DEFINITION of Bitcoin ATM
Bitcoin ATM is an Internet-connected kiosk that allows customers to purchase bitcoins with deposited cash. A bitcoin ATM is not the same as an ATM backed by a bank or traditional financial institution.
BREAKING DOWN Bitcoin ATM
In the arc of financial history, it wasn’t until relatively recently that an individual could get cash or make a deposit anywhere other than a bank branch. The automated teller machine, or ATM, was introduced in the 1970s, and has now become such a common fixture that it is uncommon not to have one located nearby.
While the use of banking via the Internet and mobile applications has reduced demand for some of the ATM’s traditional features, it has found itself in a renaissance driven by the increasing popularity of cryptocurrencies like bitcoin.
Bitcoin ATMs allow customers to buy and sell bitcoins. The use of “ATM” is a bit of a misnomer, as it is not actually an ATM but rather an Internet-connected machine. The kiosk connects the customer to an exchange where bitcoin transactions can be conducted. Transaction records are provided via a receipt generated by the kiosk, much like a traditional ATM, or they can remain digital.
While a bitcoin ATM looks like a regular ATM, it does not dispense coins or notes. Depending on the ATM operator, customers may be required to connect to their e-wallet in order to complete a transaction.
Bitcoin ATMs are rarely operated by major financial institutions. As such, they do not connect customers to a bank account. Customers instead deposit cash into the bitcoin ATM, which can then be used to purchase the cryptocurrency.
Often, a bitcoin ATM will set an upper and lower limit to the amount of cash that can be deposited. Since the upper limit may be lower than the price of one bitcoin token, customers are able to purchase fractions of bitcoin. After a purchase is made, a record of the bitcoin will appear in the customer’s e-wallet, though this may take several minutes to process.
Some ATMs require customers to pass these security checks before completing a transaction. The ATM may require a two-factor authentication. This may involve the customer inputting a phone number to receive a verification code. The code would then have to be typed into the ATM. The kiosk may also require scanning a government-issued identification, such as a driver’s license.
Bitcoin ATMs are not widely available, with kiosks typically only found in major cities. ATMs are more likely to be owned and operated by companies focused on the cryptocurrency industry. In some cases, a bitcoin ATM may be operated by a company that offers its own trading platform or e-wallet. These companies may require a customer to have an account in order to conduct a transaction, much like how banks do.
Customers are charged a service fee for using a bitcoin ATM. This fee is typically charged as a percentage of the transaction rather than a fixed dollar value typically seen in traditional ATMs. The U.S. Consumer Financial Protection Bureau (CFPB) has indicated that fee percentages may be very high, and that the exchange rates offered may not be as competitive as consumers would find elsewhere.