Bitcoin ATMs — Why Vancouver doesn't want them

Business is booming for Bitcoin ATMs. The standalone machines, which allow almost anyone to buy bitcoin with cash, are proliferating at a rate of nearly six new installations a day.

A year ago, there were 3,200 Bitcoin ATMs in the world. Now there are nearly 5,000. Three quarters of those are in North America — 3,179 in the U.S. and 685 in Canada, according to Coin ATM Radar, a website that tracks the industry.  

How do Bitcoin ATMs work? What makes them so wildly popular? And why does the Mayor of Vancouver want to get rid of them?

How they work

Bitcoin ATMs — or BTMs — look like traditional ATMs, but they do not connect to a bank. Instead they connect directly to a bitcoin exchange. And instead of spitting out $20 notes, they send bitcoin to a digital wallet.  

How BTM's work is simple. First, you need a bitcoin wallet address. If you don't have one, no worries, the machine will create one for you. Next, find a BTM near you. If you live in a major city, like Chicago, Atlanta or Detroit, this should be no problem. 

Once in front of a machine, you'll likely be asked to enter your mobile number, so the machine can text you a verification code. Depending on the BTM, its location, and how much bitcoin you want to buy, you may also have to scan your fingerprint or ID. With that out of the way, all that is left to do is to scan your bitcoin QR code, enter wads of cash — and voila, you're done.

It's easy, but you pay out the wazoo for that convenience. BTMs typically charge a whopping 7-19% of a transaction. Compare that with Coinbase, a regulated US-based online crypto exchange, which only charges 1.9%. 

There are other differences. A BTM gives you bitcoin instantly. Whereas, with Coinbase, or another regulated crypto exchange, you have to enter your banking information and submit to a photo of your ID and your face, to make sure you really are who you say you are. The verification process can also take several days. If you want speed, simplicity and privacy, a BTM is your answer. 

Lack of regulation
Ironically, Vancouver is where the first Bitcoin ATM was installed back in 2013. Now the mayor of the city is proposing to have the machines banned. The reason: BTMs open the door to money laundering and too many of them are operating under the radar. 

In the US, owners of BTMs are required to comply with anti-money laundering regulations, which involve know-your-customer ID checks. But those laws are generally not enforced. In Canada, cryptocurrency regulation is lacking altogether, which means criminals can use BTMs with impunity to conceal the source of their ill-gotten gains.  

BTMs routinely check cell phone numbers, but that is not enough. Anyone can buy a burner phone — a cheap, prepaid disposable mobile phone. And when buying bitcoin from a BTM, you can just as easily send funds to yourself or a digital wallet belonging to a drug cartel in Latin America. 

yeah, the use case for bitcoin ATMs is handy street corner money laundering

— David Gerard (@davidgerard) June 14, 2019

BTMs can enable crimes in other ways. Ransomware hackers and fraudsters often demand payment in bitcoin. They are known to instruct victims to go to a nearly BTM and send funds to a bitcoin address overseas. Because Bitcoin is a non-refundable form of payment, once the money is sent, the transaction cannot be reversed. 

It's not just BTMs. Vancouver is also suffering the sting of another crypto fiasco. Early this year, when Vancouver-based crypto exchange QuadrigaCX went belly up, hundreds of millions of dollars in crypto and fiat went missing. It makes sense the city wants to pull in the reins in on the cryptocurrency space. So, if you are planning to set up a BTM business, best look outside of Canada. 

Image source: Coin ATM Radar

Cover photo: iStock