Cryptocurrencies have opened new economic opportunities while challenging cities with difficulties in other locations. While some embrace the innovative potential of digital assets, others grapple with the associated risks, particularly the rise in scams and illicit activities. Stillwater, Oklahoma is one such city, recently considering a ban on cryptocurrency ATMs (BTMs) as a means of counteracting these problems. This article will explore the ethical and economic rationale behind the proposed ban. It will compare this approach with the alternative of implementing strong regulations across the board. It will focus on ensuring a proper balance between protecting the public and encouraging innovation. It will compare and contrast with the approaches taken by other areas.

The Rationale Behind Banning Crypto ATMs

Stillwater's proposed ban on crypto ATMs stems from a concerning trend: the increasing number of crypto-related scams targeting its residents. According to city officials, more than 30 residents have been duped by these scams. Combined, they terminated well over $213,000 in benefits. Almost half of these funds were poured into cryptocurrency ATMs located throughout the city. High fees for BTM transactions sometimes top out at 20 to 30 percent. This huge expense leaves them highly attractive to scammers, fueling the problem even more. City Attorney Korine Land pointed out the weaknesses of existing state statutes that govern cryptocurrency enterprises. Since then, the city has taken initiative and proposed even stronger measures to address these realities.

The case for banning BTMs rests almost entirely on the need to protect vulnerable populations — especially the elderly — from financial exploitation. Scammers frequently prey upon these people, forcing them to take out cash and deposit it into crypto ATMs with misleading promises. In addition, regulatory oversight in the still-nascent crypto space is virtually nonexistent, further complicating efforts to track and recover missing funds. As a result, victims are left with little avenues for redress. The city’s plan will stop BTMs to cut off one of scammers’ biggest, preferred pipelines. This important step will increase the deterrent effect of legality against the burgeoning variety of crypto-related fraud.

The Potential Downsides of a Ban

Though the intention behind banning crypto ATMs is certainly admirable, it risks creating unintended, counterproductive consequences. Electricity consumers installed 3.63 billion dollars’ worth of BTM revenue in 2021! Each of these machines rakes in 4,500 per month which amounts to $6,125 every month. Whether paid or free, a ban would certainly result in decreasing revenue for BTM operators. Beyond stigma, encryption ATMs work as a first driver of economic activity inside of communities. They provide convenience to the consumer by allowing purchase and sale of cryptocurrencies for investment, ecommerce, and remittances.

Academic research has indicated that minority communities are overrepresented as cryptocurrency holders and users. Banning crypto ATMs could disproportionately harm these communities, worsening any current economic inequality they may face. The BTM industry creates jobs for those that operate and care for these machines. It represents openings for people outside of our field to get involved. A ban would lead to job losses that would hurt the local economy. Crypto ATMs provide a less common way to access financial services, especially for the unbanked. Eliminating this option would drive vulnerable populations further away from access to financial services.

The Alternative: Implementing Robust Regulations

Rather than implementing an outright ban on crypto ATMs, we can do better. With strong, national regulations we can minimize the dangers associated with these workhorses. This would give the city the flexibility to protect its citizens from scams and bad actors while encouraging technological innovation and new growth industries. A robust regulatory framework could include the following elements:

  • Regulatory oversight: Establish clear regulations and guidelines for the crypto industry to prevent scams and ensure transparency.
  • Reporting mechanisms: Create easy-to-use reporting mechanisms for citizens to report suspicious activities or scams, such as a dedicated hotline or online portal.
  • Education and awareness: Educate citizens about the risks associated with crypto investments and scams, and provide resources to help them make informed decisions.
  • Verification and authentication: Implement robust verification and authentication processes for crypto exchanges, wallets, and other services to prevent fake or phishing sites.
  • Secure storage and handling: Promote the use of secure storage solutions, such as hardware wallets, and encourage citizens to handle their private keys securely.

In taking these steps, Stillwater can help provide a safer environment for people engaging in cryptocurrency transactions. This strategy will drive more innovation while safeguarding at-risk communities.

Learning from Others: A Broader Perspective

Other states have gone the opposite route, pursuing comprehensive regulation of the burgeoning cryptocurrency industry, providing key examples Stillwater could learn from. Such as, for instance, Hawaii having businesses get approval from its Digital Currency Innovation Lab before conducting any business in cryptocurrency. Here in Kentucky, we have created a Blockchain Technology Working Group. This coalition seeks to build on the opportunities presented by blockchain technology while addressing public safety and security issues. On the other end of the spectrum, Rhode Island is considering some new legislation. This law would give the department authority to audit licensees and require them to maintain extensive documentation of their actions. Arkansas passed a unique special legislative study commission. This commission will explore the best strategies for making a welcome economic environment for blockchain and cryptocurrency. That friendly façade is further anchored by Florida’s crypto-onboarding legislation that went into effect in 2023. These examples illustrate that finding the proper balance between innovation and the regulatory process certainly is possible. This sensible framework serves the dual purpose of protecting consumers while allowing the cryptocurrency industry to thrive.

Ultimately, Stillwater's decision on whether to ban or regulate crypto ATMs will have significant implications for its residents and its economy. Though the motivation behind wanting to protect citizens from scams is commendable, a ban would create some unfortunate downstream effects. By implementing comprehensive regulations and learning from the experiences of other regions, Stillwater can create a more balanced approach that fosters innovation while safeguarding its community.