Bitcoin ATMs: Security, demographics, transaction fees, and other details

Coinsource now offers ATMs that customers can use to manage their Bitcoin.

Bitcoin ATMs: Security, demographics, transaction fees, and other details

TechRepublic's Karen Roby talked to Derek Muhney, director of marketing and sales at Coinsource, about the the company's new Bitcoin ATMs and whether they are secure. The following is an edited transcript of their conversation. 

Derek Muhney: Well, [the Bitcoin ATM is] pretty similar to a traditional ATM. It's as simple as, customers create a one-time enrollment, and they create an account with Coinsource. They provide further ID, [verify] their ID, add a selfie, and then create an account within our own in-house software solution that we built. From that point on, they're off and running. We're in 44 states right now and [customers] can use any one of our Bitcoin ATMs, and the transaction average time is about 60 seconds from start to finish.

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[Customers would] walk up to the machine, they'd enter in their phone number, which kind of acts as their account number, look at a two-factor authenticator code just to make sure that they put in the right phone number, and then it's pretty much straightforward as a one-two-three. It's, "Where would you like to send your Bitcoin?" And you can either enter in your Bitcoin wallet address alphanumerically, or you can scan your Bitcoin wallet's QR code. There's tons of different apps in the App Store that you can use for a number of different Bitcoin wallet apps. Our machines and our software were built out to where we're entirely wallet agnostic, so our customers can use whichever wallet they feel most comfortable with and whichever one they prefer.

Karen Roby: Talk a little bit about what you think is the biggest encumbrance to actually using Bitcoin v. a traditional credit card.

Derek Muhney: I definitely would say, first of all, there's different demographics, but the primary use case right now for Bitcoin isn't really for buying things such as, say, a cup of coffee that you would with a credit card; the majority of our customers are really using it as a store of value, as an investment. For example, millennials... we're seeing definitely a trend where they're kind of shifting away from traditional financial institutions for their store of value for their funds. They're putting it in Bitcoin because of the growth rate of what we're seeing in Bitcoin and its value.

We've got a huge demographic of baby boomers who are using our machines because they're wanting to diversify their retirement and their trust portfolios--as well as the unbanked and underbanked that don't even have credit cards because they don't have the proper banking or the necessary banking to have a credit card. These demographics aren't necessarily looking to buy their groceries with Bitcoin, or like I said, a cup of coffee. We're seeing hundreds of thousands of merchants year after year starting to accept Bitcoin for those things, but right now that's really not the primary use case for Bitcoin that we're seeing, at least from our customers.

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Karen Roby: Expand a little bit on transaction fees. How are transaction fees, do you feel, limiting the adoption of Bitcoin and possibly other currencies?

Derek Muhney: We have been fully transparent and pride ourselves on that transparency from day one with our customers that you're going to get Bitcoin at the average lowest index price for what Bitcoin is actually valued at that time, and you're also going to be getting it at the lowest rate possible. Transaction fees aren't that huge of a problem right now because people aren't using Bitcoin to buy or sell things--they're really using it to save. There's already a second-layer solution in the works. Like the Lightning Network. Square's Cash App has actually already unveiled plans to integrate the Lightning Network. Going from wallet to wallet, there are no transaction fees. You're just pretty much paying a fraction of a percentage with mining fees, by wiring money or transferring of that sort.

Karen Roby: Why would anyone want to use Bitcoin, given the high risk of hacking or wallet loss, which we've heard and read about on many occasions?

Derek Muhney: Bitcoin is very special because you get to pick your level of security. If you want total security, you can ake the Bitcoin that you just bought from a Coinsource Bitcoin ATM, and you can put it on a hardware wallet, a cold storage wallet, to where it's not on the internet. One I use personally is even electromagnetic pulse-proof--it's entirely impenetrable from hacking because it's offline. And we sell Bitcoin directly to customers. We don't store any funds, so we don't hold any funds from our customers. Some operators actually do, and it's just sitting there on an exchange, and exchanges are definitely susceptible to hacking. You can find in the App Store a number of different decentralized wallet apps out there that totally keep your information and your Bitcoin entirely in your hands--not even the company that's offering that wallet has access to it. You and only you, as the holder and the consumer, have that access.

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Image: Mackenzie Burke