Is a non-custodial Bitcoin ATM feasible?

After seeing this convo, I started thinking about the idea of a Bitcoin ATM that wouldn’t need any company to hold onto your coins. The whole custodianship thing with Bitcoin ATMs is why they usually ask for KYC info, like scanning your ID, which totally kills the privacy aspect. At first, I thought about an ATM that just buys and sells Bitcoin through something like Bisq or another P2P platform. But that’s still not truly non-custodial, since those P2P sites rely on bank transfers and similar payment methods. So, the ATM would still need a bank account to make those buy/sell transactions. But I actually came up with a concept for a non-custodial ATM. It would definitely be a complex gadget and probably cost a lot to make. The idea is for the ATM to act like a cash exchange: it would have multiple cash compartments (think lockers or vaults) where people can put in cash, which would be checked for counterfeit. Then, they could place an order on a screen connecting to a P2P exchange, entering their Bitcoin address. Now, two scenarios might play out: - If someone fills the order, the buyer gets the Bitcoins, and the seller receives a code to access the cash compartment where the buyer deposited their money. - If the order isn’t completed within a set period (like 24 hours), the order gets canceled, and the buyer gets a code to pull their cash back out. So basically, the company running this ATM would be holding onto the cash, not the Bitcoins.

1. I don't think this is enough for a Bitcoin ATM company to completely do away with KYC. Even with this limited role, I'm afraid they still can't disregard regulations imposed by FinCEN in the US or the MiCA framework in EU. They're still involved in financial transactions. 2. This setup seems to take away the 'automated' in ATM. Imagine loitering around waiting for the confirmation, or going back to the ATM after several hours to get back the cash because the order wasn't filled. I think it defeats the very purpose of ATMs. Such machines are designed for instant transactions.  3. I think ATMs are designed for smaller transactions. In which case, if I'm not mistaken, you can still take advantage of non-KYC limits offered by certain ATM providers. It may vary according to jurisdiction, but there might still be machines left which only ask for phone numbers for SMS verification. You could use a burner number for that.

Can it be done? Sure. Anything is possible. I think ATMs are pretty risky though without KYC. You wouldn’t be able to accept any sort of credit cards or digital funds without risking chargebacks and having a large amount of cash in an ATM is asking to get robbed. It s certainly possible for someone willing to take the risks though.

In all happening I did not see the provision for the company offering such services getting incentive from the whole buildup, unless of course the cash vault releases slightly less the amount to the seller as a fee, secondly in a country that taxes crypto transactions, would you deduct the tax from your design before handing the cash to the seller assuming there is no way his identity is saved? For the buyer who gets the coins released to him when order finally gets filled, I do not see how the system benefits from his purchase too unless it owns a mining firm and includes all transactions in their node thereby profiting from the transaction fees. Finally, the buyer could be exposed to risk of robbery when attempting to load the vault with some cash and seeing him loading cash at the ATM might make him a prime target for crypto related robberies I think this is a great step towards achieving something great. Ideas are refined continuously until they look very innovative and practical.

I'm not an expert, but I don't believe the need for an ID at an ATM has anything to do with custody, and all about AML. When do they hold your bitcoins/money for you? Don't you put money in and it sends bitcoins to your wallet? I have never used one, so please enlighten me.

Good point. The machine I had in mind would still be automated (the cash could be taken in a single "slot", because it must be checked for counterfeit money, and then delivered to the compartment). Buying BTC at such an ATM could even be instant if you act as a "taker", i.e. you fill an order from a seller which already exist for that ATM. But of course, one of both parties (buyer or seller) will normally have to wait its order to be filled. Regarding regulations, you're probably correct that even if this machine only custodies cash, it could be still "facilitating transactions" which is one of the reasons you could need KYC (but see below for an example with MiCa). The goal would be to make this machine as close as possible to a simple locker. I could also imagine a simpler design where you indeed have only a series of lockers with a mechanism to prove the authenticity of the cash, but all the technology which connects to the P2P exchange would reside in a smartphone app. [edited this sentence as I had crippled it in the first version due to a fail when I quoted the next paragraph ] That's indeed a point which has to be taken into account. Collecting the fee could be a challenge. A very simple setup could be to collect the fees by collecting coins or small banknotes like $1. Of course that doesn't look very user friendly. A better idea is probably to create a transaction format at the connected P2P exchange where the Bitcoin seller can send the fees to the ATM company in an additional output, and only if this format is used, the ATM would accept it. Best option is probably to use Lightning anyway to avoid blockchain bloat. This does not mean the seller pays all the fees, as the exchange rate can be adjusted in a way the buyer would also get slightly less than the value of the cash they deposit. Regarding taxes, in most countries that tax doesn't have to be deducted automatically, it is the seller who has to report his profits from the operation to the authorities. Would be basically the same as if you're using a P2P exchange. Like instant exchanges, an ATM holds your Bitcoins for a very short time -- from the moment you have deposited cash, the contractual obligation of the ATM is to deliver you the coins, and while the cash is checked and processed, the BTC are delivered a moment later. That is probably already "custody". At least that's my understanding, I may be wrong ... MiCa (European regulation) lists the services you a crypto service provider subject to the regulation according to a summary provided by Google Gemini: Apart from 1 which isn't the case in this theoretical machine, 2 is also not the case, because the trading platform is a P2P exchange not provided by the ATM company, neither is 3, because the ATM company itself doesn't exchange the assets. 4 and/or 6, "executing/transmitting orders for crypto-assets on behalf of clients", could apply on a first glance, but I think it is also not necessarily the case because the order itself is still executed P2P and the ATM company does not transmit the order. All the ATM company has to do is to signal the BTC seller "the cash was deposited". It would be a slight challenge to circunvent the part of 6 which says "receiving orders". Of course that would probably the case if you use a tablet-like interface and the ATM receives and places your order on the P2P exchange. But if you download an open source app to your phone and place your order there, then the ATM itself doesn't receive nor transmit nothing. 7, 8, and 9 don't apply either, as the ATM company doesn't manage nor transfer crypto-assets at all. The machine I'm having in mind could be described more as a "trustworthy locker", i.e. where the company guarantees that the cash was really deposited, which can broadcast messages (to the P2P exchange). Basically it's an automated helper for OTC cash trading.

Your response seems inadvertently cut. Anyway, I'm afraid there can't be an instant transaction if you're dealing with a decentralized P2P service especially via an ATM, because you're directly communicating with a person on the other end of the line. You're basically trading using an ATM. Even if you're the taker, the seller would still verify outside of, say, Bisq that the funds are indeed received, then confirms on Bisq the receipt. Bisq would then release the funds from the escrow address to yours. That's on-chain. Again, it won't be instant. Not to mention that while you're paying in cold cash, the other end of the trade would be receiving money via a bank account. Otherwise, if your design in mind would be implemented, which is for the "seller would get a code for the ATM and would have access to the compartment where the buyer deposited the cash", that would be more implausible, at least right now. You better do it with Peach Bitcoin's meetup feature or something similar. I'm not sure if you're familiar with Satori Coins. They're Bitcoin-loaded chips which hold a private key underneath a holographic sticker. They used to be offered in a gashapon in Japan. It's a vending machine. It's probably the quickest design, although it would still be custodial so to speak because they're generating the private keys. But you'll have to scan and move the funds right away as soon as you get it. With the current level of Bitcoin's adoption, however, I'm not sure if this could still be done without AML compliance.

Yes, you seem to be correct here. That process would normally take some time, at least if the ATM company doesn't offer some intermediation or handle the escrow itself, but then we would already probably be in KYC territory. However, there would be a way to make it a bit more instant: if sellers can signal their online status (so the buyers would take only orders from those who are actually online at that time) and agree to verify a new ATM transaction in let's say 10 or 20 minutes (otherwise to be penalized), then it would be already much more acceptable for the buyer. And if the seller reacts slower, the ATM would only transmit them the code when they have accepted the transaction. So the buyer can go away without having to worry about his money, he would get it back if the seller cancels the transaction. A design involving a bank transfer from the ATM company to the seller imo would not have many advantages regarding a "traditional" ATM, because the ATM company became involved in an exchange directly and would have to obey regulations for exchangers. I would not frame it that much as an alternative to a current ATM. That kind of "automated cash locker" machine would be an alternative to in-person meetups, and some issues that can go wrong in that kind of meetup would be less likely (e.g. counterfeit money or the seller running away with the cash without transferring the BTC). Of course that needs trust in the machine vendor/operator. I could imagine such a machine in hackerspaces, Bitcoin cafés or similar places. That sounds cool, I didn't know that exact kind of "offline bitcoin", but yes, I think your last sentence nails the problem: as it's custodial, at least in places with regulations similar to MiCa the service in the present would have AML obligations. Oops. Don't know how that happened but I corrected it (anyway in my response to odolvlobo I made a similar point).

Yes, but difficult to create in practice. Now, many ATMs are behind locked doors, so you enter inside, ring a bell, and doors to the outside world are locked, while you are accessing the machine. So, it looks literally like visiting some kind of prison, when machines with a lot of cash are guarded behind huge barred door, made of steel. And instead of using its own cash, it can be changed into a meeting point. You would have two rooms: one for the buyer, and one for the seller. Then, two people could enter inside, and be physically locked for the time of transaction, they can transact through machines, and then walk outside, when they are done. Possible, but difficult to do in practice, but maybe some companies will try anyway. Soon, identity will be always checked, no matter what amount will be transacted. In Europe, often the limit is 1000 EUR, however, you can be forced to show your ID, if any regulator will request it, when you do several transactions below that limit, but the sum would exceed 15k EUR per day, or if you try to hide your face, or do something suspicious. That's why many times people send someone else to ATMs, just to let them transact on their behalf (and it is very similar to selling your identity, when it is required to show your ID to register a SIM card, and have any working phone number).

I think there would be an easier way. I've tried two types of Bitcoin ATMs. The most common one requires you to go there to get a ticket with the QR code and the address to send the transaction. This type of ATM would have the aforementioned delay issues. But there's another type where you can send the transaction from home and just go to the ATM to withdraw the money once it's been confirmed. This type of ATM would be much more convenient for what you're proposing.

I can honestly only think of an ATM that will ask for the user to send their BTC to the designated address, buy it at lower than exchange rate, and then sell it to the market immediately to recover liquidity. It's simple enough, no need for P2P since the company is the one buying the bitcoin, it's profitable and it does not need KYC. However, I bet there's always regulation that trying to enact KYC for these kind of thing so its just a wishful thinking to have these kind of ATM.

Still, when you send BTC to their address, you have to physically go to ATM, and take the cash. And then, there is still 1000 EUR limit per transaction, and your identity can be requested at any moment, before giving you any banknotes. Which means, that if it would be possible, then ATM operators would do that now. Note that before, they didn't have ID scanners, and they had no reason to introduce such things in the first place, because it discouraged some people from transacting, so they lost some customers.

Well, I was answering the question hypothetically. In the EU, it would be impossible to implement something like that, as there is no longer even a 1K limit. All ATM transactions require KYC, and setting up a website to establish a DEX is not the same as setting up a physical machine, which someone has to buy and put in a space, usually rented, which entails costs and planning. And no matter how much the OP says it would work like a cash exchange, anyone who set up such a system could get into trouble with the law. So, to the question posed by the OP, my answer would be: no. Especially in the EU, and I imagine in most of the world. I don't know if it could work in more favorable environments such as El Salvador.

They would still try to snatch at least your phone number, and temprorary ones wouldn't work, imo.

There are some exceptions, for example Poland. Because I bought some BTC in this year, to make my puzzle: https://mempool.space/tx/aba3c2ae442aa20150996ee68f9aa4da83b57a4312891078be0c2e68c50b2801 Or rather: I sent some PLN to Garlo Nicon, and he did it for me. Because as I said, it is risky to go into ATM, when you are completely locked in the room, and it is easy to keep you inside, and call the police, if you would do something wrong. Another thing is that there is always a risk, that you do some transaction below 1000 EUR, and you will be asked for your ID anyway. Or: sometimes ATM software can be buggy, and can take your cash, without giving you any BTCs, and then, it is needed to call support, and solve it (which is what happened with bc1qruqzjrk7jn7204thkyqz5n0mzzqyjpecuuqxcq, but as you can see, Garlo Nicon contacted them, so they sent it later, than the previous two addresses, owned by me and vjudeu; and later we collectively made the transaction, by signing our inputs separately, and sending the change back into bc1qpmz0mtmc2ckuu94kmgl7qy8e0jheu5d6favvqa chosen by Garlo Nicon, because he won our puzzle preparation challenge). And, that last example can give you yet another reason, why you won't reach 100% KYC/AML resistance: it is software, and it can contain bugs. It is good, that ATM support can usually solve it, but it is bad, that you have to contact with them, and obviously, that usually means revealing some of your personal data anyway. Walking away to a different ATM is also possible, but then, you lose up to 1000 EUR per transaction, and it is a good question, if you are willing to pay that much for staying "anonymous" (and risk being locked inside the building with ATM, if some regulator will think, that calling the police, and revealing your identity is needed for whatever reason).

Also the problem is does the government would allow them to operate like that? Since for sure they would get an issue on legal side especially that government knows that Bitcoin ATM has been used by some criminals to launder their stolen or dirty money. So those things is hard to implement and I guess people would be force to obey the regulation set by the government. But I don't think they would lose costumer in that set up since legitimate people which is fine with regulation set would continue to use that. Only those launderers and other criminals would stop to use those machine because this is not an ideal escape route since government do something to fight those illegalities they made.

Not that much, because if you have to show your ID, and you risk, that in the future some data leak could happen, and your ID would be sold somewhere in Tor, then you are much less willing to transact in the first place. In my case, it is yet another reason, why Garlo Nicon bought it, instead of me, because his ID will expire soon, so the "risky time" is only from today to the expiry date of a given ID (but, fortunately, he didn't have to show it, as far as I know, and the old leaked one is already expired). Which means, that if you have some ID, that is valid for example for 10 years, then it is most profitable to do transactions, when it can expire in a year or two. And before that, it is much less risky to touch classical stocks, because a leak from some bank is less probable, than a leak from some ATM company.

That is clever idea that addresses major issue with most Bitcoin ATMs which is that they act as custodians and require personal information like ID scans to follow regulations. Your concept of cash only locker system using P2P exchange like Bisq is creative way to get around this as ATM company would only ever handle cash not Bitcoin itself. However building such machine would be very complicated and expensive and it would still require people to trust company with their cash. Process would also be slower than regular ATM since users would have to wait for P2P trade to be completed which could be dealbreaker for many people. But machine like this does not exist it is great concept that highlights challenges and possibilities of creating truly private and decentralized system.

Interesting idea, but I would like it to be a bit more automated. The problem here is that both must still meet up at the same time in the same place. The rooms could be made in a way however nobody sees the counterparty's face (of course they could then try to stalk the counterparty after leaving the room). Your point about support is also something to take into account, but if we continue with the "locker" concept, with normal "lockers" you could have the same issues, and it doesn't happen very frequently. That's indeed a good concept to be combined into the design. It would also align with the idea that all interaction could be done via an (open source?) app not provided by the ATM company, and thus the ATM company isn't involved at all with the exchange itself (it only deposits/checks the cash). @X-ray: The machine you described would still probably be considered "custodial" (as the company temporarily holds "your" BTC as in my answer to @odolvlobo above) and thus require KYC.

The challenge will be with the government. They have tried without any success to see how they regulate bitcoin 100% and still don't have a perfect solution, won't it be us selling our freedom to them in the end?. They will now have a physical location to track bitcoin holders and enforce some bias law on them. How about implementing a Point-of-Sale (PoS) system instead? It could be more discreet and secure than an ATM setup, especially considering the risks involved in public transactions. A PoS terminal integrated into existing businesses (like stores or cafes) would allow users to transact quietly without drawing attention, unlike ATM machines where it's obvious when someone is handling crypto-related business.