How does a Bitcoin ATM work or How to use a Bitcoin ATM?

A Bitcoin ATM allows users to buy and sell Bitcoins for cash.

Bitcoin ATM’s can be more expensive than online transactions as the infrastructure cost is higher – i.e. building an actual ATM and the steps that are needed to transfer the money and Bitcoins.

The first step is to scan her identification which the ATM then validates.

Then the user feeds in some cash and generates a QR code from her wallet – a QR code being a large square of black and white pixels. Then the user sends the Bitcoins to the presented address.

Some ATM’s generate a paper wallet – or offline wallet – essentially a bearer instrument of the Bitcoins.

Bitcoin ATM’s are mainly money transmitting tools and as such the businesses come under FinCEN rulings and have to comply with Know Your Client and Anti-Money Laundering procedures, or AML and KYC. Registering for money transmitter status can be costly, and this means ATM providers have to nudge up fees.

Typically fees are in the range of 5% and quoted prices are taken from large exchanges on a live basis. The company will try to manage its cash and Bitcoin exposure by balancing its inputs and outputs through live trading with its exchange – holding too much Bitcoin without hedging can introduce the possibility of large profits or losses. Other problems come with banking facilities as it has been extremely hard for bitcoin-related businesses to get traditional business services – so moving cash in and out can be problematic – hedging using various Bitcoin futures can be one method of mitigating risks involved due to volatile price fluctuations.

Although the first users of Bitcoin have been aficionados and enthusiasts, there are persuasive arguments for the spread of Bitcoin ATM’s. One primary use is for travelers when faced with high fees at the traditional bureau de changes – so buy bitcoin before the flight and sell it afterward – although with 5% fees each way and high volatility this is quite risky.

The other potential use for access is allowing the unbanked to gain access to digital currency and partake in international e-commerce. Essentially giving them the chance to become their global bank as the spread of Bitcoin and cryptocurrency reaches all corners of the world. A Kenyan shilling won’t get very far while a milli-Bitcoin will.