Technology Lab / Information Technology

Ars buys bitcoins at one of the country’s only Bitcoin ATMs

At a train station in Boston, a Bitcoin ATM has attracted hundreds of users.

This week, I bought my first bitcoin. Actually, it wasn't really a "bitcoin" but a tiny fraction of one. At Boston's South Station, I inserted a dollar bill into one of the country's only Bitcoin ATMs. In return, I received 0.0014 bitcoins, though it's preferable to say that I received "1.4 milliBits."

"You're now a bitcoiner," Chris Yim, co-founder of Liberty Bitcoin, told me.

Yim and his business partner, Kyle Powers, put their first Bitcoin machine inside the station, near the door out to train track #6. They man the machine nearly every day for varying hours, which they publish on their site before the start of each week. While money is locked inside the machine, someone could pick the box up and take it if it was left unattended. Yim said they are working on finding a way to secure the machine and leave it open 24 hours a day.

I visited the machine twice last week. It was never mobbed, but Yim and Powers got a visitor every few minutes or so. One Google Glass-wearing man named Brian, who calls himself the "hot dog king of Martha's Vineyard," stuffed a bunch of 10- and 20-dollar bills into the machine to convert them into bitcoins.

When I asked Brian what he uses them for, he said, "Right now I use Bitcoin to dream. And it's better than a penny for your thoughts. You get better dreams." When Brian's business, Dinghy Dogs, opens up again this summer, he said he hopes to accept bitcoins as payments for the snacks.

Free milliBits!

The Liberty Teller guys have been giving fractions of bitcoins away to bring new users on board. They're taking donations for the Bitcoin fund on their website.

"We're essentially giving milliBits to new people who are getting their first Bitcoin wallets, and I think to date we have given out over 150," Yim said.

Several hundred people have purchased bitcoins from the machine since it arrived at South Station on February 19. None of the businesses at the station accept bitcoins yet, although Yim has been talking to the business owners and expects that to change. Some restaurants in nearby Cambridge accept bitcoins. Why accept bitcoins? The transaction fees are cheaper than the fees charged for credit card purchases.

"A lot of people come here to buy stuff online," Yim said. " is probably the biggest online retailer that takes it. They actually offer a discount if you pay in Bitcoin. A lot of people, particularly business travelers, Amtrak people, they'll buy to get their first bitcoin. Some are looking at it as like a stock [for investing]. We've had a lot of people come by also to pay their kids' allowance. They have their kids' QR codes."

Liberty Teller pays for much of its business expenses in bitcoins. "Our lawyer takes bitcoin. We're big believers to the extent that we spend bitcoin wherever we can," Yim said.

Chris Yim of Liberty Teller shows us how to buy bitcoins.

The Liberty Teller machine won't let you exchange bitcoins for dollars, but buying from the machine is nearly instantaneous. You press a button, scan the QR code containing the public address of your Bitcoin wallet, insert cash, and the bitcoins are sent to your address. The machine is connected directly to the Internet and handles transactions without any further human interaction required.

I purchased my first bitcoins by scanning a code on my phone, which was running the Blockchain app for jailbroken iPhones. In the video above, Yim demonstrates this with one of the paper wallets he gives to new bitcoiners. The paper wallet has a seal: if you break it, the wallet opens and displays the private key needed to secure the Bitcoin address.

Getting bitcoins online can be a little more difficult and can take several days, particularly for a person's first transaction, Yim said. "We let you purchase a bitcoin in the quickest possible timeframe, using cash." Using the machine is extremely simple, but Yim said he'd like to customize the software to make it even easier.

Yim and Powers buy bitcoins in large quantities from a variety of sources, including miners, and sell them at a slight profit. Their price is the average of four exchanges, and it updates every 30 seconds. The exchanges used in the average include both online markets and the price for buying bitcoins locally with cash, which is more expensive, so the Liberty Teller price ends up being a bit higher than online prices. The first time I saw the machine, it was offering one bitcoin for $710, whereas I had seen bitcoins selling for $690 online earlier that day.

Buying the machine was the easy part

Yim went to MIT for undergrad, and he said he and Powers are "technically" first-year students at Wharton's MBA program. Yim is "in the process of deferring," though. Liberty Teller "is what I've been working on for the last seven months."

The easiest part of starting the business was buying the machine, which is made by Lamassu. "The rest is working through the regulatory process," he said.

The only restriction on customers is that if you want to buy more than $500 worth of bitcoins, "we have to verify your identity," Yim said. "We have worked with our legal and compliance team and determined that is the right price point for us."

Yim and Powers preferred to be a bit vague in discussing regulatory requirements, but they said they comply with federal regulations from FinCEN and with state rules. "We're fully compliant with all federal and state regulations," Yim said. "The interesting thing is every state has their own different laws. As we think about expanding it's something to think about." Before expanding to new regions, they plan to place a few more machines in the Boston area.

Liberty pays a fee of about 6 cents on every transaction regardless of its size, so when I bought a dollar's worth of bitcoin they actually lost a few cents. $2 is the break even point, Yim said.

The fee "goes to the miners. That's essentially the fee you pay to ensure that [the transactions are] integrated into the block chain," Yim said. "You can not include a transaction fee but there is a risk" that the transaction won't be finalized. The block chain is basically a public ledger that records all Bitcoin transactions.

Transaction fees are expected to be reduced by a factor of ten soon, bringing them down to .6 cents per bitcoin purchase, Yim said.

Educating a public that’s curious about Bitcoin

Yim sees himself as an evangelist for the Bitcoin platform, noting that its value is highly dependent on getting a lot of people to trust it. Scandals like the bankruptcy and security problems of Bitcoin exchange MtGox and the robbery and closure of the so-called "world's first Bitcoin bank" worry people, but Yim says that "Gox is an opportunity. People come by and they ask, 'Is Bitcoin bankrupt?' They're clearly interested. We have a chance to educate them. We tell them that MtGox is an isolated company, there's nothing to do with the fundamental protocol. We talk about decentralization, how online exchanges defeat the core concept of Bitcoin, which is decentralized currency. It's like you're trusting your bitcoin to someone else. It doesn't make any sense."

Liberty doesn't require people to create an account, and it doesn't hold bitcoins for customers. "All we do is send bitcoins to your address," Yim said.

Yim eventually wants to see a Bitcoin machine "on every single block," but he says his hometown is an ideal place to start. "I think Boston is the best city in terms of demographic," he told Ars. "It's a very wide range, very educated, very tech savvy. I'm really excited by the interest in Bitcoin here. I think it could really become the Silicon Valley for Bitcoin."

Still, "some people have incorrect perceptions of what [Bitcoin] is, and we just fight really hard to educate them. Everyone has different questions, and most people we find are just a question away from really understanding the potential of Bitcoin. We're happy to answer questions. Right now, we're here whenever the machine is here."

Editor's note: For you eagle-eyed readers, yes we are aware that we posted a picture with both the public and private key of a bitcoin wallet. We were curious how long it would take someone to claim the $2 in the wallet: it was less than an hour.

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