People in Conn. using cryptocurrency ATMs

Hundreds of cryptocurrency ATMs are in the state, but how does the technology work and do people actually use the machines?

The ATMs, which are mostly located in gas stations and convenience stores, allow a user to buy bitcoin, or sometimes other cryptocurrencies, for cash or via debit card.

CoinFlip co-founder and chairman Daniel Polotsky said a transaction starts with the user entering their personal information — what information is required depends on the amount they are purchasing — then scanning a QR code linked to their digital wallet, inserting payment and confirming the purchase. CoinFlip then sends the cryptocurrency to the user's digital wallet from its digital wallet.

“Technically what's happening is that it's going from one bitcoin wallet to the next,” Polotsky said. “Like it's actually sent. We know where to send it based on the QR code which is attached to their wallet address.”

He said the company, which has machines located throughout the country, had $50 million in transaction fee revenue in 2020 and almost $100 million in 2021.

“So people are using the machines,” Polotsky said. “And I think it's a great way to get crypto instantaneously while also being able to get 24/7 customer service. Call us anytime and we'll be able to walk you through the transaction.”

One convience store owner, Ali Alnahlawi of Gene's Super Stop in Trumbull, raved about the machines. He said he has a Byte Federal machine and they typically pay between $300 to $600 a month in rent. He said about six to eight people per month use the machine and at one point he had a customer put $20,000 in the machine in one sitting.

“They pay you for the location and the spot and you don't have to worry about nothing else,” Alnahlawi said. “They come in, they empty the machine.

All you have to do is just provide the spot and an internet connection and they send you a check every month in the mail.”

Nader Ali, owner of Village Mart in Stratford, has had a different experience with the company. He said he was paid around $800 for it two years ago but has not been paid for it since. He said it's taking up space in his store, so he's going to take it out.. He said he was not sure how many people use it.

Odai Dayoub, son of the owner of Snaxx Plus in Stratford, said one person has used the ATM located in its store. The store has had it since last summer, he said, and the only transaction it's had was over the winter.

David Noble, director of the Peter J. Werth Institute for Entrepreneurship and Innovation at the University of Connecticut, said that crypto-ATMs are mainly used by those who need to send money out of the country.

“The actual answer is most likely that there's an immigrant population in the U.S. using it to transfer money, at somewhat of a discount, back to repatriate money into other places,” Noble said.

Polotsky said that there are people who use the machines to send money home. He said they have a “versatile customer base” including those who want fast access into the “latest NFT mints,” those who do not trust the “traditional banking system” and those who may not be able to afford overdraft fees.

“I'm sure bitcoin ATMs carry high fees, but for those unbanked or locked out internationally this is a way to continue to transact,” Stratford Finance Director Dawn Savo said in an email to Hearst Connecticut Media.

Noble said it's possible that they could be used for money laundering, but unlikely because of the fees charged by the ATMs and the volatility associated with cryptocurrencies. Also, many ATMs have a daily deposit limit and using cryptocurrency for “nefarious purposes” only becomes useful “in the very large numbers” that the ATMs would not allow a user to get to.

He said if the ATMs charge low enough transaction fees, they can sometimes be cheaper and faster for sending money abroad than going through an international financial service like Western Union.

Once a user has the currency in their wallet, sending it abroad “can be as easy as sending an email,” according to Coinbase, a combination cryptocurrency education and digital wallet company. All a user needs is the wallet address for the person they are sending money to and the transfer can be done within minutes, albeit with a fee typically called a “gas fee,” they said.

Noble said some cryptoATMs that charge fees over 10 percent are likely pricegauging their users.

“I would say you're under 10 percent, that's a pretty legitimate enterprise,” Noble said. “If you're over 20 percent, you're just simply taking advantage of some population that needs access to that and has no ability to get it somewhere else.”

Not all of the companies that have ATMs in town disclose their fees online, but CoinFlip says its fees range from 6.9 percent to 12.9 percent and LibertyX's machines charge 8 percent on transactions.

The state does not require crypto-ATMs to be licensed under certain conditions — if it is not connected to a financial institution or the machine is limited to deposit or withdrawal of funds, according to the state Department of Banking website.