Bitcoin ATMs and Blockchain Application in the ATM Industry

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LTP Research Team

With the global ATM industry expected to reach almost $22 billion by 2020, it is no wonder that it has been on fire recently. Asia-Pacific is of a particular interest as it’s the fastest growing region with CAGR of $10.6% (2014–2020) outpacing the Americas, Europe and LAMEA. With positive trends on traditional ATMs, bitcoin evangelists have decided to leverage the opportunity and bring cryptocurrency to the physical world with ATMs.

Bitcoin ATM landscape

As the controversial cryptocurrency draws attention and even gets institutionalized, bitcoin ATMs begin to gain traction as well. The history of bitcoin ATMs is quite recent; they were started by brothers Zach and Josh Harvey in 2011. Their experiment with building something that could solve the issue of buying the virtual currency grew into Lamassu Bitcoin Ventures, one of the world’s largest bitcoin ATM manufacturer in terms of deployment.

With the Harvey brothers pioneering the space, the second player that entered the market has truly put bitcoin ATMs on the radar at the time of the launch. Nevada-based bitcoin ATM manufacturer Robocoin broke into the industry in 2013 when the company deployed its first machine in Vancouver to net over a million Canadian dollars within a month. Unfortunately, things didn’t go so well for Robocoin as the company recently announced the shutdown of its bitcoin ATM business.

Two companies with very different equipment paved the way for other players, bringing the number of bitcoin ATMs to 581 globally with North America and the UK leading in terms of the market share of deployed machines.

There were 10 main players in the bitcoin ATM space before Robocoin shut down the business. On January 15, the company recommended customers to withdraw their funds from their wallets. While the shutdown is in progress, let’s look at the distribution of market share among the main players and also by country.

The largest bitcoin ATM manufacturer is Genesis Coin with 169 deployed ATMs and 30% of the market share. Lamassu holds the second place with 23% and General Bytes is on the third place with 15%. The US is leading the industry with more than half of all bitcoin ATMs deployed in the country. The second place is held by Canada with 19% and the UK has 7% of all deployed bitcoin ATMs.

Greece could soon change the balance with bitcoin ATMs expected to roll out across the country. BTCGreece, the company that calls itself “the country’s first bitcoin exchange,” plans to install 1,000 ATMs nationwide in partnership with European bitcoin platform Cubits.

BTCGreece Founder Thanos Marinos said to CoinTelegraph, “We are creating the ecosystem of bitcoin and blockchain solutions in the Greek market. That will include the rollout of 1,000 ATMs and solutions for the e-commerce and tourism industry.”

There are also collaborations between bitcoin companies and traditional ATM manufacturers to enable regular ATMs with bitcoin payments.

An example here is Korea’s largest ATM hardware producer – and the world’s fourth biggest – Nautilus Hyosung, which has somewhere between 7,000–9,000 active machines in South Korea. Last year, the company partnered with South Korean bitcoin services company Coinplug to enable bitcoin purchases with credit cards. The partnership makes Coinplug the first to sell bitcoin through ATMs not specifically designed for that purpose. Moreover, it will be the first credit card to enable bitcoin service in the country.

Why is UX with bitcoin ATMs different?

While bitcoin ATMs may look exactly like a traditional one, it may create confusion for an average user who has had little to no previous experience with digital currency. A bitcoin ATM is designed to simulate exactly the same experience we have with regular ATMs – frictionless and quick interaction. However, for someone to has no experience using it and maybe doesn’t even know what a virtual currency is, it may become the first and the last interaction due to the lack of understanding.

Bitcoin ATMs are aimed to serve as regular ATMs, but their manufacturers don’t yet understand that our relationships with regular currency and digital currency are very different. Dollars don’t need to gain our loyalty, but bitcoins need to. Bitcoin ATMs need to be designed in such a way that they introduce first-time users to virtual currency and build loyalty.

Another problem is related to bitcoin in general. There are certain risks of holding bitcoins because their value fluctuates a lot and there is currently no protection or insurance if their bitcoin wallets are compromised, as the ATMIA (ATM Industry Association) warns.

As the ATM Industry Association states, there is currently insufficient supervision of bitcoin ATMs. These machines should be brought into the fold of the wider ATM industry, becoming part of the industry, subject – in particular – to the best security practices and other aspects of the industry’s code of conduct.

Blockchain and the ATM industry

Aside from bringing virtual currency into the real world through ATMs, there is another part of the story – the possible role of distributed ledger technology in the ATM business.

One of the thought leaders in this space is a major ATM manufacturer, Diebold, which in 2014 had a 17% market share of 3 million ATMs installed globally according to RBR research results (second place after NCR with 23%). Devon Watson, VP of Global Software and Strategy at Diebold, has indicated that Diebold is interested in blockchain technology, specifically permissioned distributed ledgers where a select number of financial institutions share a transaction network. Watson believes that blockchain technology could expand use cases related to upgrading legacy financial infrastructures. Diebold also sees the potential of the technology to tame the issues with data privacy laws and data security related to payments.

Watson expressed an excitement over the applications for blockchain-based assets. In particular, he mentioned his visit to MIT where he saw how property titles could be transferred via these systems.

Another interesting case with blockchain application for ATM transactions is around settlement. With blockchain-powered transactions, there is no need for settlement between banks to occur directly on the network or through the third-party (products). Instead, anyone potentially would be able to save fees charged for ATM use by connecting to one of the supernodes (which can be another bank) and establish a payment channel with them. It may eliminate the necessity for banks to take care of the bulk of transactions happening at their ATMs, or with their accounts on someone’s ATM, at the cost and time they are doing it now. It could be a back-end application of blockchain technology for ATM transactions in order to eliminate the transfer and conversion fees.

Withdrawals and deposits of funds on someone’s account in a different bank can change dramatically moving from high fees and time for settlement to instant transaction. Potentially, there may be no need in differentiated ATMs if blockchain technology can eliminate the difference of using the ATM of an account-holder bank or another bank’s ATM. In that case, banks will be able to cut the costs of proprietary ATM setup and maintenance as they will be connected through a common brandless ATM system with instant settlement.

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