SOUTH LOOP — South Loop resident Rich Gatz thinks Chicagoans are ready to start using the digital, unregulated currency known as Bitcoin — and hopes to soon open the first ATM-like kiosk in the Midwest that allows users to trade them for cash.
Gatz, a liability claims specialist and bitcoin hobbyist, has formed a company called Windy City Bitcoin. He has ordered a kiosk from Las Vegas-based Robocoin, the only manufacturer of a bitcoin ATM that exchanges cash for bitcoin and vice versa.
The first and only kiosk is up and running in a Vancouver coffee shop, but none are operational in the U.S.
While Gatz's initial goal was to operate the first Robocoin kiosk in the U.S., Sam Glaser, a spokesman for the company, said Tuesday the company is shipping one to the East Coast in January, and that company is confident it will beat Gatz to the punch.
Still, Gatz, 32, said he is OK with having the first kiosk in the region, possibly by March — if state regulators don't get in his way.
"I want us to be the Midwestern center of crypto-currency — to create a community around bitcoins here," said Gatz, who's funding the project with the spoils of his own bitcoin investments and backing from two supporters.
Gatz, a self-proclaimed geek who became fascinated with bitcoins in April, said he loves the concept and the community, which draws technology enthusiasts, investors looking to capitalize on a new and rapidly growing market, and libertarians who "feel that no government should have control over currency; we should control it ourselves," he said.
"This is not a get-rich scheme," he said. "This is something that I think will help put bitcoin in the public consciousness a little bit more. People are wary of bitcoins already, and I think that's complicated by the fact that you have to go through such an intense process in order to purchase them."
Nevertheless, bitcoins have taken off nationally. USA Today recently declared, "Love it or hate it, bitcoins are a national craze."
The complicated framework for acquiring bitcoins was debuted in 2009 and has since swelled in value as others have bought and sold the digital currency. In January, one bitcoin was valued at less than $1, but by late last month, a single coin was valued at $1,242. The value has dropped in recent days.
Bitcoins have become accepted in a variety of places. Some investment management firms allow you to deposit bitcoins into individual retirement accounts. A developer in Las Vegas is willing to accept bitcoins for his $7.85 million mansion.
Gatz said he wants Windy City Bitcoins to be the "guinea pig" that brings Chicago into the bitcoin landscape. But while Robocoin's proprietary software will be compliant with federal regulations, state policies on bitcoin-to-cash exchanges range from murky to nonexistent across the U.S.
That's the case in Illinois, too.
Sue Hofer, a spokeswoman for the state's Department of Financial and Professional Regulation, said Gatz is right that state regulation's haven't yet caught up with technology.
"It's something we've been looking at," Hofer said. "Our transmission of money and our ATM laws are both in need of some review as technologies change. And depending on how he sets it up, it could be an ATM, it could be a currency exchange matter, and none of those laws were written in the 21st century."
As for bitcoin-related state policy as a whole, Hofer said it is "on our radar, but we do not have new regulations about how it could work in Illinois."
In terms of complying with the few federal policies that are on the books, kiosk vendor Robocoin does the heavy lifting. Its website promises its product's "bank-grade security" is "fully compliant with federal law" — which, at present, amounts to anti-money laundering laws that limit daily transactions to $3,000 and require users to present identification.
When, or if, Illinois develops bitcoin regulations, Gatz said certain factors could force his kiosk to a neighboring state.
"The crux of the issue is: Is the State of Illinois going to allow it?" he said.
Gatz said the kiosks shouldn't be subject to banking regulations because the money isn't coming from a deposit account.
"You're basically exchanging money for — according to the federal government — a commodity. Something that is not a currency."
Already, bitcoins are most commonly used for online purchases, at bitcoin-only vendors or brick-and-mortar businesses with Web-based ordering systems. But real-world shopping opportunities are expanding.
In tech hubs like Palo Alto, coffee shops were the earliest adopters of bitcoin payments. Booshworks, a discount printer in Pilsen, accepts bitcoins along with credit and debit card payments in-store.
Robocoin users need a QR code that grants access to its digital wallets and a palm scan to complete the transaction. In the cash-exchange business, as with traditional ATMs, revenue comes from transaction fees.
The Robocoin kiosk in Vancouver charges a 7 percent fee. Most online bitcoin transfer programs take a 1 percent cut for transactions, which has made bitcoin exchanges attractive in comparison to wire transfers through services like Western Union that charge a 12 percent fee.
"If for some reason we can match the Vancouver kiosk, then in all likelihood we'll probably start at a 6 or 7 percent transaction fee until our capital is paid back, and then we'll reduce it," Gatz said.
If the first kiosk opens and is successful, Gatz said he hopes to open one elsewhere, possibly in the suburbs.
Once the kiosk is delivered to Chicago, Gatz will have to decide where to put it.
Six months ago he posed the question on Reddit, which drew multiple votes for installing the flagship kiosk in the Loop. Wicker Park and River North were mentioned as well, though many echoed the sentiments of one user:
"Put this anywhere in Chicago, and I'll be sure to give you business."