What is a Bitcoin ATM?

• What is a Bitcoin ATM
• What does a Bitcoin ATM do?
• How does a Bitcoin ATM work?
• Downside of Bitcoin ATMs

In October 2021, Walmart, the biggest company in the US by revenue, announced that it would hosting Bitcoin ATMs in 200 of its 4,700 supermarkets. This caused a big ripple in the crypto world, given Walmart’s size and customer base, but if you're among those who aren’t even sure what a Bitcoin ATM is, we’re here to help explain what they do, how they work and why you’re likely to see a lot more of them pop up.

What is a Bitcoin ATM?

The word ATM is one of those universal bits of language that can make you understood in pretty much any country on earth. They are machines connected to the banking system that allow you to withdraw cash from your account.

ATM stands for Automated Teller Machine, which doesn’t do a fabulous job of explaining the function. A teller is an American term for someone who works in a retail bank, processing deposits and withdrawals in person. So an ATM is just a machine that provides this function 24/7.

Given Bitcoin is a digital currency, with no physical form and no central authority, the machines in Walmart, and elsewhere around the world, function differently to the ATMs you are used to.

In fact, a better way to describe them would be a crypto exchange kiosk, though that can’t compete with the instant recognition that the ATM acronym provides.

What does a Bitcoin ATM do?

The main functions of Bitcoin ATMs are to allow you to buy Bitcoin (and other cryptocurrencies) with cash, or to sell Bitcoin in exchange for cash. 

Given that cash is slowly dying in popularity as a form of money, it seems quite ironic that it is the only form of payment that Bitcoin ATMs accept.

The big issue here is that ATMs would become a honeypot for money laundering because Bitcoin is anonymous, so they place limits on the amount you can buy or sell, and in some cases will require you to create an account with the ATM operator, and in some cases even provide KYC.

How does a Bitcoin ATM work?

Given what we’ve already explained, to buy Bitcoin from an ATM you’re going to need two things. Cash and a Bitcoin wallet. Read this article first if you aren’t sure what a Bitcoin wallet is or does, 

Firstly, you need to provide the details of your Bitcoin address by allowing the machine to scan a QR code from a Bitcoin wallet on your phone. This is where the ATM will send the Bitcoin once you’ve bought it. This is completely safe as a Public Address only allows funds in, not out.

You then tell the ATM how much cash you want to exchange for Bitcoin. The machine will provide a quote, based on the current exchange rate, plus hefty fees which can amount to around 10%.

Once you accept the quote, it will be available for a few minutes only (shown by a timer) given constant price fluctuation, during which time you’ll need to feed in the required cash.

Once the cash has been accepted, the machine will process the transaction, which you can then confirm on your Mobile Wallet. You may have to hang around to ensure the transaction is confirmed, but the machine will provide a receipt for the transaction.

If you want to sell bitcoin and receive cash, that process will happen in reverse. The machine gives you a QR code to scan. You indicate how much bitcoin you want to sell. Again it will give you a quote, once accepted you have a set amount of time to send the Bitcoin. Once received, cash will be dispensed.   

Downsides of Bitcoin ATMs

Apart from the fact that Bitcoin ATMs only deal with cash, the fees are pretty eye watering, but in line with another common form of exchange found at supermarkets - converting coins to cash.

The appeal of coin-to-cash converters is the convenience. Very few places - banks included - will provide the service, so as long coins remain in circulation there is a demand to convert large amounts into something more convenient, regardless of the exorbitant fees.

You can’t quite make the same argument for a Bitcoin ATM, given you need to have a wallet already to buy or sell. Some ATMs simply dispense a paper voucher, which is then redeemed via QR code, but you still need a wallet, even if it is after the fact.

Their nature has also made them the focus of criminals, either laundering money or as part of various online scams. This is a small, but persistent element of crypto in general, and not unique to ATMs, though they do provide a route to physical cash, which is much preferred by criminals.

It seems the reason why Walmart’s decision to trial ATMs is such a big deal is that it puts Bitcoin at eye level for a huge audience of everyday Americans. It is very unlikely that they will use the machines on impulse, but as they slump over their trolley, waiting in line, the machines may inspire curiosity in a small percentage of that huge audience, which - given Walmart’s reach - could translate into further adoption.

According to CoinATM Radar there are now almost 31,000 ATMs worldwide in 76 countries, and following Walmart’s move, there could be a lot more. Just as the Coinstar style coin converters are extremely lucrative, 10% commission on bitcoin purchases is tidy business.