Yaniv Moyal pulled out a wad of shekels last week and fed the bills, one by one, into Israel's first bitcoin cash machine. Moyal, a lawyer and advocate for the virtual currency, converted just over 2,000 shekels ($578) into about one bitcoin stored in his online wallet.

Bitcoin ATMs are popping up in cities all over the world as a novelty for tech geeks, but it could turn out to be more than a gimmick in Israel. The country has a community of bitcoin enthusiasts that's about 10,000 strong, comprising the world's second-largest meet-up group for the virtual currency, according to Meni Rosenfeld, chairman of Israeli Bitcoin Association. Not bad for a country with a population about a 40th the size of the U.S.