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#2258378 - 08/18/21 07:07 PM Bitcoin ATM
Susan Offline
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Joined: Mar 2018
Posts: 75
We are seeing a surge of bitcoin ATMs being placed in local convenience stores that are our customers. We have not seen those before. Do any of you have experience with monitoring bitcoin ATMs? Since there aren't funds going through a bank account, there's nothing to look at internally to know what kind of activity it has. I suppose we could require statements from their vendor to document how much cash is deposited? Are bitcoin ATMs considered money transmitters?

I haven't seen any EDD forms with our compliance vendors to review and document these. Have you seen anything like that?

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#2258379 - 08/18/21 07:09 PM Re: Bitcoin ATM Susan
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Curious as well.

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#2258381 - 08/18/21 07:16 PM Re: Bitcoin ATM Susan
praBSA Offline
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I think someone more experienced with larger clients or international clients that already have Bitcoin ATMs may be able to help. My first impression would be the questions being asked would be similar to any POATM customers and MSBs. Yes, to my knowledge, FinCEN Considers Bitcoin ATM operators MSBs.

My assumption is that individuals have to have an account setup with the Bitcoin ATM company to convert their bitcoin to cash via their wallet and a wallet has to be linked with the company. If your customer is refilling that ATM with cash they would obviously be higher risk than a customer whom is just leasing the space out. What to do with them is on you and your bank's risk appetite.

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#2258382 - 08/18/21 07:17 PM Re: Bitcoin ATM Susan
BrianC Online
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The MSB is the owner of the ATM. The MSB is the owner of the ATM. If your customer is only leasing space and receiving a monthly payment, then your due diligence would be to collect that agreement and determine if the monthly payments are reasonable.

If your customer owns the ATM...well that's a much longer conversation.
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#2258383 - 08/18/21 07:17 PM Re: Bitcoin ATM Susan
praBSA Offline
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For example, in New York there are also state licensing requirements for virtual currency financial intermediaries through its Bit License, created by the New York State Department of Financial Services.

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#2258448 - 08/20/21 03:10 AM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
Posts: 20
I've been a lurker here for a while and figure out it is time to actually comment and write. I'm Founder and CEO of a fairly decent sized Bitcoin ATM company. This thread is perfect, so here's a few comments.

1. None of these machines are owned by the stores. Maybe less than 3%, but the majority are owned and operated by larger companies. If the owner is the operator, they have zero idea what they're doing, so please ask them when you find out they're hosting a BATM.

2. These machines are all "buy only," meaning that cash goes into the machine, and people get cryptocurrency. They're the 100% reverse of a traditional ATM. There is no need to stock the machine with cash to dispense since it's the reverse. In a conventional independent ATM, money is put into the machine and dispensed to the customers. With our machines, they're empty until customers put money into them. We dispatch the armored couriers to empty and collect once we have about $10k in the machine. We love being next to a traditional ATM because people withdraw $500 from the ATM and then insert that cash into our machines. Win-Win. smile

3. We pay the stores $200-$600/month just for the space. They have zero interaction with our business model and we're basically renting out a rack of potato chips in exchange for putting our machine there. Given a sample of 500 of our locations, I would be hard pressed to find a single store owner out of them who actually knew what was happening.

4. Ya'll understanding of wallets and how it works could use some improvement, but that's understandable. FinCEN considers us a MSB and we do the whole CTR/SAR thing, but we're also exempt from MTLs in approx. half the states. That's because by its own definition, the IRS considers crypto property and you can't "money transmit" property. It's fun that the IRS considers it property, FinCEN considers it currency, and the CFTC considers it a commodity (like oil or gas).

5. Our BSA compliance is probably better than any traditional banking institution. We do a Title 31 audit from the IRS -- our regulator, different from yours -- and it's the same audit that a casino goes through every year. Down to the dime. Any poor finding can cause us to lose our banking partner(s), and we go out of business overnight. Our compliance staff ratio to customers is probably two or three times higher than your FI.

6. If there is any decision-maker in your institution that would like to expand into this industry, I am all ears. It's 1991, and this post is your AOL CD in the mail. Leverage it well and look forward to the potential. Last week we facilitated the transfer of $53,000,000 from Atlanta, GA to Seoul, South Korea. It was sent and delivered in less than five minutes for a total fee of $2.30 at 10:35 PM on a Sunday. No intermediary. No federal reserve. No settlement. No permission. Just pure person-to-person transfer of value outside the traditional system.

Just as http:// consumed every piece of information on the planet, bitcoin:// will eventually consume the value exchange between 8 billion people. Please don't be Blockbuster Video.

All that said, does anyone have questions? I'm an open book and like to talk. Hopefully this post doesn't get me banned. smile

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#2258456 - 08/20/21 01:03 PM Re: Bitcoin ATM Susan
Valley girl Offline
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Joined: Aug 2014
Posts: 394
TX
Very interesting Mike. I am completely in the dark about bitcoin ATMs, so I have a question or two. Is the consumer issued an access device specifically for the bitcoin ATMs? If yes, are the card brands involved (Mastercard, Visa, etc.)? Do traditional financial institution PIN networks carry the transactions (NYCE, PULSE, etc.) or was there a network built specifically for bitcoin?

I apologize if the questions seem dumb - I'm just trying to put it all together.

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#2258518 - 08/21/21 12:14 AM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
Posts: 20
Thank you for the reply. These aren't dumb questions at all. 5-6 years ago, I had the same questions and couldn't wrap my head around it either. You aren't alone. smile

No, the customer isn't issued a device or any permission from our company or anything else. None of the traditional networks carry the transaction. Customers have a "wallet" application on their phones. You can go into the iPhone App Store or the Google Play Store on your phone and download any one of 100 wallet apps. They're all free. I personally like "Exodus Wallet" (Google it).

These wallets are what receive the funds from the machine. When a customer goes to the machine and inserts cash, they scan the wallet app on their phone screen (in this case Exodus wallet) and the cash is directly deposited to their phone. From there, they can text it to someone or do whatever. The funds are on their phone and nowhere else. I know, it sounds weird, right? There is no separate network -- the bitcoin network, which runs in the background 24x7 just like "the internet" runs all the time, is what processes the transaction. No PINS or "brands" really. It's just data going from Point A to Point B.

Probably not explaining this well, it's so much easier to explain in person. Have a good evening/weekend.

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#2258556 - 08/23/21 07:27 PM Re: Bitcoin ATM Susan
almbanker Offline
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Joined: Nov 2015
Posts: 45
Mike, This is honestly the most I have learned and understood about Bitcoin in the last however many years! You have a way of explaining it that makes sense. Most of us "small town bankers" need a Bitcoin 101 lesson, so feel free to keep explaining it!

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#2258558 - 08/23/21 07:31 PM Re: Bitcoin ATM Susan
John Burnett Offline
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Welcome to BOL's Discussion Forums, Mike. And thanks for weighing in on a topic that many bankers need info on.
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#2258593 - 08/24/21 03:44 PM Re: Bitcoin ATM Susan
P*Q Offline

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Agreed! Super informative, thank you!

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#2258621 - 08/24/21 07:31 PM Re: Bitcoin ATM Susan
JennKK2 Offline
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so may i ask what the liability / responsibility is for your company who owns the BATM when it is the instrument used to facilitate money laundering or a scam
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#2258631 - 08/24/21 08:41 PM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
Posts: 20
In general, our liability is the same as the US Treasury when cash is used in a scam, or as Western Union when their services are used for a scam, or even Apple when their prepaid gift cards are used for the same.

Scams are a huge risk to everyone. We take it just as seriously as everyone here. We try to mitigate this at every single step and every point of contact. There are huge signs on our machine, in red, in the shape of a stop sign. The customer is forced to wait 10 seconds and read and agree to a disclaimer about scams before inserting money. In the SMS text message the machine sends to the customer, to start the transaction, we give a third scam warning. When we notice a person in a photograph on the phone during a transaction, we try to contact them and validate what they're doing. [These machines all take multiple surveillance photos of the customer standing in front of the machine, in real time -- and we're constantly monitoring]

But sadly, just like most of your wire departments know so well, when a person is convinced they're doing something right and they aren't being scammed, they simply can't be stopped.

What we actually do that hardly anyone else does is keep a "#SAFU" fund -- a Secure Asset Fund for Users. Approx. 0.005% of every transaction is set aside into this fund to assist in compensating people who fall victims to scams. Over time, it has built up so that we can actually pay refunds out of our own pockets to victims when this happens. Sure, we can't do it for everyone, all the time. But we try our best.

So the answer to the question is: Legally we don't have any liability. But the responsible thing to do is try and help when it does happen.

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#2258669 - 08/25/21 04:07 PM Re: Bitcoin ATM Susan
SmallBankBSA Offline
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Posts: 232
Thank you Mike for sharing with us. Would you mind answering a few more questions?

1) when using the Bitcoin ATM, is Bitcoin the only cryptocurrency you can purchase? For example, where would one purchase Ethereum or litecoin?
2) when using Bitcoin to purchase something (today's value is 1 Bitcoin = $48824.30 USD) is the purchase dollar for dollar? for example a $4 Starbucks would cost XX in Bitcoin which is equivalent to $4? Is there a Bitcoin fee?
3) is there a waiting period when someone invests vs when they can cash out their Bitcoin?
4) you said you were subject to CTR / SAR filings, are transactions anonymous?

Again thank you for your help in understanding this from banker who is used to dealing with cold hard cash!

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#2258696 - 08/25/21 05:44 PM Re: Bitcoin ATM Susan
P*Q Offline

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I smell a potential topic for a new BOL webinar in the near future and have a thought on who the speaker can be, if willing.... wink

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#2258796 - 08/26/21 06:27 PM Re: Bitcoin ATM Susan
Local_Banker Offline
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Joined: Jun 2019
Posts: 76
I'm curious what your main target markets are. The unbanked? Low income workers sending remittances abroad (in other words, you're replacing WU and MG)? Other?

We see a lot of virtual currency activity with Coinbase, etc. but would frown upon any sort of substantial cash deposits funding the activity. You must either have some stringent cash limits and/or some serious CDD/EDD procedures. It certainly seems like an interesting business.

Being buy-only certainly helps lower some of the risks but I would imagine you have to keep an eye on what happens after funds are transferred to the initial wallet address to prevent smurfing, strawman purchases, or other illicit techniques that I can't even think of.

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#2260626 - 10/01/21 11:36 PM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
Posts: 20
My apologies for the absence since my original posts above. I have been absolutely crazy busy trying to operate my company and haven't had much "recreational" time to post online. But there has been an outstanding item on my todo list to get back here and reply to the questions posted above, so here goes. It's been a long week, so forgive any typos, please.

I'm curious what your main target markets are. The unbanked? Low income workers sending remittances abroad (in other words, you're replacing WU and MG)? Other?


We have three main cases.

1) Unbanked/underbanked. Those without accounts who simply lack the ability to buy online on an exchange. This market is over 50m in the USA, so at least 1 in 6.

2) People who require immediate use/speed. Signing up for an exchange takes days to get approved. Over a week in many cases. Then link a bank account, and debit funds which are held for clearing for another few days or even a week or two. All due to the reversibility of ACH or credit/debit transactions for 30 days or more. Once the person gets actual use of the digital currency, this entire process can take from 2-3 days up to a month. With our machines, people can go from cash in hand to money in their digital wallet to spend or use in less than 10 minutes. People are willing to pay for speed, it's that simple.

3) Cas preferred (read: privacy preferred) customers. If someone wants to buy $200 of digital currency, they don't want the hassle of "opening" an account, or submitting a ton of information, or having their information with a 3rd party. Either with a traditional FI or with a crypto exchange. We offer the ability to convert small amounts of cash to crypto (with daily limits) without a ton of information.

when using the Bitcoin ATM, is Bitcoin the only cryptocurrency you can purchase? For example, where would one purchase Ethereum or litecoin?


A variety of currencies are offered. All of these machines offer Bitcoin (BTC) and may offer Ethereum (ETH) and Litecoin (LTC). All of which are the most three popular. Some machines offer the purchase of 100+ tokens. Some offer only BTC. Our machines offer five. We've found that too much choice just leads to confusion so it's more simple to offer the basics.

when using Bitcoin to purchase something (today's value is 1 Bitcoin = $48824.30 USD) is the purchase dollar for dollar? for example a $4 Starbucks would cost XX in Bitcoin which is equivalent to $4? Is there a Bitcoin fee?


Yes, it is. Right now $4 = 0.000083 BTC. That's what the customer would be credited. However, there are fees for making the transaction so our minimum purchase is $20. In general, the fees for that can make up 25% of the transaction, so people only realize true value when they purchase over $200 or $300. The fee we charge per transaction is $5.95.

is there a waiting period when someone invests vs when they can cash out their Bitcoin?

No. That's one of the huge selling points and what makes Bitcoin ATMs so attractive. There are waiting periods when buying online on an exchange. But see answer above. We have the cash from the person secured in the machine vault, so we immediately release the digital currency to the destination wallet.

you said you were subject to CTR / SAR filings, are transactions anonymous?

Transactions are never anonymous in 2021. smile

Even for that person buying $200 in my example above, they have to input their cell phone number to get a text message to operate the machine. We take that number and run it up against identity services and get back a risk score and identity score on the person. That phone is registered to Verizon or ATT or T-Mobile who has already done the account verification documentation. Our machines all take pictures and video of all transactions every time.

We do have tier limits where buying over $X requires scanning your government identification. For anything close to $10k, we obviously need SSN and information to file a CTR. Once you're in the five figures, we start asking for SOF, reason for transaction, and other KYC/EDD. They're definitely not anonymous.

Could someone use a burner to buy $40 and be anonymous? Absolutely, sure. But they can also walk into the Apple Store and buy a $3,000 Apple Gift Card with cash -- without providing a single piece of personal information and then launder that gift card. Nobody is funding terrorism $40 at a time. smile

Any other questions, and I would be happy to answer. Hope this is helpful.

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#2260627 - 10/01/21 11:39 PM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
Posts: 20
As a side reply, per our last customer survey, the breakdown for purpose of transaction at our machines is:

Sending money to friends/family overseas: 32%
Sending money to friends/family inside the USA: 24%
Investing: 21%
Online gaming: 14%
Buying goods/services: 9%

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#2260667 - 10/04/21 08:25 PM Re: Bitcoin ATM Susan
SmallBankBSA Offline
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Posts: 232
Mike S - thank you for your reply! You're definitely helping me to better understand the Bitcoin world!
Thank you again!

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#2260701 - 10/05/21 04:19 PM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
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I'm glad I can help answer some questions, thank you. I feel that our two industries will only move closer and closer over the coming years. There are many smaller banks around the country that have fully embraced crypto and actually bank Bitcoin MSBs like ours. They're few and far between, but more and more are doing it each day. However, they will only bank companies like ours with rock solid, externally audited, and thoroughly proven out compliance programs.

If there are other forums here where this knowledge might be more helpful, let me know. Otherwise, I'm opening to answering more questions as they come up around here.

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#2269860 - 04/29/22 07:44 PM Re: Bitcoin ATM Susan
Ohmyachinghead Offline
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Joined: Sep 2015
Posts: 40
Oklahoma
We have a convenient store that has a private owned ATM. This customer is classified, monitored and registered as a MSB. We learned that the ATM is capable of doing Bitcoin transactions. There are buy, sell and exchange capabilities on it. What more do we need to get from the customer?

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#2269862 - 04/29/22 07:55 PM Re: Bitcoin ATM Susan
BrianC Online
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Illinois
Does the customer own and service the ATM or does a third-party that owns the ATM lease the space?
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#2269875 - 04/30/22 06:16 PM Re: Bitcoin ATM Susan
Mike S Offline
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"We learned that the ATM is capable of doing Bitcoin transactions."

Is this a traditional ATM that had a software upgrade to enable bitcoin transactions? or do you mean an entirely different piece of equipment that is a standalone Bitcoin ATM likely placed next to the traditional ATM?

"There are buy, sell and exchange capabilities on it."

If it is a traditional ATM that was bitcoin enabled, they can't process buy transactions via cash (as standalone Bitcoin ATMs do) since regular machines only have bill dispensers and not bill acceptors. In this case the buy is done directly from the debit card inserted into the machine.

"Does the customer own and service the ATM or does a third-party that owns the ATM lease the space?"

You have to ask your customer this question to be 100% sure. However, I can tell you that almost all Bitcoin ATMs (99%+) are owned and serviced by a third-party that operates the machine. They do all the necessary BSA/KYC/EDD and armored cash coordination. While a typical retail shop is able to purchase a Bitcoin ATM, the knowledge and tech skillset required to operate it is simply out of their reach unless the store owner has a decade of IT experience.

"What more do we need to get from the customer?"

If the machine is a Bitcoin ATM separate from the regular ATM, and it's operated by a third party, there isn't much. The store does NOT have access to the machine or its cash at any time, and all transactions and funds are being run through the third-party operator's banking partner, not the store or your bank. The operator of the Bitcoin ATM is simply leasing a 2' x 2' sq. ft. space in the store for a set $/month just like that Red Bull cooler sitting next to it.
Last edited by Mike S; 04/30/22 06:19 PM.
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#2269934 - 05/02/22 07:27 PM Re: Bitcoin ATM BrianC
Ohmyachinghead Offline
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Joined: Sep 2015
Posts: 40
Oklahoma
The customer told our BSA officer that he owns the ATM. He loads it himself. I will have the officer ask the other questions.
Last edited by Ohmyachinghead; 05/02/22 07:29 PM.
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#2269968 - 05/03/22 02:05 PM Re: Bitcoin ATM Susan
Mike S Offline
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Joined: Mar 2021
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Bitcoin ATMs aren't "loaded" as they work directly the opposite of a traditional ATM. People put money into a Bitcoin ATM, and once the machine has reached a set amount/limit of money in it, someone empties out the money and then deposits that cash into a traditional financial institution.

Definitely going to require a follow-up with the store. I'd be curious to find out what they say.

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