Why Should You Use Blockchain in a Bitcoin ATM Business?
Wondering why should you use blockchain in a bitcoin ATM business?
This is a great question which we will answer here.
Other than the huge sums of money to be made innovating in blockchain solutions, this industry also represent the chance to bring a positive change to people’s lives. Here’re a few amazing case studies of companies who hired DevTeam.Space to build their software products:
- DDKOIN – Leading Cryptocurrency
- Dencenture – Blockchain Mobile App and Web Application
- Medicoin – Healthcare Blockchain-Based Web Application
All of you will already know that without blockchain there would be no cryptocurrencies.
Thankfully, the creator of bitcoin, Satoshi Nakamoto, managed to solve the ‘Double-spending‘ problem that prevented a viable digital currency from being created. In 2008, he published a paper that proposed using a model that would become known as “blockchain” to create the world’s first viable digital currency which he called bitcoin.
Since the launch of bitcoin, interest in both the cryptocurrency and the underlying blockchain technology grew steadily. That was until mid-2017 when the price of all the major cryptocurrencies rocketed into orbit.
Cryptocurrencies such as Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Ripple recorded price rises that were in the 1,000‘s of percent range. Naturally, this sent people everywhere rushing headlong into what some called cryptocurrency mania.
Many sought other ways to cash in on the cryptocurrency boom, some opened exchanges, others became bitcoin merchants, while a select few sought to open their own bitcoin ATM business.
But in an industry that is being so heavily pressurized by government scrutiny and wildly fluctuating coin prices, what is the best way to make your bitcoin ATM’s secure?
Well, the answer is with blockchain of course.
In this article, I am going to examine why companies should use blockchain in a bitcoin ATM business.
In order to try to broaden the appeal of this article, I will begin by giving a little background on Bitcoin ATM’s and explain why I believe they are so important to the future success of cryptocurrencies.
After I have done so, I will briefly explain the steps on how to start your own bitcoin ATM business before getting more into blockchain for ATM’s.
Let‘s get started.
What is Blockchain?
I guess this is as good a place as any to start an article on how to use blockchain for your Bitcoin ATM business. For those of you who are unfamiliar with what blockchain is exactly then here is a brief explanation from Wikipedia:
“A blockchain, originally block chain, is a continuously growing list of records, called blocks, which are linked and secured using cryptography”.
And what is so revolutionary about blockchain?
Well, the exciting thing about blockchain is that it operates on a decentralized network and therefore doesn‘t come under the control of any single authority. This has huge implications as it has the potential to remove the control of things such as the money supply from the hands of the banks and central governments.
Naturally, this has caused a huge uproar and has led to many lead banking figures, investors, and governments condemning bitcoin and other altcoins as being nothing more than a portal for drug dealers to hide their activities. Despite different adoption and privacy challenges, blockchain actively works on overcoming them.
Another key component of blockchain technology is that in certain ways it allows for much greater security of data than existing systems. To start with, as each new block is added to the chain, it is recorded to each participant or node in the network. This makes the ledger immutable and extremely resistant to change once written as to change any written block would require the agreement of at least 51% of the network.
The advantage of this is that the data held on the blockchain is therefore much more trustworthy. Since the reliability of data is paramount in such things as currency, this makes blockchain-based digital currencies the best solution yet created.
A brief history of the Bitcoin ATM
The very first bitcoin ATM was introduced on October 29, 2013. It was a Robocoin machine that was placed in a coffee shop in Vancouver, Canada. While that machine is no longer operational, the number of bitcoin ATM’s around the world has been growing steadily ever since.
As of late 2017, there were an estimated 800+ bitcoin ATMs in the United States, a figure which represents 75.71% of the total global number. Of the remaining total, just over 20% of all bitcoin ATM’s are located in Europe.
While this figure is dwarfed by the 3,000,000 fiat currency ATM‘s currently operating around the world, it nonetheless represents an industry that many see as being highly lucrative in years to come.
A recent article entitled “Energy drink company develops a thirst for bitcoin ATM’s” quoted DNA Brands CEO Adrian McKenzie as saying “we are looking to revolutionize and make bitcoin ATM machines as accessible, and common to use as any other ATM machine.”
If an energy drink company is expressing such an interest in bitcoin ATM’s then there has to be a reason.
Well, strangely enough, the answer is money.
A recent article published on Bitcoin.com highlighted just how much money there is to be made from a well-placed bitcoin ATM.
It collated data from the 952 BTMs from the 193 global operators to get an average transaction volume of some $30,000 a month. The article noted that while some machines only recorded transaction volumes of $20,000 per month, well-placed machines averaged over $100,000 per month.
Revenues for such machines depend on the transaction fees that they charge. The average charge worked out to be 8.48% to buy bitcoin and 5.64% when selling. It doesn‘t take a mathematician to see just how much money there is to be made in the bitcoin ATM business.
How to start your own bitcoin ATM business
If you are planning to start your own bitcoin ATM business then there are a few things you will need to keep in mind. The most important thing of all is making sure that your operation is going to be fully compliant with the law.
Bitcoin ATM‘s and the Law
There are several key areas where bitcoin ATM operators must be compliant with the law:
- Business Structure
Like any other business, the way that the company is structured in terms of ownership must be carefully decided upon. Sole owners should make sure that they separate liability from their personal assets in case of bankruptcy etc.
The structure of the business will also directly affect another very important area of the business, namely how it is taxed.
Any bitcoin ATM business needs to be registered to pay tax in whatever country/state that it operates in. Failure to do so will certainly result in prosecution. For a detailed article on how laws relate to bitcoin ATMs in the U.S, read this interesting article.
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- ATM Location
As I have already shown, location is a key factor in determining how much your bitcoin ATM will be used. If you take a look at the bitcoin ATM location image below, you will see where the majority of cryptocurrency ATM‘s are located.
The location also throws up a set of legal requirements that all bitcoin ATM companies must be aware of. Most obviously, companies must adhere to the laws governing ATM‘s in whatever country they are operating in.
Also, ATM operators will face a set of different legal responsibilities depending on whether they own the land or are leasing the space.
For those who don‘t own the space, then they will need to enter a special leasing agreement with the owner. This agreement will determine rates, other fees, insurance cover, maintenance, etc.
- Withdrawal / Deposit Limits
Most countries/banks/ATM providers pose limits on how much each customer may withdraw at any one time. Bitcoin ATM providers will need to set withdrawal/deposit limits in accordance with Know Your Client and Anti Money Laundering standards.
Since these vary from country to country, bitcoin ATM operators will need to make sure that they are fully aware and compliant with such laws.
Problems Facing Bitcoin ATM‘s:
Before I examine why bitcoin ATM owners should use blockchain for their ATM‘s, here are a few of the issues that currently face bitcoin ATM‘s:
- A limited number of machines
- Relatively small customer base
- Lack of government oversight/regulation
- No protection again fraud
- High fluctuation in the price of bitcoin
- Lack of consumer trust
Using blockchain in a bitcoin ATM business
Let’s discuss what’s so revolutionary about using blockchain in a bitcoin ATM business.
There is quite a big difference between a normal bank ATM and a digital currency ATM. If bitcoin ATM‘s only just appeared on your radar fairly recently, and you have never had the chance to use one, then the most obvious difference is that you don‘t need any form of a card such as a debit card to operate them.
Users only need to access their bitcoin wallets on their phones and initiate transactions by scanning a QR code with their camera.
Another fundamental difference between the two is that cryptocurrency ATM‘s don‘t connect directly to a bank but rather to a bitcoin exchange. The good news is that digital currency ATM‘s are designed to operate as much like a normal ATM as possible.
For an experienced user, overall transaction speeds are relatively similar between the two machines. However, the great news is that you don‘t need to worry about lost or stolen cards when using a cryptocurrency machine. It’s also good to know that nowadays, you can easily build your own bitcoin exchange website.
Why use blockchain for a bitcoin ATM?
The answer to this question is quite straightforward – security. While there are other benefits of using blockchain, the most obvious benefit comes in the form of increased security.
The fact that distributed blockchain ledgers are immutable has made the technology appealing even to normal bank ATM providers too. One of the world‘s leading ATM providers, Diebold, recently expressed a strong interest in developing blockchain solutions to underwrite parts of its ATM business.
“Diebold also sees the potential of the technology to tame the issues with data privacy laws and data security related to payments.” – Source: Devon Watson, VP of Global Software and Strategy at Diebold – BITCOIN ATMS AND BLOCKCHAIN APPLICATION IN THE ATM INDUSTRY.
The unalterable ledgers created by blockchain technology would help to protect both the customer as well as bitcoin ATM operators from fraud.
Since the blockchain has no single point of weakness, there is no one point for hackers to attack to alter data. Therefore, by applying blockchain solutions to any of the processes that underwrite the operation of a bitcoin ATM, such as the recording/confirmation process of identification, etc., operators would be protected from any claims of wrongdoing.
The article then goes on to highlight the really exciting application of blockchain technology into bank ATM‘s, namely the ability to eliminate the “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.” This would in effect allow banks to massively reduce fees as they wouldn‘t need to process the vast majority of transactions being transacted through their machines.
This concept could be used to eliminate the chief problem affecting bitcoin ATM‘s. At the current time, bitcoin ATMs are standalone machines and are not linked to banks or other payment systems such as Paypal or Transferwise, etc.
By creating a shared blockchain network that allowed ATM users access between these various institutions would finally give users complete and easy access to all their funds. As a result, users would be able to easily make payment transfers between their various fiat currency accounts and their bitcoin wallet.
While it will certainly be no easy task getting banks to agree to such cooperation en masse, some banks have already shown themselves willing to cooperate with the buying and selling cryptocurrencies.
Such a system would also have the express benefit of saving consumers money as it would lower fees. Though some of these might end up reducing ATM provider‘s profits, it would inevitably result in their ATMs being used more which would offset such losses.
Finally, the implementation of blockchain technology to allow for the transfer of deeds and property via smart contracts could see the use of ATM‘s jump massively.
Imagine being able to go to an ATM and do everything from recharge your phone to sell your home. The sky is the limit when it comes to the implementation of smart contracts, and all of this could be done through an ATM.
My Final Thoughts
We might be some way off heading to our nearest bitcoin ATM to initiate a divorce or to sign a contract for our latest smartphone, but as I have indicated, blockchain technology has the potential to make this more than science fiction.
At the current time, the most obvious benefits include securing some of the underlying transaction records and processes that a bitcoin ATM undertakes.
However, since any blockchain transaction requires validation from all participants on the network, ATM operators would be required to establish a network that comprised only of quick respondent nodes to ensure that transaction speeds were as fast as possible.
The rewards for overcoming these development problems would be enormous. Any bitcoin ATM using blockchain technology would be secure from cyber-attack including the many of the kinds of attacks that have affected conventional bank ATMs for years.