Why Do Bitcoin ATMs Require ID?
If you frequently trade in cryptocurrency, or if you’re about to buy crypto for the first time, you may be asking yourself, “Why do Bitcoin ATMs require ID?” After all, cryptocurrency famously allows for transactions with a degree of anonymity, and this is one reason that people concerned with the privacy of their personal information may get into crypto. Put simply, in the United States, when Bitcoin ATMs require ID, it is typically to ensure compliance with federal regulations that are intended to prevent large scale money laundering and terrorist financing.
One of the major reasons that people like to use Bitcoin ATMs is to have a convenient way to buy and sell cryptocurrencies, including Bitcoin, in a physical setting. Additionally, one of the key benefits of cryptocurrency transactions is the promise of a degree of anonymity. However, even though their users may be seeking privacy of their personal information, Bitcoin ATMs sometimes require users to present identification. Let’s dive into the reasons behind this requirement, recognizing the need to balance customers' desire for anonymity with security considerations.
About The Culture of Cryptocurrency and Customers’ Expectations
Something that makes cryptocurrency ATM users different from those who exclusively use traditional currency ATMs is their expectations around privacy and even anonymity. The culture that has formed out of the ideas of many cryptocurrency enthusiasts is one that may bristle at the idea of being constrained by the traditional financial system and its regulations. Additionally, for some people the reason to use a decentralized, digital currency is to keep their personal data private in a way that the extensive identification requirements of the traditional banking system would not allow. For these users, cryptocurrency represents a different way of handling their financial transactions, so cryptocurrency ATM operators have to take this into account when shaping their policies. However, at the same time they must also ensure that they comply with any applicable regulations and maintain the value of their business and their customers’ safety. The integrity of the cryptocurrency industry in general is also at stake when bad actors use cryptocurrency to hide their shady dealings, and crypto ATM operators need to guard against this risk as well.
When using a cryptocurrency ATM, customers may want to ensure their transaction history and personal information remain private. Some reasons for this can include preventing identity theft, maintaining financial discretion, concern that their information will be sold to advertisers, or simply preferring a degree of anonymity in financial dealings. However, when it comes to the use of an ATM, these concerns may clash with the necessity of protecting customers from fraudulent transactions and identity theft.
Background on The Status of Cryptocurrency in Society and the Popular Consciousness
Cryptocurrency has grown in popularity due to its rising mainstream recognition and aim to provide secure, peer-to-peer transactions that do not require a centralized banking system. Bitcoin and other types of cryptocurrency can generally be bought and sold on an exchange where each transaction is recorded in a Blockchain. In addition to the online exchanges, Bitcoin ATMs exist for those who like to trade on the go, and prefer their transactions to be processed immediately.
As the conversation around cryptocurrency has continued to grow, it has attracted attention from some lawmakers, leading to calls for increased regulation and such debates as whether cryptocurrency should be treated primarily as a form of currency or as an investment, as a security or as a commodity. These ongoing questions may shape what regulations are applied to cryptocurrency over time.
Unfortunately, as cryptocurrency is quite new and not always well understood by the general public, it has sometimes been a vehicle for bad actors to commit crimes. In order to protect their law-abiding customers, cryptocurrency ATM companies must put into place procedures that can help them prevent these crimes. For some companies or for some transaction amounts, this may involve requiring ID, and whether that involves a photo ID or some other method can vary. However, when doing so, crypto ATM operators also have to bear in mind that their customers may also have legitimate privacy concerns and balance that with the need to ensure their security.
Cryptocurrency Regulations
Simply put, Bitcoin and other types of Cryptocurrency are subject to regulations that protect investors and ensure the integrity of a market, just like any other sort of investment, albeit potentially with the competing considerations of a different customer base. In fact, the crypto industry has already shown signs of facilitating a “rise of a new, high-tech era of virtual money laundering” with cryptocurrency gambling sites have been reported as being a common money laundering tool. Bitcoin ATM companies know that their customers have legitimate reasons for wanting to keep their personal information private. For this reason, the companies have to determine how best to fight money laundering and other financial crimes while also maintaining the privacy that is a major selling point of cryptocurrency transactions. Furthermore, the industry as a whole needs to maintain the public’s trust in order to continue building the future of cryptocurrency; when scandals occur, this damages the public’s willingness to embrace crypto as an important component of the modern financial system.
Many ATMs will require the user to create an account by performing an SMS verification, uploading a form of picture identification and in some cases, uploading a photo of the user’s ID to verify that the picture matches that of the ID. Even though all Bitcoin transactions are recorded in the Blockchain, the identification of users is not connected to their Bitcoin wallet. In this way, there is a balance between the objectives of compliance and privacy. This is different from a traditional ATM because it does not require you to connect your bank account, or even to have a bank account at all.
Bearing in mind that the regulatory landscape for crypto varies by location throughout the world and also frequently changes due to the cutting-edge nature of the technology, let's look at some possible answers to, “Why do Bitcoin ATMs require ID?” These are some of the regulations in place that are designed to protect Bitcoin buyers and sellers.
KNOW YOUR CUSTOMER
The Know Your Customer rule, or KYC, is an ethical rule developed in 2001 as part of the Patriot Act, long before the first successful cryptocurrency, Bitcoin, arrived on the scene in 2009. This rule was set forth by the Financial Industry Regulatory Authority, or FINRA, that essentially states that every broker is required to know and keep records on the essential facts of each customer. This rule also states that the broker is required to know who has the authority to act on behalf of each customer as well.
Keep in mind the FINRA notes on its website that it is “authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly.” Inherent in this language is the idea that FINRA’s role is the protection of investors, which might seem obviously applicable to converting cash into cryptocurrency at an ATM. However, buying and selling Bitcoin can be understood as comparable to investing in stocks, as they are both stocks and Bitcoin somewhat abstract entities that fluctuate in value. When an individual decides to purchase Bitcoins for the first time, they typically do so through an exchange, which is less immediate than a Bitcoin ATM and has more regulations for new users. An exchange for Bitcoin is similar to a stockbroker, and has similar governing rules, which is why a user buying cryptocurrency through an exchange typically must connect an existing bank account and provide detailed personal information to prove that they are a real person before they can start trading. Exchanges can take weeks to process this information.
Bitcoin ATMs also need to comply with KYC, but Bitcoin ATM companies’ identification requirements may differ from one another.
KYC regulations are intended to help protect against identity theft as well. By asking users who want to make high value transactions to identify themselves, crypto exchanges can prevent criminals from attempting to steal those users’ identities.
Another benefit of Know Your Customer laws is that it helps Bitcoin investors claim ownership of their assets if they are targeted by criminals. In the event of lost access to funds because a hacker had accessed an account, the only way to truly recover those assets is for an exchange to verify an individual’s identity.
These regulations exist for the financial safety of those who buy and sell Bitcoins, but many users would prefer to maintain a degree of anonymity. For them, giving that much information is off putting, and too similar to the current banking and investing system that many crypto traders are actively seeking to avoid. Nonetheless, crypto ATM operators have to ensure they are in compliance with legal requirements and that their customers can trust the security of their machines. In addition to knowing their customers, this also means working to prevent their ATMs from being used in money-laundering schemes.
ANTI-MONEY LAUNDERING: ANOTHER IMPORTANT ANSWER TO “WHY DO BITCOIN ATMS REQUIRE ID?”
Another significant issue that arises with considering what kind of identification should be required at a Bitcoin ATM is preventing money laundering. As defined by Investopedia, money laundering is, “the illegal process of making ‘dirty’ money appear legitimate instead of ill-gotten.” While cryptocurrency ATM users can have many legitimate reasons for wanting their financial transactions to remain private, it is also easy to see how that degree of freedom with regard to self-idenfitication could be misused by criminals who want to hide who they are and where their money came from. Enter the applicaotin of AML regulations.
While similar to KYC rules, Anti-Money Laundering regulations, or AML, are measures taken to prevent and combat income generation through illegal activities like tax evasion and market manipulation. These regulations require financial institutions of all kinds to constantly be on guard to detect and prevent fraudulent activities. While it may require some measures that may not be their customers’ preference, to avoid their ATM being used for these illegal purposes and the damage to their business that could result, crypto ATM regulators have to take their AML obligations very seriously.
AML regulations are in place to deter criminals by making it harder for them to hide money they have come into from illegal activities. Money laundering is frequently done through investments. Criminals will invest their ill-gotten money, using dishonest brokers who will ignore rules like KYC in return for large commissions. Cryptocurrency brokers require a large amount of personal information to even set up an account in order to protect their customers from criminal activity.
So why do Bitcoin ATMs require ID? Because without it, individuals who have come into large amounts of ill-gotten money can convert these funds to another, less traceable form. Not all Bitcoin ATMs require ID, but many do, especially when large amounts of money are involved. It is also important to remember that this blog post focuses on the United States; crypto ATMs are regulated differently in different places, so the identification requirements for Bitcoin ATMs that exist in other countries may vary greatly.
Recent Developments in The Regulation of Cryptocurrency and Crypto ATMs
While the debate about how the law should treat cryptocurrency is an ongoing saga with many developments, once recent and potentially signficant one is the introduction of the Crypto-Asset National Security Enhancement and Enforcement Act of 2023. At present, this bill has been read and sent to committee, but not voted on, so it does not have the force of law. However, its aims are important to note for the issue of what kind of identification will be required at a crypto ATM. If it became law, the bill could have the following ATM-specific effects:
Federal KYC requirements would apply to “virtual currency kiosks”
ATM operators would have to keep a record of a customer’s address, which would have to be evidenced by a photo ID.
Obviously, these requirements would significantly change the experience of using many cryptocurrency ATMs, particularly for those who prioritize privacy in their transactions. However, it is worth noting that attempts to pass similar legislation have failed in the past. What kind of ID Bitcoin ATMs must require remains somewhat of an open question.
Cryptocurrency is still relatively young, and regulation, including the regulation of crypto ATMs, will continue to develop over time. So, in the future, instead of asking “Why do Bitcoin ATMs require ID?” we may be asking “How much ID will Bitcoin ATMs require?” as requirements could become more complex and standardized.
How We Make Sure That Pelicoin ATMs are Safe and Secure
Despite the regulations in place, not all crypto ATM operators require their users to present identification. While some may ask for a simple SMS verification, others may require social security numbers or thumb print readers. Pelicoin’s Bitcoin ATMs are the most secure cryptocurrency ATM networks in the Gulf South. Any user data collected is stored on a dedicated server.
All you need to buy or sell Bitcoin, Litecoin, or Ethereum from a Pelicoin ATM is cash, your cell phone, and the QR code or address for your cryptocurrency wallet. For smaller transactions, users won’t be asked to send over a license or a selfie to verify identity. A verification code sent to your cell phone that you enter into the machine may be enough. However, be aware that customers transacting in higher volumes will be required to provide ID and other information depending on the size and/or frequency of their transactions.
When asking “Why do Bitcoin ATMs require ID,” the current answer is a number of common-sense federal regulations designed to keep you and your money safe. But it is important to remember that at this point in the evolution of the cryptocurrency landscape, how these regulations are enforced on Bitcoin ATM companies may not be totally consistent or clear. There can also be additional state-level regulation of crypto ATMs. For those who prefer a cryptocurrency ATM that doesn’t require invasive personal information or a lengthy sign up process (but is still incredibly secure) that answer is Pelicoin.
Convert Your Cash Into Crypto The Easy Way at One of Pelicoin’s Bitcoin ATMs
As the largest and safest network of cryptocurrency ATMs in the entire Gulf South, Pelicoin is the ATM system to use for all your Bitcoin needs. Pelicoin makes using Bitcoin ATMs as easy as can be, even if it’s your first time buying Bitcoin or creating a digital wallet. The ATM will take you through a step-by-step process to easily purchase the Bitcoin you need, including verification requirements. Our machine locations fit your lifestyle, so you can buy cryptocurrency while you shop or when you go to fill up your gas tank. We make it easy to make cryptocurrency buying a normal part of your life or an exciting part of your vacation to one of the many towns and cities where we provide Bitcoin ATMs. So grab your phone, your cash, and your crypto wallet information (if you have one) and get started today!
To learn more about our secure network of ATMs, and other facts about our ATMs or cryptocurrency, check out our FAQs or give us a call at 855-PELICOIN.