How Bitcoin ATM works?

The bitcoin ATM looks like a normal one, but it doesn’t work the same. Unlike with ATM for fiat currency, where users can make cash deposits or withdrawals. Bitcoin ATM only enables users to buy and sell Bitcoins for fiat cash. Though some of these ATMs do not allow withdrawal option for bitcoin, as it’s not a physical currency, and only accepts cash i.e. buy bitcoins on them.

Using the Bitcoin ATM can be more expensive than the online transactions, this is because of the high cost of infrastructure associated with Bitcoin ATM, that is erecting the actual ATM and the required procedures to actually transfer the money and Bitcoins.

The first step involved in using a Bitcoin ATM is to first scan one’s identification which will then be validated by the ATM. To buy bitcoin, the user generates a QR code (a large square of black and white pixels) for his/her wallet address from his/her wallet. The user inserts some cash into the ATM, the cash is immediately converted to Bitcoin equivalent which the user can then sends to his/her wallet via the address presented in the QR code. In case of a withdrawal, some Bitcoin ATMs generate a paper wallet, others generate an offline wallet, basically an instrument bearing the Bitcoins.

Since Bitcoin ATMs are basically money transmitting tools, they come under FinCEN rulings and have to comply with Know Your Client (KYC) and Anti Money Laundering (AML) procedures. Registering for such money transmitter status can be expensive, this means Bitcoin ATM providers have to pay up high fees.

Usually, these fees are about 5 percent, while quoted fees are taken from large exchanges on a live basis. The ATM provider will endeavor to manage its Bitcoin and cash exposure by balancing its inputs and outputs through live trading with its exchange because holding a lot of Bitcoin without hedging can possibly result in large profits or losses. Another problem comes with banking facilities. Getting traditional banking facilities have been extremely difficult for bitcoin-related businesses, hence, moving cash in and out can be challenging. However, hedging using various Bitcoin futures is a method of alleviating the risks posed by Bitcoin’s volatile price fluctuations.

One important use of the ATM is for travelers when they are faced with high fees at traditional bureau de changes, so buying bitcoin before the journey and selling it afterward, though with 5 percent fees each way and large volatility this is quite risky. Another potential use of the ATM is that it allows the unbanked to gain access to Bitcoin and partake in international e-commerce. Basically, this gives these people the chance to become their own global bank as Bitcoin spreads all over the corners of the world.

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