Article

Virtual currency: the ATM solution

Despite bitcoin's popularity among the tech savvy crowd, the mainstream audience hasn't caught on. Could a bitcoin ATM be the killer app to drive mainstream acceptance?

September 7, 2015

Perhaps the biggest problem with virtual currency today is not people don't understand bitcoin technology, but rather that they don't know about bitcoin to begin with. A poll by Goldman Sachs revealed that more than half of millennials aren't interested in virtual currency. A study by the University of Kentucky suggested that mainstream audiences aren't, either.

However, in the Goldman Sachs poll, most of the millennials who had used virtual currency before said they planned to use it again — suggesting that the underlying problem is ignorance, not indifference.

In order to draw in new users, the bitcoin community needs a familiar medium — such as an ATM. In fact, bitcoin ATMs have begun to explode onto the market.

The first bitcoin ATM went live in October 2013, according to Coin ATM Radar. Since then, the number of installed units has steadily increased to more than 450 worldwide.  

"Bitcoin ATMs are vital to mainstream exposure of virtual currency," goNetCoins founder and CEO Michael Vogel said. "In most cases, bitcoin ATMs provide newcomers with their first interaction with 
bitcoin."

Adam O' Brien, president of Bitcoin Solutions, argues that bitcoin ATMs increase accessibility because they bypass exchanges.

"Anytime someone can get their hands on bitcoin, fast, it is positive," O'Brien said. "They are able to bypass the exchange (a process that can be both sketchy and lengthy) and able to purchase bitcoin instantly (without having to meet an exchange operator in a coffee shop with a wad of cash). It is the pinnacle of bitcoin accessibility."

Another problem bitcoin and other virtual currencies face is an issue of trust. Between the Mt. Gox scandal and a multitude of hacks and scams, it is easy to understand why many potential users view online bitcoin platforms with a degree of suspicion.

Also, given recent stories in the media about hackers and other criminals demanding bitcoin ransoms, it makes sense that some might view bitcoin primarily as a tool for criminals.

According to Vogel, since people trust ATMs more than online formats, bitcoin ATMs can help change perceptions and win mainstream acceptance for virtual currencies.

"Also, in an era where it is difficult to rate the trustworthiness of websites (let alone online bitcoin exchanges), to most people it feels much safer to buy bitcoin in person from an ATM," Vogel said.

Key to mainstream acceptance is for retailers to see value in installing a bitcoin ATM in the first place. According to Vogel, the machines can help retailers draw a well-heeled and digital-driven demographic.

"Bitcoin-friendly merchants have reported up to double-digit increases in spinoff sales," Vogel said. "This is partly to do with the young, high-income, and tech-savvy demographic that makes up much of Bitcoin's user base. Retailers see bitcoin as a way to attract this ideal customer demographic to their stores, which is increasingly difficult to do in an age when most of this demographic shops exclusively online."

There also are real-world examples of the profitability of bitcoin ATMs: The first bitcoin ATM deployed by Robocoin processed $950,000 in transactions in its first 29 days of operation, according to Coin ATM Radar. Expresscoin employee Scott Walker said that, as with traditional ATMs, profit potential for a bitcoin ATM is based on three things — location, location, and location. With proper siting, the machine could pay for itself within three months; with a poor location it might take a year.

Vogel also said that one Canadian coffee chain saw a 15 percent bump in revenues in stores with bitcoin ATMs. "They weren't yet even taking bitcoin as a payment mechanism in some of these branches, but simply having the bitcoin ATM increased visitors to the café and increased spinoff sales by 15 percent."

Still, there are issues with bitcoin ATMs — for one, simply dealing with the challenges of machine management. "Physical bitcoin ATMs are great, but they do require management: secure cash handling; cash reserves to buy bitcoin inventory; and ensuring local legal requirements are met," Vogel said. His company seeks to address issues with an app that turns digital devices into virtual ATMs.

One more issue with bitcoin ATMs is that many require users to have a mobile wallet to hold their virtual currency. This can be an obstacle for those new to bitcoin who don't know how to create a bitcoin wallet, or which wallet they need to use for what machine. For instance, to use a Robocoin bitcoin ATM the user must have a Robocoin wallet.

Some deployers have made attempts to fix this problem — BitAcess machines allow the user to generate a wallet on the spot. GoNetcoins generates an online bitcoin wallet during the transaction and provides a link and logon information so that the user can access the wallet.

Security is a concern with bitcoin wallets, so users should be wary when picking a wallet, O'Brien said. 

"A secure wallet is always necessary. The ATMs are super-secure —arguably the most secure way to buy bitcoin. [But] as with all bitcoin holdings, you are only as secure as your wallet."

Bitcoin ATMs are a step in the right direction by providers who want to make bitcoin familiar and accessible for mainstream users. But more than simply providing the machine, they'll have to produce a killer app to go with it.

image courtesy Michael Vogel, goNetCoins