August 26, 2014

Bitcoin ATMs find a foothold, and skepticism

Welcome to the ATM of the future, where customers insert cash and leave with nothing.

Welcome to the ATM of the future, where customers insert cash and leave with nothing.

A cashless society is still a long way off, but automated machines that turn traditional money into virtual currency are cropping up across the globe. Flat 128, a retailer that sells British jewelry and accessories in New York’s West Village, is home to the first such machine in Manhattan and is becoming a destination for bitcoin enthusiasts.

Yet this new bitcoin ATM is only a means for users to deposit cash and convert it to bitcoins for their accounts; it doesn’t currently have the ability to make withdrawals.

Still, virtual currency supporters see the growing popularity of these machines as a milestone that will help bitcoin ATMs become as widespread as traditional bank ATMs. For that to happen, however, customers will have to get used to exchanging real money for digital code, which may be a bit unsettling for those accustomed to physical currency.

As bitcoin gains acceptance, such ATMs are providing a fast path to change cash to bitcoins, and vice versa. They also are a way to access bitcoin for those who do not want to deal with online exchanges or who lack a traditional bank account.

“The goal of bitcoin is to make money digital,” said Gil Luria, an analyst with Wedbush Securities. “This is really a temporary way of bridging between physical currency and digital currency.” The ATMs appeal in particular to those who want to maintain the anonymity associated with bitcoin, he said.

The companies that make the bitcoin ATMs say they aim to make virtual currency as easy to obtain as purchasing food from a vending machine or ordering a car ride from Uber on a smartphone.

Yet even as merchants race to install their own bitcoin ATMs, some in the virtual currency industry acknowledge that the machines are a marketing gimmick.

“Having these machines in stores, especially quality stores that sell quality items, is really going to raise the profile of bitcoin,” said Matt Russell, the chief marketing officer for PYC, a company that operates bitcoin ATMs in New York. “We’d be fools to not think that marketing is a part of this.”

Merchants around the country say that the bitcoin ATMs are helping lure would-be customers. Some of those are in coffee shops, where the tech crowd and early bitcoin adopters are coming in for beverages.

There are about 200 working bitcoin ATMs around the world, according to the website Coin ATM Radar, which keeps track of the machines in operation.

Even as the rise of these ATMs suggests that bitcoin is gaining ground, the virtual currency world is also facing the prospect of new rules that could stunt growth. Government agencies continue to make efforts to regulate digital money, stirring speculation that virtual currency could eventually be regulated out of existence.

In July, for example, New York state proposed rules for virtual currency companies that some in the bitcoin world believe could make it too expensive to operate in the state. Bitcoin ATMs are particularly vulnerable to regulations intended to prevent money laundering.

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