Eric L. Stromberg was pushing his old Ford Escort faster than it was used to, as he sped from California to New Mexico with his 125-pound traveling companion sitting silently in the back.
Stromberg had never spent a night in Albuquerque before, and he knew no one there. But Albuquerque was to about to become home for Stromberg and his passenger – a glossy white bitcoin ATM made by Lamassu.
This single-car interstate race had been part of Stromberg’s bid to launch the first bitcoin ATM in the United States.
First past the line
Lamassu CEO Zach Harvey confirmed that Stromberg achieved his goal of being first – but he’s far from alone in the business.
Altogether Lamassu has shipped 60 machines and taken orders for 140 more.
Excited and curious
They’re referred to as automatic teller machines, but the Lamassus are really automatic currency exchangers. They suck dollars – or any major currency – into their bill slots and transfer bitcoins into the customer’s digital wallet.
Even the ‘automatic’ part of their popular description has a caveat at this point: Stromberg supervises all transactions in order to ensure compliance with federal anti-money laundering regulations.
Lamassu says a coming software update will make that unnecessary, but for now, Stromberg stands next to his ATM during operating hours, recording customer names and addresses.
Being on the scene has given him a view on who’s using his machine.
“There are two kinds of people,” he said. “There are those who are very excited because they’ve been anticipating the kiosk opening, and there are those who had limited knowledge of bitcoin, for whom it’s more of a curiosity.”
A few dozen customers made transactions, mostly small, in the first week, and Stromberg is capping transactions at $1,000 each, for the time being.
How it works
In order to buy bitcoins from the ATM, a customer provides Stromberg with a driver’s licence or a business card as verification of their identity. If the customer already has a bitcoin wallet app on their smartphone, they are ready to go ahead with the transaction.
The machine displays its rate on the screen – it gets an up-to-the-minute price feed via wi-fi, and adds a 7% markup.
The customer pushes start, holds up a phone to the machine’s camera so it can read the QR code, and feed bills into the slot. As the bills go in, the screen displays a running total of how much bitcoin the customer will receive.
For customers without a bitcoin wallet, Stromberg can help set up a paper wallet.
Recording customer information takes a couple of minutes, Stromberg said, but the ATM does its work in about 15 seconds.
Stromberg’s relocation to New Mexico was his way of addressing just a few of the challenges that he and other would-be bitcoin ATM entrepreneurs have faced in their attempts to operate the machines legally and – ideally – profitably.
Regulatory hurdles, business plans, the machines’ current technical limitations, and the wild gyrations of the bitcoin/fiat exchange rate have all made for a bumpy road.
One of the first challenges was getting past what might have been. Stromberg and another Bay Area bitcoin enthusiast, Cole Albon, pre-ordered their ATMs last summer, paying $5,000 apiece, or 43 bitcoins at the time. As they awaited delivery of their machines, they watched the price of bitcoin skyrocket.
The day after Albon took delivery of his ATM, he invited some bitcoin enthusiasts to his San Francisco studio apartment to check it out. He was all too aware that one bitcoin was worth more than $600 that day, and he couldn’t help but wonder if the machine could ever earn back its now-inflated purchase price.
“That $5,000 machine cost me $40,000. It’s been a bad investment,” Albon said, leaning against a Western-style blanket hanging on the wall and looking on as his guests explored the inside of the machine with a flashlight.
But Stromberg, who by that time was in Albuquerque, making cold calls on businesses that might want to host his machine, was more philosophical:
“If I had held those bitcoins, they would be worth six times as much now. But that’s looking in the rearview mirror.”
Stromberg left a job as vice president of search production engineering at Yahoo last year in order to devote himself to bitcoin full time. Lamassu’s ATMs fascinated him from the moment he learned about them.
“I thought it was a great way to do something tangible in the bitcoin space and explore the technology,” he said. While he said he is not “independently wealthy by any means”, he had enough saved up to self-fund the venture.
Looking ahead, Stromberg hopes to continue using the machine to sell his own stock of bitcoins – which he accumulated through a little mining and a lot of purchases on exchanges – and then continue buying bitcoins for the machine to dispense, with help from an investor.
The markup should allow him to make a small profit after expenses, he said.
Stromberg is not sure if his relocation to Albuquerque is permanent. He is considering eventually purchasing more ATMs and expanding locally or even nationwide.
After reading FinCEN guidelines, Stromberg is sure that his business, Enchanted Bitcoins, is a money services business and a money transmitter, so he has done the extensive paperwork to register as such. The only thing he is still waiting on is the bank account he applied for, which can take weeks.
Stephen Hudak, FinCEN spokesman, declined to comment on whether a bitcoin ATM operator qualifies as an MSB. Instead he referred to published guidelines and said: “If a business is unsure of their responsibilities, they should ask FinCEN directly for a ruling on their obligations.”
Stromberg chose to start his business in New Mexico because the state has not published money transmissions statutes, unlike California, which specifically requires businesses like his to be licensed.
Because of its “quite aggressive” licensing approach to money transmission, moving out of California is not an uncommon move for entrepreneurs in the payments business, said Felix Shipkevich, a New York attorney with extensive payments industry experience.
California money transmitters must put up a bond of $250,000 or more. That expense is one of the reasons that Albon’s Lamassu is still sitting in his apartment.
“I don’t want to go try to find an investor,” Albon said, worrying that he could be held responsible for any investor’s past activities. “The Charlie Shrem [arrest] has me kind of scared.”
Albon is also frustrated that the ATM does not automatically record the customer information needed to comply with regulations.
He had previously asked some friends modify the machine to extend its capabilities, and ended up breaking it temporarily. Now the ATM is working again, but he doesn’t see a path to operating it as a business in its current state.
“The machine needs to be able to take a picture of somebody’s ID, or only send bitcoins to somebody if we know who they are. Right now there’s no way to do that,” Albon said. Lacking a machine that works the way he needs it to, Albon has not yet registered as an MSB.
Lamassu engineers are busy working on ID verification software that will take care of this problem, Harvey said.
“The hardware is all in place for this, so it would be a simple software update,” he explained. “The user would scan the back of their driver’s licence into the machine, the machine would forward the info to a third party verification service, which would validate their identity and allow them to purchase up to the per-user daily limit that has been set by the operator.” Harvey added:
“This whole process should not take longer than 30 seconds.”
Users are still waiting for Lamassu to deliver the promised administrative interface, which will give them the ability to customize their machines, integrate them into an online exchange if desired, and set fees and rates.
“We are a bit behind schedule on this, but we have been making good progress lately and should have the basics out very soon,” Harvey said.
Shipkevich warned that despite the entrepreneurs’ efforts at due diligence, it is not clear if it is even possible to operate a bitcoin ATM right now without running afoul of the law.
Traditional ATM machines are connected with bank accounts, whose customers’ identities have been verified through an established system.
The same is not true for bitcoin ATMs, and recording customer names and addresses is not an adequate substitute, he said. And operating in a state that has not established or interpreted rules in this area doesn’t mean it’s a free for all, he added.
“Without really having the necessary regulatory infrastructure in place, the activities they’re performing are done at their own risk,” Shipkevich said.
US sprinter image via Shutterstock. Women at ATM image courtesy of Eric L. Stromberg