granted licenses to bitFlyer USA, Coinbase Inc., XRP II, Paxos Trust Company LLC, and Circle Internet Financial, and charters to Gemini Trust Company and itBit Trust Company.”
Due to the growing number of businesses that accept cryptocurrency, the increased demand for access to cryptocurrency without a bank account, and the lack of regulatory enforcement regarding how people gain access to funds, the number of ATMs seems likely to continue to grow regardless of Bitcoin’s price fluctuations and DFS’s regulatory requirements.
As Sam told Gothamist, “anyone can create a software and just build a machine and then sell it. It’s not that hard. If I wanted to create a company, I can do it as well.”