Bitcoin as Money: Visiting an ATM

Bitcoin as Money: Visiting an ATM

Somewhere nestled in the question of “What should a Bitcoin be worth?”  Is the question of whether it is or can be an actual currency.  With this in mind I wanted to do a several post series on how Bitcoin is (and isn’t) like a currency today.  This is the third part of an envisioned 6 in this series (numbers 1&2 are links):

  1. Bitcoin in the Real World: A Primer On The Rules
  2. Bitcoin as Money: Buying Things Online
  3. Bitcoin as Money: Buying a Sandwich In Person
  4. Bitcoin as Money: Giving Bitcoin to a Person
  5. Bitcoin as Money: Visiting an ATM
  6. Bitcoin as Money: Where Do We Go From Here?

I am going to go a little bit out of order with this series because I was recently presented with the perfect opportunity to use a Bitcoin ATM.  I was in downtown Australia on the last day of an awesome vacation with $150 AUD more than I needed.  I found a bitcoin ATM a few blocks away and figured, why not convert my unused AUD in to Bitcoin instead of US Dollars?

How Do You Have an ATM Without a Bank Account? What does it mean to “have” Bitcoin?

When we think about money traditionally, we think about bank accounts and cash wallets.  Both have a certain amount of money IN them (a balance).  Usually when I am using an ATM it is with the intent of changing the amount of money in my account.  I do this by either exchanging cash for a higher balance (effectively an “IOU” from the bank) or by agreeing to reduce my balance in exchange for cash.  Since there isn’t any physical Bitcoin cash and there aren’t any Bitcoin banks… what exactly is happening when I interact with a Bitcoin ATM?

This is where things take an interesting turn.  When you interact with the Bitcoin blockchain you have a “wallet”.  This is simply a unique set of characters that identifies you in the blockchain.  This wallet does not have a balance though.  It only has a list of transactions that have ever occurred with that wallet (which, obviously, can be used to calculate a balance).  When I use a bitcoin ATM, it is not quite as straight forward as with a bank ATM (where I am simply transferring from my cash account to my bank account).  With a bitcoin ATM, I am essentially paying a third party (not simply a custodian of my money) in dollars to add Bitcoin to my wallet.

In a traditional ATM I am compensating the bank in the form of an ATM fee, the returns the bank can make on my deposits, and the spread on a currency conversion.  In a Bitcoin ATM the bank can’t make money on my deposit because there is no bank.  It is just a service provider collecting fees.  Once the ledger has been updated to include my new Bitcoin, my business with that ATM provider has completed.

How Did the ATM Work?

If you followed all of that, the ATM itself was very straight forward.  I simply opened up my Bitcoin Wallet on my phone and generated a QR Code of my public key.  Essentially, this allowed me to identfy my wallet and suggest it’s the one that I wanted to be debited when I gave the ATM Australian Dollars.  The ATM then invited me to insert Australian Dollars, while proposing the rate at which it would grant me Bitcoin.

Next, I inserted Australian Dollars in the machine and it kept a running tab of the amount of Bitcoin I would be due.

Finally, when I pushed “Send Bitcoins”, I instantly got an alert on my phone that a transaction was pending.  There is some latency in the system so the whole transaction took about 30 minutes to finalize.

Was This Expensive?

For the experience of using a Bitcoin ATM, I was willing to move my $150 AUD this way even if it wasn’t the most effective way.  Now that it’s over though, let’s look at the costs.  Overall, I was pleasantly surprised.  At mid-market rates for the 15 minutes during which the transaction occurred $150 AUD was worth $118.53 USD (it was at a .79017 rate).  I wound up with $115.88 USD worth of Bitcoin (at rates from that moment as well).  If we’re being fair, If I had wanted to put that money in a USD account Coinbase would have charged me 1.49% plus 200 basis points on the exchange rate (a total of 3.49%).  So, in total, I would have received $111.84 USD.  Not too bad compared to the $118.53 of the true exchange rate.  Even good next to the conversion booths in the airport which have worse rates and often take a fee.

So Bitcoin ATMs are the Future?

Well, they’re not as bad as I expected from a financial perspective.  It’s still unlikely that my usuage of them will rise though.  First, as long as most of my transactions are in USD and I’m paid in USD, I’m going to need a USD bank account.  If I have a bank, that’s motivated more by wanting my deposits than collecting fees, why bother with the fees of Bitcoin?  Also, Bitcoin ATMs are still pretty hard to find (especially ones that dispense cash).  Finally, the tax implications of moving money in and out of Bitcoin mean that I want to keep my activity minimal.  That said, if I find myself with surplus foreign cash and a Bitcoin ATM near by, I may repeat a transaction like this one.