What are crypto ATMs doing in rural Georgia?

“Buy Bitcoin Here.”

You might have seen the sign in a gas station or bodega near you. In fact, crypto ATMs — machines that will sell you cryptocurrency for cash — are cropping up all over the place. 

People are apparently using them, too. According to blockchain analytics firm Chainalysis, the monthly value sent to bitcoin ATMs (BATMs) grew roughly 230% from January 2019 to October 2020.

Source: Chainalysis

Globally, there are almost twice as many crypto ATMs in operation today than there were in January of this year, according to industry data source Coin ATM Radar. The total in the U.S. has ballooned from around 4,000 to more than 10,000 during the same period. I even found two in my rural Georgia hometown.

Hold on a minute, though. What are crypto ATMs doing in rural Georgia? After all, cryptocurrency isn't the most useful payment method, so it doesn’t seem likely that people are using these machines in the way they might use normal ATMs. And this place doesn't strike me as a hotbed for cryptocurrency enthusiasts.

So are they even being used? If so, who is using them and why? The government says they can be a tool for criminals. How so?  

A trip to the grocery store

The first crypto ATM I visited was actually a Coinstar machine — the large green ones you might see at a grocery store that let you dump your jar of coins and get cash for a small fee. I was indeed in a grocery store: Piggly Wiggly, a Southeastern staple.

As I walked up to the machine, I noted that behind me were a half dozen checkout aisles, and that while I was using it I’d always be in the eyeshot of an employee.  

On the touchscreen, next to the traditional coin exchange options, I saw a large rectangle that said “Buy Bitcoin Here.” I tapped the text. Then the machine gave me a bunch of preamble: It’s a cash-only machine, the cash cannot be returned, and the bitcoin withdrawal limit per day is $2,500. I clicked okay at the bottom of the screen. 

Next, I was prompted to put in my phone number. I entered my real phone number, expecting some kind of two-step verification process. But when I clicked “Submit” at the bottom of the screen, I was only prompted to input my cash. But for some reason, the machine wouldn't accept my bills.

Before I left, though, I had to see if I could game the system. When I reached the step to enter my phone number, I pulled up fakephonenumbers.org and typed in the first one I saw. The screen advanced to the next step and the buy bitcoin button appeared again. But according to Julie Ingle, VP of marketing for Coinme, I wouldn't have been able to go any further.

The machine was probably full, said Ingle, which is why it didn't take my cash. But if it had, I first would have been presented with a voucher. Then I would have had to set up a Coinme account, which would have required submitting a valid form of ID and a picture of my face.

Only after Coinme determined that I was actually MK Manoylov would I be able to exchange that voucher for bitcoin, said Ingle.  

In the crosshairs of regulators

Last year, the U.S. agency in charge of policing money laundering, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a guidance clearly stating that it considers crypto ATMs (which it calls convertible virtual currency kiosks) to be money service businesses (MSBs) under a law called the Bank Secrecy Act (BSA). 

MSBs are required to register with FinCEN, develop an anti-money laundering program, and submit Suspicious Activity Reports (SARs) when a transaction above $2,000 appears to have originated from an illegal source and could be part of a money laundering attempt.

“It doesn't matter what your technology is, our expectation is that you're going to be able to comply with the rules and the regulations," FinCEN’s director Ken Blanco said about MSBs during a recent public webinar. "This involves having an AML program, identifying who the sender and receiver of a transaction are, and being able to identify suspicious activity and doing so whenever necessary.”

In a separate advisory published alongside the 2019 guidance, FinCEN included crypto ATM kiosks on a list of tools that it said criminals are using to launder money, evade sanctions, or to finance some other illicit activity.

The agency cited a 2017 case in which a man who was convicted for possession with intent to sell a controlled substance used a bitcoin ATM in Baltimore to purchase bitcoin he then used to buy drugs on a darknet marketplace.

But there is other evidence that this is a problem. In 2018, Bloomberg Businessweek reported that experts considered it “more or less an open secret that (crypto ATMs) are used by drug dealers and other criminals.” (The article also included a step-by-step guide to laundering dirty cash this way with the help of a burner phone.)

In 2019, police authorities in Spain took down a money-laundering operation that used bitcoin ATMs in which nine million euros were sent to wallets in Colombia and other countries, according to Bloomberg. 

FinCEN added in the advisory that while some crypto ATM operators have followed the rules, “other kiosks have operated in ways that suggest a willful effort to evade BSA requirements.” The agency said some operators had "assisted in structuring transactions, failed to collect and retain required customer identification information, or falsely represented the nature of their business.”

Perhaps part of the problem is that it is tough to nail down how exactly a given ATM business works, and thus who is on the hook for compliance. According to Coin ATM Radar, globally there are 44 different manufacturers and 572 different “operators.” 

According to Martijn Wismeijer, the marketing manager for Prague-based General Bytes, all his company does is make and sell machines. It’s the responsibility of each individual operator to follow the rules, he says. 

It's true that FinCEN, in its 2019 guidance, said that developers and sellers of crypto ATMs are exempt from BSA obligations as long as they’re not also using their machines to engage in the transfer of funds. 

General Bytes does supply operators tools — for instance, software developed by CipherTrace that tracks whether crypto originated from illegal sources — “to help our operators stay compliant,” says Wismeijer.

The crypto ATMs went down to Georgia

The manufacturer of the next ATM I tried — Florida-based ByteFederal — also appears to be the operator. There are a total of 211 ByteFederal ATMs scattered around the United States.

According to its website, ByteFederal promises “hands-off passive income” for crypto ATM “hosts" and says it “provides the terminal and liquidity for its operation, money transport, service and support.” It also claims to be a “FinCEN compliant money services business.”

This machine, which was in an Exxon station, sat within eyeshot of the store clerk. It had a much higher transaction limit than the Coinstar machine: $21,500 per person per day, compared with Coinstar’s $2,500. 

First, I had to open an account with ByteFederal. “Please put in your phone number,” it said, with that emphasis. I did, and it texted me a pin. The machine then asked for a picture of my driver’s license and my face. 

According to a company representative I spoke with later, ByteFederal has a team that manually checks that the driver’s license photo matches the photo the machine takes. This is done on a “first come first served” basis and the wait times can vary. 

I must have been first in line, since the machine I used immediately allowed me to buy crypto after taking my selfie and finalizing my profile. 

One thing regulators could do would be to require machine operators to follow a standard customer identification process. Georgia, for its part, doesn't regulate crypto ATMs at all — as long as the operators are selling their own crypto. The state classifies those businesses as currency exchanges, according to Kevin Hagler, commissioner at the Georgia Department of Banking & Finance.

That might help explain why 400 crypto ATMs have been set up in the state.

But what are the ATMs doing here? Are they being used, and for what? By whom? Unfortunately, a murky industry and the nature of crypto maintains the mystery. But the machines aren’t going unused. I saw that for myself. 

A few days after my first visit, I returned to the Exxon station with the ByteFederal machine. When I walked in, a woman in a white tracksuit was standing at the machine. Pressed to her ear was a cellphone. I glanced at the candy and gum, pretending not to listen. 

“I’m sending you 220. I’m sending you 220,” I heard her say in a Southern drawl. Then she put $5 on a gas pump and walked out the store.  

I asked the clerk if he had seen a lot of people using the crypto ATM. He nodded vigorously. People use it all the time, he said. 

Editor's Note: This story has been updated with comment from Coinme, to clarify Coinme's AML/KYC practices and provide additional context regarding The Block's in-person reporting about a Coinstar machine in Georgia.