ter writing yesterday about how Bitcoin can be used to liberate people from the harmful effects of inflation on their savings it may seem strange that I am now publishing an article titled ‘cash is still the king’.
It is a fact that society will need to reduce its dependence on government-issued currency over time.
The vast majority of people’s incomings and outgoings can be denominated in local fiat currency. American citizens almost always earn their salary in USD. You use the USD balance to pay your living expenses. You may have more or less cash depending on your individual circumstances.
Therefore, it makes sense that the fintech industry would strive to facilitate frictionless transfers between crypto and cash – both practical reasons and to transition to a fully digitalized financial world.
“There may be a digital utopia vision, but reality is that many people still use cash every day,” said Neil Bergquist (chief executive of Coinme), a Seattle-based cryptocurrency exchange that specializes on cash conversions.
“In order to pursue Satoshi’s vision of a global peer–to–peer electronic cash system, you need a cash ramp – cash is literally at the headline of bitcoin white paper. But it’s difficult [to build]. It’s messy. It’s much more than offering an extra payment type.
Coinme was one of the first bitcoin ATM providers in the world in 2014. However, the company has since abandoned its hardware and partnered with MoneyGram and Coinstar.
Coinstar has a network of 20,000 machines that can guzzle spare change, and then dispense either banknotes (or electronic gift cards) from the machine. MoneyGram is a specialist in cross-border remittances. They have 350,000 locations where customers can deposit money and send money to their loved ones.
Bergquist stated that approximately half of Coinstar kiosks will be crypto-enabled before the end of 2018, up from 7,000 today. You can deposit as much as $2,500 cash to receive a receipt and a code. This code is used to redeem bitcoins on your Coinme account.
MoneyGram partners allow customers to exchange bitcoin for cash by simply giving instructions to the teller.
Bergquist said that bitcoin and digital currency were still in their early days. This is why we had to do our own ATMs from 2014 to 2019. It was not taken seriously by many of the financial institutions that were already in place.
He described 2017’s market top, when bitcoin reached just shy of $20,000, as a turning point in industry acceptance.
“Coinstar saw bitcoin as a legitimate opportunity after that… Coinstar now has more than 20,000 kiosks around the world. We would have needed to deploy so many machines. Being able to use their infrastructure solves the industry’s access and scale problems. MoneyGram now offers us another chance to crypto-enable.
The complexity of dealing cash is partly due to increased regulatory scrutiny, especially in relation to anti money laundering laws. Both channels require customers verify their identities before they complete a transaction. Coinme uses standard Know Your Customer protocols to conduct these checks. Personal documents are required, but bank statements are not required.
This is important because cash-based services appeal to 22% of Americans, or 72 million people, who are either underbanked or unbanked .
However, it is worth noting that cash convenience comes with a cost.
Bergquist estimates that Coinstar’s customers who use bitcoin pay a flat 4% transaction fee and a variable exchange rate fee of up to 7.5%. MoneyGram charges a flat $2.75 plus a variable rate of up to 4%.
He said that MoneyGram is more affordable than Coinstar if you need to transact a larger amount of money. It all depends on where you are located and when you need to transact. Bitcoin is volatile and this seems to be the main motivation for customers.
He justified the fees by pointing out Coinme’s high costbase, another result of dealing with physical currency. Coinme, unlike traditional crypto exchanges spends significant amounts on its cash logistics network and pays a premium for banking partners due to the higher risk associated with cash transactions. Its financial audits cost more than usual.
Bergquist stated that Latin America expansion is a priority for the company. Partnerships are ‘teed up’ to activate in the first quarter 2022.
He noted that the United States sends more than $150 billion to other countries each year. If we can build the cash launchpad in America, then we are able to follow the money and expand into countries that receive money from the United States. For example, Latin America receives approximately $80 billion each year.
“So we have been investing heavily to launch in South America and Central America in Q1 next year… We target pretty much every country, except Bolivia and Venezuela.”