Your Bitcoin ATM, Your Bitcoin
Bitcoin is proving to be a valuable asset, as such, users must be made aware of the importance of fully holding Bitcoin in their custody. When users purchase and hold Bitcoins on exchanges, they do not actually have custody of it. Exchanges allow users to purchase Bitcoin through a custodial wallet. This wallet is provided to the user, who is treated as a customer of the exchange. Users can still use their Bitcoin, but it is not under their full control. Exchanges take care of the wallet, leaving less responsibility for the users. While that sounds like a plus, there are reasons why that may not be the best option for all users.
When users decide to keep their Bitcoin under the custody of exchanges, it is a matter of trust.
- If something should happen to an exchange, there is a possibility users will not have access to their Bitcoin.
- A rogue exchange operated by bad actors can even steal a user’s Bitcoins.
- Users can also lose their Bitcoins if the exchange is negligent, such as, failing to secure their systems against cyberattacks.
All of these reasons are why many users opt to transfer their Bitcoins to a personal wallet. A personal wallet can come in a form of an app that can be installed on a smartphone or computer that is not on an exchange.
Whenever you buy Bitcoin using an exchange, you will want to transfer your Bitcoins from your custodial wallet to your personal wallet to gain true custody of your Bitcoin. Even with the added security of a personal wallet, there are some limitations. To withdraw cash, you will still need to use an exchange to convert your Bitcoin to fiat currency. From there, you will need to transfer the cash to your bank account so you can withdraw it.
The Advantage of Bitcoin ATMs (BTMs)
There is an alternative to using an exchange that is both faster and more convenient. Bitcoin ATM (BTM) machines help users buy Bitcoin, convert Bitcoins to fiat currency, and to withdraw cash.
- The Bitcoin ATM does not need to hold custody of your Bitcoins in order to process a transaction.
- The only time the Bitcoin ATM has control of a user’s Bitcoin is during the time they consent to transfer their Bitcoin for conversion to fiat.
- Otherwise, a Bitcoin ATM user’s Bitcoins remain under their personal custody. The owner will always be the user and never the Bitcoin ATM.
Likewise, when a user buys Bitcoins with cash from a BTM, the Bitcoin is sent directly to his or her wallet address. At no time during a transaction will the BTM have custody of your Bitcoins other than during a transfer of value. Transactions do not go through a third-party and occur between the user and the Bitcoin ATM only.
Owning Your Bitcoin
Owning Bitcoin is a different experience than with other asset classes. Bitcoin is a type of cryptocurrency. Bitcoin is not tangible like gold or issued with a certificate like stocks. It is entirely digital, without any actual physical representation. It is data stored on a ledger across a distributed network of computers called a blockchain. The network is a system of nodes that keep an account of the value each user owns. The ledger is secured cryptographically to prevent tampering. This safeguards the value of your wealth. Because it is decentralized, Bitcoin is not controlled by any authority like a government or central bank.
- When you hold your Bitcoin in a personal wallet, it does not mean that the funds are actually stored there.
- A wallet is what holds a user’s private key, which is unique to the wallet only. The funds are stored as values on the blockchain.
- A private key is what authorizes users access to their Bitcoins on the blockchain ledger.
- When a user has “custody” of Bitcoins, it means he or she has control of the private key.
On exchanges, the private key is not under the user’s control. When the exchange controls the private key, they can override users at any time.
Keep Custody and Save Time with a Bitcoin ATM (BTM)
Using a BTM helps users save time by giving them the ability to convert Bitcoin directly to cash and cash directly to Bitcoin. BTMs allow you to keep full custody of your Bitcoin. Keeping custody is an important ideological concept among Bitcoin holders. It ensures that your Bitcoin stays under your ownership until you transfer it. Exchanges, while convenient, add a third-party risk. As mentioned above, they can suspend Bitcoins under their custody at any time, even during a transaction. If your account gets suspended, you won’t have access to your Bitcoins and cannot transfer or spend them.
- Having custody of your Bitcoins requires responsibility.
- Keep your wallet safe by not revealing or sharing the private key with others.
- Wallets allow users to back up their private keys to a safe storage (e.g. thumb drive).
- Users must also keep their seed phrase safe because that is the only way a user can recover a wallet in case of problems. A seed phrase is set of words that is used to recover access to a digital wallet.
When using Bitcoin ATM, it is good to know that your Bitcoins are always in your hands! Bitcoin ATMs do not require giving custody of your Bitcoins to any third party. Using a Bitcoin ATM is a lot like using a typical ATM. Users deal directly with the Bitcoin ATM by means of their personal wallet in a peer-to-peer manner. When you purchase Bitcoins using a Bitcoin ATM, all you need is to insert the amount of cash required. The Bitcoin ATM does not hold your wallet in custody to send you the Bitcoins you purchase. It sends the Bitcoin directly to your wallet address on the blockchain. So, it’s really true, “Your Bitcoin ATM, Your Bitcoin!”
Glossary Of Terms
Blockchain – A decentralized database or ledger for recording transactions that is secured with cryptography.
Cryptocurrency – A digital asset used as a store of value or form of payment, secured with cryptography on a blockchain.
Exchanges i.e. Digital Exchange – A financial service provider that offers buying, selling, trading, and managing of digital assets like Bitcoin.
Fiat Currency – Government issued money like the U.S. Dollar (USD).
Private Key – Unique mathematical code generated by the Bitcoin software that authorizes a user’s access to their Bitcoin.
Seed Phrase – A set of words that is used to recover access to a digital wallet.
Wallet i.e. Digital Wallet – Software that holds a user’s private key which authorizes access to his or her Bitcoin.
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