Bitcoin Automated Teller Machines (ATMs) in Canadian Businesses

POR Registration #: POR 066-17
Contract #: 46575-189946/001/CY
Contract Cost: $32,973.40
Contract Award Date: December 21, 2017
Delivery Date: March 22, 2018

Prepared for:
Canada Revenue Agency

Produced by:
Sage Research Corporation

March 2018

Ce rapport est aussi disponible en français.

For further information:
media.relations@cra-arc.gc.ca

Political Neutrality Certification

I hereby certify as Senior Officer of Sage Research Corporation that the deliverables fully comply with the Government of Canada political neutrality requirements outlined in the Communications Policy of the Government of Canada and Procedures for Planning and Contracting Public Opinion Research. Specifically, the deliverables do not include information on electoral voting intentions, political party preferences, and standings with the electorate or ratings of the performance of a political party or its leaders.

Rick Robson
Vice-President
Sage Research Corporation

Summary

Cryptocurrencies, like bitcoin, are difficult to track because of their decentralized nature, which puts them beyond the reach of central banks, financial institutions, and governments. This decentralization leads to potential tax noncompliance through under-reported and unreported income and capital gains. Cryptocurrencies are also part of the new digital way of doing business. The Canada Revenue Agency (CRA) wants to understand how cryptocurrencies are changing the way Canadians do business and understand their tax obligations.

This qualitative research project explored the use of bitcoin and other cryptocurrencies through a study of Canadian business owners who have bitcoin ATMs installed in their establishments. All of the ATMs had bitcoin, and about half also had one or more other cryptocurrencies. Participants were asked about the other cryptocurrencies on their ATM, but since most of their comments pertained to bitcoin the report usually refers to the bitcoin cryptocurrency. The CRA wants to understand the reasons for introducing a bitcoin ATM into a business, the perceived value it brings to businesses and their customers, and attitudes towards tax compliance in the crypto-commercial sphere.

The primary research objectives were to explore:

The CRA will use the information from the research to:

Twenty in-depth individual telephone interviews were conducted between January 24 and February 9, 2018 with retail businesses that have a bitcoin ATM on the premises. The sample included participants from a variety of types of retail businesses, and from different regions of Canada. The qualified participant was the owner or a manager of the business. In one case the participant was with the head office of a chain with bitcoin ATMs at multiple locations.

This research was qualitative in nature, not quantitative. As such, the results provide an indication of participants’ views about the topics explored, but cannot be statistically generalized to the full population. Qualitative research does, however, produce a richness and depth of response not readily available through other methods of research. It is the insight and direction provided by qualitative research that makes it an appropriate tool for exploring retailers’ opinions and experiences with bitcoin ATMs.

Research Context

Number and distribution of bitcoin ATMs in Canada: The number of businesses with bitcoin ATMs in Canada is small, but the number has been growing. For example, from mid-December 2017 to the third week of February 2018, the number of locations increased by over 20%.The list compiled for this research had 300 businesses.

The single most common type of business location is convenience stores. The next two most common are coffee shops and bars/pubs. Beyond this, bitcoin ATMs can be found in a wide variety of types of businesses, albeit in small numbers.

Bitcoin price: The price of bitcoin in the several months prior to the research and during the research was very volatile. From the beginning of October to mid-December 2017, the price of bitcoin went from around $5,500 to just over $25,000. It then declined to around $10,500 by the end of the research fieldwork on February 9, 2018.

Participant arrangement to have a Bitcoin ATM: As is typical, participants did not own the bitcoin ATM, but rather it was owned by a bitcoin ATM operator. Associated with this, the participants did not have access to details about transactions occurring on the ATM. Participants also said they do not have any obligations to try to monitor who is using the machine or the reasons why people use the machine. Their perceptions of the bitcoin ATM users are based essentially on casual observation and occasional conversations with users, and participants varied in terms of how much they paid attention to users of the bitcoin ATM in the course of their own work.

All of the participants said that their obligation to the bitcoin ATM operator is to provide electricity and internet. The majority said this was all they did. Some also mentioned monitoring to ensure the machine was physically secure and operating, or helping new users of the machine with basic instructions – staff time, interest and knowledge permitting. Only one participant was responsible for managing the cash in the bitcoin ATM; for the rest this was handled by the operator.

General assessment of participant knowledge of bitcoin and cryptocurrencies: A theory one might have about these “early adopters” of bitcoin ATMs is that they are bitcoin/cryptocurrency enthusiasts, and that this personal interest contributed to their installing a machine at their business. This in fact did not apply to most of the participants. Most put in the bitcoin ATM simply to try to help their business – the two most common reasons being to increase store traffic and to get some income from the bitcoin ATM operator. Most participants did not come across in the interview as experts or enthusiasts, nor did they describe themselves this way. Only one of the 20 participants was clearly a bitcoin/cryptocurrency enthusiast. They were personally an active trader in cryptocurrencies, and they said their “number one reason” for installing the bitcoin ATM was for their personal use (among other reasons).

Level of Usage

The majority of participants said that on average there were two to five people per day using the bitcoin ATM. There were some who said that on average there were more than five users per day, including several who said there were 10 or more users per day. The highest estimate was from a convenience store owner who said there were 20 to 30 users per day.

Some observations from participants on usage trends:

Reasons for Having a Bitcoin ATM

Initiation of the decision to install a bitcoin ATM: The large majority of participants said the decision to install a bitcoin ATM was initiated by a sales call from a bitcoin ATM operator. Some said they initiated the process to get a bitcoin ATM.

Some participants were asked what was the operator’s “sales pitch.” The first thing all these participants mentioned was they were told that having a bitcoin ATM would increase the number of people coming to their store, and thereby help increase store sales. The direct financial compensation from the operator did not appear to be as prominent a part of the sales pitch.

Decision factors: The two most frequently mentioned reasons for installing a bitcoin ATM were to increase store traffic and thereby store sales, and the financial compensation from the operator. Some participants said that marketing was a significant factor. One participant said the “number one” reason was personal use.

Intent to keep the bitcoin ATM: Almost all planned to keep the bitcoin ATM. The primary reason is that it brings in income to the business, mainly through financial compensation from the operator, but also for some through a small increase in sales. It is also the case that the bitcoin ATM is low maintenance (except for the one participant who handles cash stocking): all the retailer is obligated to do is provide electricity and internet.

There were, though, some participants who expressed some reservations, for one of either two reasons:

Bitcoin ATM Users

“Come to use the bitcoin ATM”: All of the participants said that most or even all of their bitcoin ATM users are not their regular customers, but rather are new people who come specifically to use the bitcoin ATM.

Perceived demographics of bitcoin ATM users: There was no strong consensus on demographics, but two trends were: (1) more likely to be men than women; (2) tend to be younger – which meant anything from “in their 20’s” to 20-50 years of age.

Perceived reasons for using the bitcoin ATM: The perceived reasons for using the bitcoin ATM included: investing, some sort of wrongdoing, and buying bitcoin in order to buy things online with bitcoin. There is a fourth reason which is discussed separately, namely victims of scams.

Victims of bitcoin scams: Another type of user of bitcoin ATMs is victims of bitcoin scams. Seven of the twenty participants mentioned this reason for use, and five of them had intercepted victims at their store and managed to prevent them from being scammed. In total, these five participants were aware of 16 scam occurrences.

Other participants, when asked whether they had noticed any users who might be victims of a scam, said they had not noticed anything like this, and some were not aware that there are bitcoin scams. However, it is likely there were scam victims unnoticed by the other participants. The participants who noticed scam victims said the victims did not approach them and talk about what was happening. Rather, the participants happened to notice something that looked out of place, and then proactively approached the person to ask what was going on. If a retailer is not actively monitoring bitcoin ATM users and looking for things out of the ordinary, and willing to engage with users, they would not detect scam victims.

The most commonly encountered scam involves someone pretending to be from the CRA; the other scam mentioned is someone pretending to be from the police.

There were two victim demographic profiles mentioned: (1) elderly people, and mainly elderly women, and (2) newcomers, all of whom were women.

Some participants were asked whether there were any fraud warnings posted: about half said there were warnings, and half said there were no warnings. If posted, they appear to have been posted mainly by the bitcoin ATM operator.

Reasons for using a bitcoin ATM rather than an online exchange: Some participants were asked why they thought some people use a bitcoin ATM rather than using one of the online exchanges. Opinions included:

Business Use of Bitcoin

Only one of the twenty participants used bitcoin in their business, the rest did not use bitcoin or any other cryptocurrency in any way in their business.

The participant who used bitcoin in the business is the one participant in the sample who received payment from the bitcoin ATM operator in bitcoin They used bitcoin in the business in two ways:

There were basically three camps in terms of reasons for not using bitcoin in the business:

Contract value: $32,973.40, including HST

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