By Josie Rosene

If you have stopped at a gas station or convenience store lately, you may have noticed a new kind of ATM that looks familiar but operates very differently from a typical ATM. This new ATM, called a virtual currency or cryptocurrency kiosk, allows people to buy or trade digital currency. But unlike a regular ATM, you may want to think twice before using it.

What are virtual currency kiosks?

Unlike regular ATMs, virtual currency kiosks do not dispense cash. Instead, they are physical machines that let users deposit or exchange cryptocurrency using cash, a debit card, or a digital wallet such as the Apple Wallet or Google Wallet.

While “virtual currency” and “cryptocurrency” are often used interchangeably, there are differences. Virtual currency refers to any nonphysical form of money used in online transactions, rewards, and loyalty programs, such as airline frequent flyer programs. Cryptocurrency, on the other hand, is a type of virtual currency that operates in a more secure manner, using advanced codes to keep transactions secure and storing them on a shared digital ledger called a blockchain. Bitcoin is one of the most well-known examples of cryptocurrency.

However, Minnesota law defines “virtual currency” as a medium of exchange, unit of account, or store of value that is not money and excludes things like rewards programs and digital representations of money used in online games or game platforms.

The rise of cryptocurrency scams

As cryptocurrency becomes more popular and widespread, so do cryptocurrency kiosks. Unfortunately, this means that kiosk users are increasingly becoming victims of scams. While cryptocurrency transactions are not completely anonymous, scammers often use techniques to obscure transactions or their identities to minimize their risk of being caught. As a result, in most cases, victims are unable to recover the money they have lost.

Common scams involve fraudsters posing as government officials and convincing victims they must pay fines to avoid arrest or pretending to offer lucrative investment opportunities. Victims are told to deposit cash into a kiosk to send payment, often losing thousands of dollars within minutes.

In 2023, the FBI reported that there were more than 69,000 complaints from the public about cyber-enabled crime and financial fraud involving the use of cryptocurrency, with reported losses exceeding $5.6 billion.

Minnesota’s new consumer protections

Lawmakers have taken notice of the rise in scams from cryptocurrency kiosks. In 2024, a new state law, Minnesota Statutes, section 53B.75, took effect to protect consumers from cryptocurrency fraud. The law requires licensed virtual currency kiosk operators to disclose relevant terms and conditions to consumers, issue refunds for new customers who are victims of fraud, and set a $2,000 daily transaction limit for new customers.

Despite these new regulations, cities across Minnesota have seen a drastic increase in scams involving virtual currency kiosks. Concerned about residents, especially those more vulnerable to scams, some cities have taken action to regulate or ban these machines through city ordinances that go above and beyond the regulations established in the new state law.

Local authority and city ordinances

A city’s authority to regulate various activities within city limits generally comes from state law. The few cities that have enacted ordinances to regulate or prohibit virtual currency kiosks have relied on their general welfare powers to do so.

Under Minnesota Statutes, section 412.221, subdivision 32, cities have the power to “provide for the government and good order of the city, the suppression of vice and immorality, the prevention of crime, the protection of public and private property, the benefit of residence, trader, and commerce, and the promotion of health, safety, order, convenience, and the general welfare.” This authority allows cities to act by ordinance, as long as the local law does not conflict with state or federal law. Charter cities have similar powers under Minnesota Statutes, section 410.33.

Some cities have considered zoning as another potential avenue for regulating virtual currency kiosks, similar to how zoning has been used to regulate virtual currency mining. However, using zoning in this way carries risks. Some cities have faced lawsuits alleging the use of city zoning authority to avoid compliance with environmental regulations.

Proceeding with caution

In all, virtual currency kiosks are a relatively new phenomena, and the legal and regulatory landscape is still working to catch up. When considering regulating these kiosks, cities should work closely with their city attorneys to determine what legal authority cities may have to regulate these kiosks and ensure any regulations comply with state and federal law.

Josie Rosene is a staff attorney at the League of Minnesota Cities. Contact: [email protected] or (651) 281-1205.