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By Norman Chan

The first mistake was buying the Bitcoin.

If you've watched our video from today, you've caught a glimpse of the saga that was our attempt to buy and then subsequently sell a Bitcoin at SXSW. In retrospect, it wasn't a very bright idea. But we were curious, not only of the prospect of using cyptocurrency as a fungible good for making purchases, but also of the promised ability to turn Bitcoin into real cash dollars. Both of those goals were theoretically possible in that week in Austin, which had hosted a recent Texas Bitcoin Conference--spurring several local businesses (read: food trucks) to start accepting Bitcoin as a novel marketing tactic. Austin was also home to one of the first Bitcoin ATM operators in the nation, with no fewer than three places in the city to make automated in-person transactions. Yes, here was a machine that promised not only to slurp up your dollars to transfer fractions of Bitcoin to your digital wallet, but also let you cash out of virtual currency for Uncle Sam-backed bills.

Oh, if only it was that easy.

Something we didn't really explain in the video (because we frankly still don't completely understand it ourselves) is how the Bitcoin ATM system worked. The ATMs are built by a company called Robocoin, a Las Vegas-based started founded by two brothers who were previously making Bitcoin-for-cash transactions locally, in person. According to a Wired report, Mark and John Russell, wanted to find a way to automate the process using a machine, while still working within the still-evolving regulatory guidelines set by US government for Bitcoin transactions. Naturally, they teamed up with a Nevada slot machine maker to start making prototypes. Honestly, the warning signs were all there.

Because of those tricky (and still muddy) regulatory requirements, Robocoin doesn't actually run its kiosks. They just make them and sell them to operators for $20,000 a pop. Their first customers set up shop in Canada, where Bitcoin trading regulations are more lax--the machine doesn't need identification verification to take or dispense cash. Austin-based Bitcoin Agents was the first operator to install Robocoin machines in the states (a Hacker Dojo in Mountain View wasn't far behind), putting machines in three locations timed to open with the Texas Bitcoin Conference and SXSW. Handlebar was where we ended up buying our Bitcoin, and where I spent the next few days hanging out to try to get it give our money back.

I still have that .97 Bitcoin in my digital wallet.

Buying the Bitcoin from the Robocoin ATM was at least a straightforward process. It happened like you saw in the video--I had to create an account with the Bitcoin Agents through the Robocoin machine, giving it my telephone number (for SMS verification), creating a PIN, scanning my palm, letting it take my photo, and then also scan a copy of my driver's license. That's a whole lot of personal information, which in retrospect was pretty stupid of me. Bitcoin Agents holds on to that identification data to comply with government anti-money laundering laws, but there's no promise that they can't be hacked or won't use that information for suspect ventures in the future. Anecdotally, my identity hasn't be stolen yet, but I have received on average one strange telemarketing call a week since signing up for Robocoin--the first of which was from an adult chat service just hours after giving the Robocoin machine my phone number.

There's also the matter of the transaction fee, which for one Bitcoin (~$617 at time of purchase) was $38, or over 6%. Robocoin operators make money from these fees, which they charge for both buying and selling of Bitcoins. These fees are just one of the sources of controversy regarding Bitcoin ATMs; in Vancouver, the Robocoin operator had to hire a part-time chaperone to watch over the kiosk and prevent other traders from intercepting customers with the promise of lower-cost or free transactions.

The biggest hassle was in trying to get our money out from the Robocoin machine, selling the Bitcoin back to Bitcoin Agents. The process here was incredibly convoluted and opaque. After logging back into the machine with my phone number, PIN, and palmprint, the kiosk spit out a receipt with a QR code representing the wallet address of Bitcoin Agents. The idea was that I would use my wallet to send the Bitcoin value to the operator, with the promise that after receipt, the machine would dispense the equivalent in cash--minus the transaction fee.

My mistake was in not paying a "miner's fee" after sending the Bitcoin to the operator. This was a step that wasn't made clear in the selling process, neither by the Robocoin machine or my Blockchain app. The way I understand it now, transactions have to be For Zealand In Cards Backpacker New Backpackers Discount 7 Guide qWnfH7Z1xx by the Bitcoin network, with the data of that transaction being attached to new blocks of data that's generated by the mining process. The data blocks keep a permanent record of all the transactions taking place in the network, but miners don't have to include your transactions in newly mined blocks. That's why the miner fee exists--it's a small fraction of a Bitcoin to incentivize miners to attach your transaction to their blockchains and therefore validate it. Merchants and operators typically require the arbitrary number of six confirmations before considering the transaction legit. And the typical transaction fee--0.0001 BTC--was not made clear when I sent the Bitcoin to Bitcoin Agents.

So instead of the transaction being confirmed in the 15-minute average it usually takes, our Bitcoin was lost in limbo for over a day. I sent a support email to Bitcoin Agents, and received a text message the next day (they matched my name to my phone number, I assume) from Mike Piri, the owner of the Austin Robocoin machines explaining the situation. Fortunately, Mike agreed to refund the transaction for exactly what I had sent to the machine, but by that time I was already on a flight back to San Francisco. The Bitcoin still remains in my wallet, having now depreciated to $480

Was it foolish to give so much personal information and cash to machine? Absolutely. Our mistake was not understanding how Bitcoin transactions and confirmations work, and this test was an expensive learning experience. Still, we got a silly video out of it, and it's hopefully a cautionary tale about the risks of Bitcoin and experimental technologies. We'll make fools of ourselves any day so you won't have to.

47 Comments
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  • @norman: Technically that should read "the Hacker Dojo in Mountain View"; Hacker Dojo's the name of the hackerspace (the more common generic term for a hacker co-working space). The Dojo's a pretty cool place, if anyone's ever in the area; lots of co-workers doing lots of cool stuff there, building robots and running classes that are open to the public.

  • I have always wondered how the whole bitcoin / bitcoin mining thing worked. One of my friends told me to look into it and start participating as it's a way to make a kajillion dollars, as I participate heavily in Folding at home racking up over almost 70mil points (which my friend thinks is worthless, I think otherwise).

    I am very glad you guys have shown what (a lack of a better word) scamming it is. As you guys mentioned it's more a drug dealer currency more than anything.

  • @rainmum: it's important to differentiate between bitcoins themselves and operators of bitcoin ATMs or websites. Bitcoin itself is not a scam, any more than a U.S. dollar is a scam.
  • Now that Tested is aware of some of the nuance of Bitcoin ATMs I would say its only fair to give it another go. I don't like the 6% fee or the need to provide a license. Your account information should only be known by you and those who you give it to. Perhaps the ATM can use a camera to capture an image of the person doing the transaction and then use that in case the account holder questions the transaction.

    Are all Bitcoin ATMs the same or do some have different procedures?

    @rainmun said:

    I am very glad you guys have shown what (a lack of a better word) scamming it is. As you guys mentioned it's more a drug dealer currency more than anything.

    Bitcoins are legit. Bitcoin ATMs not so much. There is a difference.

  • Drug dealer currency? The USD still has a corner on that market. Nothing can beat the anonymity of cash.

  • @blather.more said:

    Drug dealer currency? The USD still has a corner on that market. Nothing can beat the anonymity of cash.

    Nothing beats the anonymity of cash? Marked bills sure can.

  • Thanks to this I remembered that I bought $20AUD worth of bitcoins back in 2012. Apparently worth $233.56USD now :D

  • @MikeThicke said:

    @rainmum: it's important to differentiate between bitcoins themselves and operators of bitcoin ATMs or websites. Bitcoin itself is not a scam, any more than a U.S. dollar is a scam.

    I agree that it's not equivalent to say that bitcoins and accessory operations like the ATMs are the same. And yes technically, under the technical definitions of a currency there is nothing to distinguish one currency from another. However, the US dollar is undeniably one of the most important currencies in the world (along with the Yen and the Euro), in which it is so overwhelmingly in the interest of world governments, chiefly the US, and private investors to maintain and regulate the dollar to prevent its collapse and destruction.

    So while currencies all operate under agreed social reality in order to work (it isn't "real" until we treat it like it is), the dollar has such a staggering advantage in terms of the number of people invested in the currency to work to make sure it operates as it did the day before. If bitcoin were all of a sudden to truly explode and go away, then a small amount of people would be out a decent amount of cash and that would be it. A speculative venture that like many before it went nowhere. That to me is what makes me uneasy about bitcoin (and like cryptocurrencies). Up until now and potentially for many years to come it will remain a speculative currency which in a lot of ways works inherently against what currencies require for mass adoption and economic health: stability.

    That's not to say that in the future cryptocurrency can't occupy a different role in finances and if it becomes a new way for people to invest in ventures they believe in, then that might be a great outcome. Otherwise it will continue to be the domain of wide-eyed speculators, launderers, and people above a certain economic and social ladder trying to supplement their income.

  • @stenchlord: Good luck finding a way to turn it into real money.

  • I won't give the URL here, but there are ways to sell your bitcoin to "local" folks. (versus some random machine, with a company operating it, who has operational expenses to cover)

    I have used the 'local' resource to sell my Bitcoin. We meet in a public place. We agreed on a USD figure and BTC amount. They showed me the cash. I sent them the BTC. They handed me the cash.

    Took longer to get our coffee made....

    Oh...and we never even exchanged names...

  • @mrasmus said:

    hackerspace (the more common generic term for a hacker co-working space).

    If you believe that "hackerspace" is a common generic term, then I have disappointing news for you, sir.

    Were this website still owned by Whiskey Media, no holds would be barred in describing the veracity of its nicheness. So I will merely remind you that "outside" is still a thing that exists, and wish you well in your endeavours.

  • The negativity I see towards Bitcoin is very interesting to me. Bitcoin is infant technology here and the assumption that it will stay how it is today is absurd.

    Try using Coinbase and let me know how different of an experience it is. I purchased an Automatic (that bluetooth car monitor) a few days ago and it was easier and more secure than using my credit card. All I did was say I wanted to make the purchase in Bitcoin. It used the cookie from my coinbase account to start the transaction but then it texted me a code I had to use to confirm it. Your credit card probably doesn't confirm transactions with you like that. After I had inputted my code I was done and I have my Automatic device here already. I also bought a Blendtec blender off of overstock the other day with bitcoin as well and it couldn't have been easier. I also bought the newest humble bundle with bitcoin and it was super easy.

    Signing up for coinbase does take a little time but is easier than signing up for a credit card. You can buy and sell Bitcoin right from coinbase easily and they have decent rates.

    Is bitcoin extremely rough around the edges right now? YES! But so was the internet in 1995 and computers in 1985 so all I'm saying is lets let this develop a little before we dismiss it. Maybe it will flop but I would rather other people were getting rich off of transaction fees than credit card companies. Bitcoin will let us have an alternative to the creditcard/bank monopoly if it goes mainstream...doesn't that sound like a good thing? It is also very nice for doing international business.

    I will not argue about that ATM being a joke though...wow that was a stupid system/machine. Somebody needs to come in like coinbase and make bitcoin ATMs more user friendly or bitcoin is going to continue to struggle for acceptance.

  • "Once you have their money, you never give it back."

    Since I'm currently polishing up a brief finance report for a class, on the last 60 days of Bitcoin controversies, here's some layman predictions on BC exchanges:

    Mt. Gox (based in Japan) will likely reinvent itself after its "loss", and other exchanges will work to repair the damage done to the concept of exchange security.

    China's crackdown on exchanges will slow growth in BC as an investment device across East-Asia, this marks the two largest economies in the region with governments suspicious of BC use.

    Would I send money to an exchange? I almost did. Bank to bank transfer would have been fine except for the international fees at the time before Mt. Gox had presence in North America. Would I use an ATM to convert cash to BC on the fly? Hell no. That's like converting the energy in your body back into a taco. It only fills someone else's belly.

    Would I mine BC in order to spend them? Sure, but I currently don't. Would I ever try to cash out my BC? Again, not on any kind of immediate level. The IRS is treating it like property instead of currency, and I suggest everyone does the same. Barter all the way. Also Norm, save your receipts!!

  • I can only imagine the anger spewing forth in the bitcoin sub reddit over your video. "He didn't pay the Miner's fee?!?!? The idiot deserves what he got."

  • I use gyft.com to buy amazon giftcards with the bitcoins I mined. No crazy exchange rate.. and yeah always include a mining fee.

  • @Brackynews said:

    If you believe that "hackerspace" is a common generic term, then I have disappointing news for you, sir.

    Were this website still owned by Whiskey Media, no holds would be barred in describing the veracity of its nicheness. So I will merely remind you that "outside" is still a thing that exists, and wish you well in your endeavours.

    Wow, not sure why a sarcastic semi-insult had to come in. First off, I said "more common generic term" (you even quoted me in this). At no point did I say it's a common term in the global context, simply more common. The article used a brand name as a generic term (there aren't multiple Hacker Dojos), and I was simply noting the correction.

    As for your... insult, I'll just state that the term hackerspace is more common in certain environments, and less in others -- the SF Bay Area is a tech-heavy, entrepreneur-heavy environment, and a lot of my colleagues in this industry are familiar with the "hackerspace" terminology (though it's very new; the concept is less than 20 years old, I believe). Other generic terms used to describe the Dojo and other similar spaces are "makerspaces" (what TechShops describe themselves as, which Norm and Will have visited in the past), "co-working spaces" (the less hacker-centric term, also sounds more professional, and these places are *all over* tech-heavy cities these days) and "tech incubators". Heck, it technically falls under the banner of a "community center" or "events space" in a lot of ways, but those are certainly less precise terms.

    I was simply trying to offer the more appropriate terminology for a somewhat niche thing. For you to insult me for doing that on an article about Bitcoins of all things is... hilarious. You're engaging a niche audience already, but you seem determined to be "above" all that, I guess. Seems silly.

  • @mrasmus: As a Bay resident, I don't think I know a single person here that wouldn't know what a hackerspace/makerspace is, I'd even wager that a majority of my friends and colleagues have used a co-working space at some point even if only for a one-off event.

    Yes, the Bay might be a hub for these things, but they are becoming a lot more common in dense urban areas around the world. I'm Norwegian and I have lots of friends in different industries/fields back in Norway who are working out of shared spaces.

  • @blather.more: When William Gibson wrote that "the U.S. hundred is the international currency of bad shit" in Spook Country, Bitcoin hadn't been invented yet. :)

  • @kim_a: Yeah, they're all over the place. It's a really cool thing, IMO, but in fairness, we in the Bay are inundated by signs and ridiculous, weird cultural things that aren't familiar to normal people outside of this strange environment. Most non-techies in the wide world first heard of Bitcoin on the news, I suspect; non-techies in Santa Clara probably first got exposed to it from the "Bitcoin: The Honey Badger of Currencies" billboard on Lawrence. I fully admit that my perspective is a strange, skewed one by way of my environment..

  • Slight typo in the title. It ought to read, "Where We Went Wrong: Buying a Bitcoin from an ATM". ;)

  • I'm sorry to cause friction amongst some other members, but my experience was very similar to Norm and Wills. I didn't mean that Bitcoins as a currency was a scam, it is realtively valid, but everything I have experienced that is involved around exchanging bitcoins in to money and vise versa, seem very shady (well to me at least).

    My friend after mining 3 bitcoins worth, could not find a reputable way that would convert his coins into actual currency (so he could actually purchase stuff and pay his power bill) with out a hefty fee.

    Please excuse my ingnorance as I probably haven't delve into as much as others.

  • But did you take any video of the demolition across the street?

  • That transaction fee bit in the video definitely had me on the edge of my seat. As Norm seems to have learned, if an app or service ever asks to include a transaction fee, do it! It's an unfortunate part of the bitcoin protocol, but it generally amounts to 0.0001BTC - about $0.05 right now - so it's not the end of the world. But if an app like Blockchain pops up that message, it means that that transaction WILL be delayed without the fee. Every once in a while they can sneak through without a fee, in which case no message will appear (the older the bitcoins, the less likely they'll need a fee).

  • @mrasmus: +1

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    Thanks for this, really put me off dealing with bitcoins

  • "Buying a Bitcoin from an ATM"

    It's in the headline; that was the mistake!

    Everyone knows that the democratized, anarchist currency of the future for the common folks to fight the rich can only be obtained by running $5,000 worth of GPUs using $200 a day in electricity! That'll show 'em!

  • @Mythris9:

    Now for the fun part; you need to keep track of how much those bitcoins were worth when you acquired them, versus how much they were valued by Overstock when you made your purchase. Or if you mined them you need to know the value the moment each fraction of BTC appeared in your wallet. You have to pay 15% capital gains tax on that difference. Or if you're in the 15% tax bracket zero, although it should still be reported to the IRS.

    Welcome to the world of tomorrow!

    ps: there are several types of credit cards, and quite a few banks too, so I wouldn't call that a monopoly. Bitcoin on the other hand is mostly controlled by a few early adopters..

  • @obidamnkenobi: And technically you are supposed to pay sales tax on everything you buy out of state (at least in my state) but nobody does it because it is a huge pain in the butt to track for the IRS. For example the mining issue. Let me know how the IRS is going to prove what value your coins were when they were mined because unless they can it is unenforceable. Coinbase isn't required to report anything to the IRS as of yet so anything you do on there is going to be off the grid for the moment. If you pay overstock directly from your own personal bitcoin wallet it will be basically untraceable and thus untaxable as far as your end is concerned (especially if you use a VPN). It is the same deal with cash only you can't send cash over the internet. So unless you really get on the IRS's bad side I doubt anybody is going to be penalized for not taxing bitcoin correctly. The IRS is going to have to reevaluate how it deals with Bitcoin if it expects people to comply with tax laws.

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    Again to assume that the problems bitcoin has today are going to still be there in 5-10 years I think is very short sighted and against history. You do remember that computers used to be blinking light panels that you had to rewire to reprogram right? There were tons of people that thought there was ZERO market for personal computers while Woz and Steve were building the first user friendly computer. That is what Bitcoin needs right now is what Apple did to personal computing...they made it approachable.

    I'm not against you bringing up the legitimate issues (because those are legitimate that you brought up) that it has to overcome but what I find strange is that people just bring those up and then scream "There you see it sucks!". It's almost like they think they are late to the game and missed out on some opportunities because they were so negative towards it (or naive) and now they just want it to fail out of spite.

    I'm not saying bitcoin doesn't have some major problems to overcome before it is mainstream but I am confident it will just like tons of other pieces of technology and it will be refined as it is adopted. I'm also not saying Bitcoin is going to replace currency or banks. All I'm saying it is gives us a nice alternative.

    P.S. Oh and on the note of banks not being a monopoly. I would consider them not a monopoly as much as internet carriers...yes there are many of them but it isn't like they are trying to compete very hard with each other. Try to transfer money overseas without using something tied to the international banking system. Try issuing your own credit card alternative without the banking system. Try buying something online without using Visa/Mastercard/ or American Express. And every single one of those activities has fees that go towards bankers profits where at least with bitcoin it goes towards many more people involved in the bitcoin network. All I am hoping to see is some sort of alternative. Credit unions started it and I think bitcoin is going to continue carrying that torch of giving us an alternative to the big banks.

    P.P.S.

    I really don't understand what you mean by "Bitcoin on the other hand is mostly controlled by a few early adopters"...controlled? how? and where is your evidence? The top %5 richest people in the US own about %60 of the weath...are you going to stop using dollars? Do you think bitcoin is worse than that?

    I could totally be wrong on all of this and bitcoin could fail tomorrow but I hope not.


  • Oh man, the moment you said in the video you weren't paying the miner's fee... I was like OH SHIT! That transaction is going to take FOR-EVER! Not paying the fee typically means a transaction will take 2-4 days.

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