The goal of many cryptocurrency exchanges and conversion services is to make it as easy as possible to get into decentralised finance and engage with the market during a particularly unique time for the likes of Bitcoin.
Over time, it has become clear that exchanges and conversion platforms have become the tools of choice for converting cash to cryptocurrency, aided by a greater understanding of how the platforms work and how you can keep your money safe.
However, one of the most fascinating, ambitious and intuitive alternative solutions to help onboard people has experienced the opposite trajectory.
Cryptocurrency-to-cash machines, often known simply as crypto ATMs, suffered another major blow when their biggest operator, Bitcoin Depot, filed for bankruptcy, according to the International Consortium of Investigative Journalists.
Whilst they were on thin ice for years, the bankruptcy of Bitcoin Depot highlights the complex regulatory framework surrounding crypto, and how measures which have broadly benefited DeFi as a whole had a huge effect on the crypto ATM market.
What Are Crypto ATMs?
Officially known as cryptocurrency-to-cash machines, crypto ATMs were envisioned during some of the early boom periods of crypto as a way to make it far easier and safer to engage with the cryptocurrency market at a time when major exchanges were still being established.
The idea behind a crypto ATM is that you could put your credit or debit card in, deposit money to convert it to the crypto token of your choosing before sending it to the wallet of your choice.
Some crypto ATMs only allowed for one-way transactions using bank cards, whilst others would allow cash to be inserted instead. Some even allowed tokens to be sold for cash directly using the machine.
Much like cryptocurrency exchanges, crypto ATMs need to be compliant with regional laws, particularly with regard to know your customer (KYC) regulations, and this caused issues that not only caused the biggest player in the industry to go bankrupt but may potentially outlaw the entire concept.
What Was The Appeal Of Crypto ATMs?
Given that cryptocurrency was initially devised as digital cash, they were intended to serve as an ideal privacy-focused alternative to conventional cash machines.
At the same time, it was intended to be used for unbanked people who chose not to have a bank account or did not qualify for one. In the United States, especially, nearly six million households did not have a bank account.
This disproportionately affected lower-income communities, and during the early Bitcoin boom, there was a concerted push to seriously treat crypto as an alternative currency, with many trial runs such as the Bitcoin Bucket, crypto ATMs and even physical tokens with redeemable codes.
Anything that could improve access to financial services whilst making them easier to use was seen as a vital part of making crypto a viable alternative economy.
What Went Wrong With Crypto ATMs?
Unlike exchanges, which were easier to adapt to a changing regulatory landscape, crypto ATMs had a few particularly striking weaknesses that ultimately caused them to fail to adapt to a wildly changing economic landscape.
Expensive Fees
Part of the problem with crypto ATMs was their exceptionally high fees for use, to the point of almost being as exploitative as other alternative banking methods such as cashing cheques at a third-party store.
Fees of over 20 per cent were not uncommon, and may not have been adequately explained to users, who not only may not have been aware of the fees involved but also have no recourse once the transaction began.
The idea was that it was meant to be the price of convenience, but given that exchanges were cheaper and not that much slower as long as you had a bank account, it was often better to learn how to use a conversion platform rather than an ATM.
Social Engineering Vulnerabilities
One of the biggest barriers for any financial platform is trust, and it took exchanges over a decade to demonstrate proof that crypto was generally safe enough to use.
However, ATMs are intended for use by people less familiar with the technical intricacies of crypto, which simultaneously makes them more vulnerable to potential social engineering scams.
Increased Regulation And Bans
To get around this and bring crypto ATMs in line with the anti-money laundering legislation the rest of the crypto landscape was adapting to, many countries and states brought in stringent regulations to more tightly control how they were used, or banned them outright.
Other states and regions imposed daily transaction limits and strict limits on transaction fees, making many crypto ATMs unviable overnight.
This, combined with ongoing legislation against several crypto ATM machines and the rise of stablecoins and ETFs as safer alternatives, made bankruptcy inevitable.