Two years ago, Zach Harvey and his brother, Josh, were saddled with a failing guitar shop selling vintage and handmade pieces in New Hampshire. The guitar venture had once been a roaring success, but that had been in Tel Aviv, before the duo decided to move back to the United States.

On the verge of shutting down the company, the brothers started casting around for a new project to take their minds off the struggling business. They had come across bitcoin before, in 2011, but did nothing more with it besides deciding that they would accept bitcoin payments for their guitars.

Now, they decided to try and solve the problem of buying bitcoin. It was too complicated. They built a prototype of a machine that would dispense bitcoin in exchange for fiat. It was essentially a wooden box filled with components purchased on eBay. Harvey recalls:

The Harveys have parlayed that prototype into Lamassu Bitcoin Ventures, the bitcoin ATM manufacturer with the largest share of an exploding, and perhaps the most visible, segment of the cryptocurrency economy. While Lamassu may be on top now, its early rival Robocoin and well-funded new entrants are piling into this rapidly changing sector.

The first bitcoin ATM to be used commercially was a unit by Las Vegas-based manufacturer Robocoin. It was installed in Vancouver's Waves coffee house at the end of October 2013, lending the place a sci-fi vibe as customers lined up to buy cryptocurrency.

A month had barely passed before the news got out that the machine had already grossed more than $1m Canadian dollars, breaking even for its operator after just 17 days. The bitcoin ATM gold-rush had begun.

At the start, ATM manufacturing was dominated by two firms, Robocoin and Lamassu, each with seemingly opposing approaches to the business.

Robocoin machines are large, freestanding, machines with built-in palm-scanners. They allow two-way transactions between fiat and bitcoin, with each machine costing about $15,000. Lamassu units are compact, white machines that sit on a table-top. They cost $6,500 each and only allow users to buy bitcoin.

The differences don't end there. While Robocoin machines require operators to use the Bitstamp exchange, Lamassu customers are free to choose an exchange. Robocoin also charges a 1% fee for transactions completed.

Robocoin has started modelling itself after a bank, calling its machines 'branches', while Lamassu has moved to an open-source software model.

Both pioneers have run into stumbling blocks as their machines left the factory floor to be installed in restaurants, cafes and bars around the world. The Robocoin machine in the Waves coffee house, for example, left dozens of angry customers with unprocessed orders in January as a problem cropped up with Bitstamp, which was the only exchange the machine could use.

Lamassu, meanwhile, inadvertantly turned a customer into a competitor when Tim Schuuman, owner of the eighth Lamassu unit, became unhappy because the firm wouldn't open-source its software. Upon receiving his Lamassu unit, Schuuman was sufficiently indignant to start work on his own open-source ATM, which is now the low-cost Skyhook machine.

One operator is Jonathan Harrison of London's SatoshiPoint. His favoured brand is clear: his firm owns four Robocoin machines and a Lamassu unit. Still, he said, things are changing:

Even as the two incumbents were locked in a battle for market-share and to hit shipping deadlines, strong new competitors have entered the space, and no wonder, because the global ATM industry is a multi-billion dollar business.

There are 2.6 million ATMs in operation around the world, according to consulting firm Retail Banking Research (RBR). That number is accelerating, driven by huge demand from Asia. India, for example, grew its installed base of ATMs by 44% in 2012 compared to a year earlier, RBR has found.

You only need to look at the revenues of the handful of giant companies that dominate traditional ATM manufacturing to see the size of the opportunity for bitcoin's fledging makers.

The biggest of these is Ohio-based NCR Corporation, which commands 30% of the global installed base, according to RBR. Last year, the NYSE-listed company reported revenues of $3.1bn for its financial services segment, which includes ATM hardware, software and installations.

Its rival Diebold, also based in Ohio, reported sales of $2.3bn from its ATM business last year. Between them, the two companies employ 45,300 employees around the world.

Two of the most ambitious new entrants in the bitcoin ATM world are BitAccess, a Canadian outfit that recently exited the prestigious Silicon Valley incubator Y Combinator, and Skyhook.

Haseeb Awan is one of four co-founders at BitAccess. The firm has 46 machines installed. Awan describes an ambitious strategy to tap existing ATM networks and big banks. He says the startup is already on its way.

Awan says his firm's model of providing a turnkey solution to operators will help it win business from operators of existing ATM networks. His firm will deal with compliance issues, the logistics of moving cash and the machines' hardware and software.

He said:

Fiat ATM networks are operated either by banks or what are called independent deployers. Bank networks dominate the segment in most countries, with the notable exception of the United States, where independent deployers have just over half the market, according to figures from the National ATM Council.

Payment Alliance International, based in Kentucky, is the largest independent deployer in North America. The privately held company runs 60,000 ATMs or about 15% of the US installed base.

At the other end of the market is Skyhook, which offers the cheapest machine on the market, priced at $999. It's made in Oregon and runs on open-source software. The machine is relatively simple; it only allows users to buy bitcoin. It's a small white block meant for table-tops with a touchscreen mounted on it.

Schuuman, who co-founded the startup with Jon Hannis, believes that letting customers audit the code is the best way to grow the company and increase trust in bitcoin. Besides, it's cheaper to develop it that way and it's putting price pressure on other manufacturers.

He said:

For ATM operators like SatoshiPoint's Harrison, the stiffer competition among manufacturers is a welcome development. He said he's taking a close look at a BitAccess machine for the future.

"I think these new machines that have shown up, they're a lot cheaper and they're being very aggressive with their pricing as well," he said.

The fiat ATM industry is starting to take notice of the cryptocurrency space. The ATM Industry Association released a position paper on bitcoin ATMs this month, calling for greater regulation and welcoming bitcoin ATM operators into the fold.

Bitcoin companies are biting. Michael Lee, who heads the association, said he expects several bitcoin ATM firms to become members in the coming weeks, following outreach efforts by his organisation.

"Only through communication and relationship-building with innovators can we all seamlessly adjust to this new development," he said.

Felix Kronabetter, marketing manager at RBR, which publishes the definitive forecasts on the ATM industry, offered a less optimistic assessment of the budding bitcoin ATM sector, saying:

While bitcoin ATMs have played a crucial role in creating a tangible interface to the ethereal cryptocurrency economy, are they here to stay? Or will they go the way of transitional technologies of the past, joining the Minidisc, Dictaphone and Betamax video cassettes in the graveyard of once cutting-edge tech, as phablets and mobile wallets flourish?

Mitchell Demeter of Bitcoiniacs, which operates the first bitcoin ATM, at Waves coffee house in Vancouver, doesn't think so. He sums up the appeal of a machine specifically designed for buying a digital currency:

"For a lot of people we’re the first contact they have with bitcoin. A lot of people do research online but they don’t have anyone physically to talk to. They find that a huge advantage."

Featured image via Flickr / 23912576@N05