The Lamassu machine, a so-called Bitcoin ATM, is a rare device that makes it possible for the unbanked to obtain digital currency. It was invented by a pair of guitar-store proprietors who wanted to break into the payments industry — and are prepared to face the music when regulators take notice.

Despite being described as an ATM, the machine does not dispense cash. Instead, it operates more like a vending machine: users put in money, and in exchange they receive an equivalent amount of bitcoins credited to their online wallet. Lamassu plans to start shipping the device, which is intended for anyone wanting to purchase bitcoins, in September.

"While I love guitars…there's so much innovation and opportunity to really make things different it really overpowered everything else we were doing," says Zach Harvey, who with his brother Josh and a software engineer friend, Matt Whitlock, founded Lamassu Bitcoin Ventures. "It excites me more, yes, to be a part of something that has the potential to change the world."

The Harvey brothers previously owned and operated Stomp Romp, a guitar store that accepted bitcoin for payment in Manchester, N.H.

Few other options exist for the unbanked to purchase bitcoins, which are typically sold online through exchanges. Some companies allow users to purchase bitcoins with money transfers, but most exchanges request that purchasers use a bank account or credit card.

Even bank customers face hurdles in obtaining bitcoins. Consumers typically register with exchanges and await approval before they can purchase bitcoins, Harvey says, and "the whole process can really be simplified even for people that don't completely understand Bitcoin."

The Harvey brothers and Whitlock created the Lamassu machine after kicking several business ideas around at local Bitcoin gatherings in Manchester.

The team presented a rough version of their invention at the International Students of Liberty Conference in Washington, D.C., in February after working through the night. They unveiled a refined version at the New Hampshire Liberty Forum the same month, and during the three-day conference they accepted about $5,500 through the machine.

"There were all ages using the machine, from ten-year-olds to grandmothers," Harvey says.

After that, the team started receiving emails from potential investors and buyers. At that point, they decided, "enough fun and games — let's turn this into something that's no longer a project but something that can really help the Bitcoin community," he says.

The trio founded Lamassu Bitcoin Ventures using their savings and the money made from selling off the inventory from the guitar shop. The group had their final version of the device ready three months later, and unveiled it at the Bitcoin 2013 conference in San Jose, Calif. in May.

Lamassu plans to accept pre-orders for its device this week. It charges $5,000 per machine for one to four units, $4,500 per machine for orders of five to nine units, and $4,000 per machine for orders of 10 units and up. Its first production run will consist of 10-15 units, Harvey says.

Because Lamassu Bitcoin Ventures is just a hardware manufacturer, the company might not have to abide by money transmitter regulations or get state licenses, Harvey says. The machine provides access to exchanges that sell bitcoins to users. But Lamassu Bitcoin Ventures will perform due diligence to make sure machines are used legally.

"It's better to be on the safe side, especially in the U.S.," Harvey says. "We wouldn't want our operators to get into trouble." 

Lamassu is also looking to sell its units outside the U.S., in countries where regulators seem more accepting of the digital currency, Harvey says. To appease regulators in the U.S., Lamassu might have to have ID scanners for large denomination transactions, he says.

More than 150 people in more than 30 countries have contacted Lamassu as potential distributors. Lamassu has received inquiries from individuals in China, Canada, Israel, Kenya and the U.K. The machine was showcased at U.S. and U.K. Bitcoin conferences this year.

Typical ATMs must have a sponsor bank for their placement or contract with an independent sales organization that has a sponsor bank relationship, says Bruce Renard, executive director of the National ATM Council.  These ISOs have strenuous sets of reporting requirements to their bank to make sure they comply with the Bank Secrecy Act, which the ISO then passes to its ATM operators, he says.

"The Bitcoin ATM is a new device that has not been seen before; it certainly doesn't perform the functions of a traditional ATM," Renard says. "However it does involve public access to a currency conversion capability…so it might be viewed as similar to a deposit function at an ATM."

ATMs are heavily regulated by a number of different groups at the federal and state level, says Renard.

"There are a variety of compliance requirements that an ATM operator either directly or through an independent sales organization must comply with," Renard says. "The whole cost associated with regulatory compliance is not insignificant and all that flows down to the ATM operators and ultimately to the consumers."

Plus ATM manufacturers must meet certain accessibility requirements, and many ATM owners have faced lawsuits for not following the Americans with Disabilities Act to the letter. If the Lamassu machine were determined to be an ATM it would have to comply with the ADA as well.

"ATMs contain large amounts of cash and are also hotspots of criminal activity, as people are robbed subsequent to their withdraws," says Andreas Antonopoulos, a serial Bitcoin entrepreneur who is not involved with Lamassu. "Most of the regulations and security mechanisms have to do with the availability of a lot of cash. The Lamassu machine [might] be able to avoid those regulations so that is can be broadly and inexpensively adopted by merchants."

Merchants that already accept bitcoins will likely invest in the Lamassu machines, says Antonopoulos. And merchants such as bars and cafes could benefit from the extra business a Bitcoin ATM would bring in, he says.

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