Bitcoin's Fatal Linkage To Fiat: The Number Of Bitcoin ATMs Has Now Climbed Above 5,500

Perhaps one of the fastest growing sectors of the cryptocurrency industry is Bitcoin ATMs. In November 2013 there was just a single Bitcoin ATM on the entire planet. It took until June 2014 for the number of ATMs to climb above 100, and in February 2017 this number climbed above 1,000. Since then ATMs have been installed at a rapid pace worldwide, and now the total number of Bitcoin ATMs has climbed above 5,500. Many people may look at this and say this is a good trend for Bitcoin adoption, but the reality is darker. The rise in Bitcoin ATMs is solid evidence of Bitcoin’s fatal linkage to fiat, a linkage which injects know your customer (KYC) regulations and centralization into the crypto space.

First for the argument that the proliferation of Bitcoin ATMs is good. ATMs are useful for converting between fiat and Bitcoin, raising awareness about Bitcoin and making it easier for investors to buy Bitcoin, which should supposedly increase Bitcoin’s price and demand. Also, some may argue the ATMs increase Bitcoin’s use as a currency, since the ATMs allow people to quickly convert Bitcoin to cash if they need to buy food or pay rent.

The truth is that Bitcoin ATMs are injecting heavy regulations and centralization into the crypto ecosystem. Anyone who uses a Bitcoin ATM generally has to turn over a full suite of identification information, including their photo ID, birthday, and social security number. This makes it so that Bitcoins purchased at an ATM can be directly linked to the individual that purchased them. Blockchain forensics, which is now a multi-million dollar industry, are then used to track how exactly these Bitcoins are used. In combination with the identification information collected at the ATM, the blockchain forensics can be used to build cases against users for illegal activity, such as if the Bitcoins enter a darknet market, or if the Bitcoins are used for money laundering and tax fraud. The worst part is that blockchain forensics can follow the Bitcoins many skips down the line, so that even if an ATM user did not illegally use the Bitcoins, they could still end up in hot water and have to divulge information to law enforcement to get out of trouble.

Essentially, if Bitcoins are obtained at an ATM, and then those Bitcoins are used for anything illegal at some point in the future even if its long after the original purchaser spent them, the police at least have a lead with the person who got the Bitcoins from the ATM, and they can interrogate that person and try to find who the Bitcoins went to next and so forth.

The same is true for selling Bitcoins at an ATM. Even if the Bitcoins were legally obtained, but originated from the deep web at some point, the person selling the Bitcoins could be in hot water.

Another way to think of this is that Bitcoin ATMs are choking the Bitcoin economy, as well as cryptocurrency exchanges like Coinbase. Due to Bitcoin’s fatal link to fiat, Bitcoin users usually have no choice but to use an exchange or ATM to buy/sell, at which point all of their identification information is logged. This gives law enforcement and regulators an easy to use map of the entire crypto economy, with enough leads to blackmail everyone using Bitcoin, and ultimately the power to cripple Bitcoin and impose heavy regulations upon it.

On a related note, the ease of using Bitcoin ATMs and exchanges in combination with regulations have destroyed the peer to peer Bitcoin dealing economy. It was far more decentralized and healthier back when there was an expansive network of individuals exchanging Bitcoin. Now the right to exchange Bitcoin has been centralized into the hands of ATM operators and exchanges who are more than happy to doxx their customers and pay millions for blockchain forensics to compromise their customer’s freedom.

Quite literally, Bitcoin ATMs are poisoning Bitcoin from the inside. They are centralizing the crypto economy, making it easy to regulate, and making Bitcoin users highly dependent on fiat.

Zooming out, as the number of Bitcoin ATMs has proliferated, the original dream of a decentralized peer to peer currency is decreasing. At this point Bitcoin is barely usable as a currency, there are some sites that accept it as well as a decreasing amount of individuals who exchange Bitcoin peer to peer. Generally people are forced to sell the Bitcoin for fiat if they are ever going to obtain value from it, turning Bitcoin into nothing more than another speculative asset like gold and stocks.

Perhaps the dream of Bitcoin one day being a true currency is not totally dead, and maybe one day Bitcoin can be exchanged conveniently for goods and services in the mainstream. However, Bitcoin will have to integrate some serious changes to increase scalability and speed before that can happen, and if it does not happen soon enough this centralization trend will continue until Bitcoin has no potential to ever become an independent and decentralized currency.