Evolution of the Bitcoin Kiosk
Michael Tomlinson has shown a knack over his career in the self-service industry for being at the center of “the next big thing” at just the right time. And if that history is any indication, he’s done it again.
In 1994, right out of college, Tomlinson joined coin-counting kiosk company Coinstar. At the time, the company had just five machines and a dozen or so employees. People he told about the company thought the idea of counting peoples’ coins for a fee was crazy. Today, Coinstar boasts more than 20,000 kiosks and processes 43 billion coins a year.
Tomlinson left Coinstar in 2010, spending a few years getting reacquainted with his family. Following a stint with a company in the automated retail space, in November 2020 took a position as Chief Revenue Officer with Las Vegas-based digital currency kiosk maker CoinCloud. And considering market trends, Tomlinson may have entered the segment just as it’s about to explode.
“I started interviewing my closest confidants to ask them what they thought of the space,” Tomlinson said. “A lot of the responses I got were similar to my early days at Coinstar where people thought I was nuts to even consider it, but I realized that the Bitcoin space was far greater than anybody could imagine.”
Founded in 2014, CoinCloud recently deployed its 1,250th machine, with 50 installations during the last week of 2020 alone. The company says 61% of the two-way digital currency ATMs in the United States are operated by CoinCloud.
“Our machines meet a critical consumer need because they grant anyone an instant, trusted gateway to the digital economy,” said CoinCloud CEO Chris McAlary in a release announcing the deployment.
“We make the intangible tangible, converting digital currency to physical currency and vice versa on-demand,” McAlary said. “Previously, digital currency users would have to meet in person to trade Bitcoin for cash. Coin Cloud’s integration of DCMs with digital wallets is becoming the cash machines of the 21st century. They are being embraced and taking over at an ever-increasing rate.”
No longer just for assassins
Although there are thousands of digital currencies in use today, the most popular by far is Bitcoin. Other currencies are dubbed “altcoins.” It’s impossible to put an accurate value on the market capitalization of digital currencies, in part because of constant fluctuations, but Bitcoin is estimated to have a current market cap in the vicinity of $600 billion. That’s up from zero at its 2009 origins and just $1.5 billion in 2013. Another popular digital currency, Ethereum, is estimated to have a market cap of more than $112 billion.
Following a few early test transactions, Bitcoin found a home as the currency of choice for black market websites. Silk Road, a site on the dark web known primarily for selling drugs, only accepted bitcoins as payment before being shut down by the FBI in 2013. Other dark web sites purported to offer the services of a hitman in exchange for Bitcoin, although most of those operations turned out to be scams.
Over the past few years, though, more and more traditional merchants have been accepting bitcoins and other digital currencies as payment, including AT&T, Burger King, KFC and Virgin Galactic. Shoppers can also indirectly pay for purchases on Amazon.com via Purse.io. Places where people can purchase bitcoins include PayPal, which recently announced that users will soon be able to purchase that and other digital currencies. And digital currency exchange company Gemini, which acquired financial services startup Blockrize, plans to offer a credit card that offers Bitcoin rewards based on purchases. Bitcoin is now the world’s sixth-largest currency by circulation.
“Today Bitcoin has gotten to a place where institutional investors, banks, and family offices are legitimately pondering involvement as a defense against currency devaluation,” wrote Alex Mashinsky, CEO of Celsius Network, in commentary emailed to CBS Marketwatch. “This isn’t a gold rush anymore, it’s a good investment.”
Bitcoin grew in value by more than 300% in 2020, approaching $30,000, with one financial industry insider predicting it could top $300,000 by the end of 2021.
“The whole existence of Bitcoin has been characterized by unthinkable rallies followed by painful corrections, the type of pattern that sustains a long term trend,” Tom Fitzpatrick, Citibank’s global head of CitiFX Technicals, wrote in a note to institutional clients that was later leaked on Twitter. “Time will tell if we end up seeing such lofty levels but the backdrop and the price action we are looking at clearly suggest the potential for a major move higher nonetheless in the next 12-24 months.”
Simplifying the buy/sell process
At their core, digital currency kiosks, more commonly referred to as Bitcoin kiosks, operate like traditional ATMs, with one major difference. Instead of allowing users to deposit and withdraw money from their bank accounts, they allow users to conduct transactions in digital currencies.
And like traditional ATMs, they’re finding homes in the same places that host other types of self-service devices: service stations, convenience stores and other outlets seeking to increase foot traffic and revenue.
“Millennials are one of the most common customers who transact with cryptocurrency,” said Marc Grens, co-founder & president of Chicago-based Bitcoin ATM provider DigitalMint.
“If a store has a particular demographic of regular customers that often does not include people between the ages of 18 and 40, it’s worth growing and expanding that customer base by offering an innovative and modern service,” Grens said. “Without much effort, retailers get additional passive income from these cryptocurrency transactions completed in-store.”
Bitcoin kiosks address one of the main hurdles affecting the adoption of digital currencies: Converting cash to bitcoins, and more importantly, converting bitcoins to cash. Until recently, converting cash to a digital currency and vice versa involved using an online exchange. The downside of that method was that some transactions, particularly the conversion of bitcoins to cash, often involved a wait of several days to receive your funds. Also, most of these exchanges operated without regulatory oversight, meaning a consumer had little recourse if the site turned out to be fraudulent.
A Bitcoin ATM allows someone to buy bitcoins or other digital currencies by using cash or debit cards, and in some cases sell them for cash. To date, about 70% of Bitcoin ATMs around the world and 76% of those in the United States are one-way, meaning they’re used strictly for buying digital currencies.
Although the reports purporting to estimate the size of the market for digital currency probably aren’t worth the electricity it takes to post them online, one such report predicts that the global Bitcoin ATM market will top $542.5 million by 2027, up from just $18.4 million in 2019. That equates to a compound annual growth rate of 52.7%. Factors fueling growth include fluctuations in monetary regulations and increasing fund transfers in developing economies, although government regulations that prohibit the usage of digital currencies in various countries are expected to restrain growth.
“The industry has grown over 100% each year the last 5 years,” said Drew Carey, CEO and co-founder of Miami-based Bitcoin ATM maker Bitstop. “This trend will probably continue again for the next 2-4 years as the demand for Bitcoin continues to increase. The total number of Bitcoin ATMs installed worldwide will probably reach 100,000 by or before 2025.”
The two-way segment is expected to grow faster than the segment as a whole as Bitcoin becomes more mainstream. North America is expected to hold a considerable share of the market thanks to fewer legal barriers and the presence of software & hardware providers and integrators.
Factors expected to drive the growth of digital currencies over the next few years include concerns about the value of traditional currencies, especially in light of deficit spending thanks to stimulus efforts in the wake of COVID-19. Also, built into the computer code behind Bitcoin are hard limits on the total number that can ever come into circulation. Of the 21 million that can ever become available, there are already 18.5 million bitcoins in circulation. That’s about 88.4% of the total supply.
In addition, those in the Bitcoin ATM industry see it as a way to provide access to financial tools to those unbanked or underbanked consumers, or those who lack access to traditional banking services. A 2019 report by the U.S. Federal Reserve found that six percent of adults do not have a checking, savings, or money market account, while 16 percent of adults are “underbanked,” meaning they have a bank account but also used an alternative financial service product. Bitcoin ATMs might also be a way to send money to other countries without the high fees typically charged by traditional money-transfer outfits.
“It is truly about allowing consumers that are struggling to get even into the financial segment,” Tomlinson said. “There are 55 million people that are unbanked or underbanked in this country, and there are 47 million immigrants who have familiarity with the virtual currency space. And in many ways, this whole group is ahead of it.”
Bitcoin Storage Methods Hampering Value, Experts Claim
Because Bitcoin exists only in the virtual world, owners need a way to be able to store and access their holdings. In many cases, that happens via a software program known as a bitcoin wallet.
A bitcoin wallet is comparable to a physical wallet, but instead of storing physical currency it stores information about a person’s bitcoin holdings, including the secure private key used to access Bitcoin addresses and conduct transactions. Bitcoin wallets can exist either as desktop, mobile or web apps, or as physical hardware.
And like a physical wallet, losing access to your bitcoin wallet can lead to a loss of the bitcoins themselves.
Consider, for example, the case of San Francisco resident Stefan Thomas, who lost the password to the secure thumb drive which held 7,002 bitcoin currently worth about $220 million. The device gives users 10 attempts to enter the correct password before it encrypts its contents. Thomas has already used 8 of those attempts.
In an interview with KGO-TV, Thomas said he had made peace with the loss
“It was actually a really big milestone in my life where, like, I sort of realized how I was going to define my self-worth going forward,” Thomas told the station. “It wasn’t going to be about how much money I have in my bank account.”
Or British man James Howells, who accidentally threw out a laptop hard drive storing 7,500 bitcoins while clearing out his home in 2013. At today’s prices, those bitcoins would be worth around $280 million. Howells has offered the town managing the landfill close to $75 million if he is allowed to excavate the landfill and recovers the drive. To date the town has rejected the offer, citing environmental concerns.
A recent Entrepreneur.com article estimates that 20% of the 18.5 million bitcoins in circulation are unreachable because of lost wallets. Jimmy Nguyen, president of the Bitcoin Association, argues that mechanisms need to be put in place to aid people in recovering their bitcoin holdings bitcoin in cases of lost passwords and similar issues. Current methods of storing bitcoins are hampering its adoption, he said, comparing digital wallets to house keys. Losing your house keys doesn’t mean you’ve lost access to your house forever.
“There is an inconsistency, if not downright hypocrisy – among the bitcoin supporters because they want to advance this narrative that you must have the private keys for the coins to be yours,” Nguyen told Business Insider. “If they want the value of the coin to grow because it’s growing in usage, then you have to adopt a much more open and user-friendly approach to bitcoin.”
Get some specifics
An easy thing to do to send an email to Joe Sawicki at Kiosk Information Systems (jsawicki at kiosk dot com) if interested in Bitcoin Kiosk options. KIOSK has been doing quite a few and has the experience. Kiosk Innovations is another Association member who has done numerous Bitcoin.
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