BlockFi Review: The Future of Crypto-backed Banks
Have you head about BlockFi? People said that it is a “too good too be true” platform?
Our conclusion: It is good, and it is true
On this article, we will explain to you the benefits and drawbacks of this popular platform that claims can make your crypto works for you.
About BlockFi
BlockFi is a reputable and trusted forum for lending and investing cryptocurrencies. It was founded in 2017 and is a privately owned NYC-based lending platform. BlockFi is a provider of wealth management products focussed on cryptocurrencies and cryptoinvestors.
BlockFi offers three services:
- Crypto interest accounts — deposit crypto with BlockFi and receive interest each month. The interest rates depend on the crypto you deposit.
- Crypto trading — trade cryptocurrency pairs between BTC, ETH, LTC, USDC and GUSD.
- Crypto-backed loans — instead of selling your crypto you can get a crypto-backed cash loan against it. BlockFi provides up to 50% of the value of the crypto assets in USD.
It’s a company which seems to be going from strength to strength with a good management team and some well-known investors.
In August 2019 BlockFi received $18.3m from a Series A funding and in February this year it raised a further $30 million Series B funding.
Some of BlockFi’s investors include Peter Thiel’s Valar Ventures, Mike Novagratz’s Galaxy, the Winklevoss brothers’ Winklevoss Capital, ConsenSys Ventures and Akuna Capital.
They’re backed by some heavy hitters in the industries of technology and crypto and the company grew revenues more than 20x in 2019, and at last count boasts more than $650 million in deposits.
Sign up and earn bonus on BlockFi here
How Does BlockFi Work For You
BlockFi offers crypto owners (big and small) a passive income opportunity — removing the risk of cryptotrading while still producing a healthy return on your investment in cryptography.
If you already own some bitcoins, it can be a perfect way to produce a healthy return to work and to gain a certain passive income by leasing it out.
It means giving your coins a power over crypto services such as BlockFi. You must trust the lending service that your money will not run away.
Interest rates have been slashed as governments deal with the coronavirus and subsequent financial fallout from it.
Those with cash savings are losing wealth by the day as their currencies become less valuable due to inflation.
People today looking to earn interest from their cash savings will struggle. Banks simply don’t offer a decent rate of return anymore and even millionaires aren’t exempt.
When regular banks are offering a measly 0.1% interest on cash savings what if I told you you could earn up 8.6% interest elsewhere?
In the past, if you had cash savings you could rely on a decent return as banks valued the prudent and those who were willing to keep their money with them.
Today, however, is a different story. Having any of your wealth in cash is a long-term losing game. Banks simply don’t value it as proven by the extremely low-interest rates they offer.
While this is true across traditional banking, new kinds of wealth management services are launching that can help you earn a decent rate of return on your savings.
Enter BlockFi, a lending platform that provides high interest on your crypto savings regardless of how much you have.
If you own either bitcoin, ethereum and litecoin or stablecoins USDC, GUSD and Pax you can open a BlockFi interest account and earn anywhere between 3% and 8.6% on your crypto savings.
It works like this: You provide BlockFi with your cryptocurrencies and they loan it out and give you a percentage of the interest.
Cryptocurrencies can be volatile and are not for everyone so BlockFi’s inclusion of stablecoins provides the risk-averse more peace of mind — whatever dollar value they put in they know they will get back out (plus interest of course).
It’s a company which seems to be going from strength to strength with a good management team and some well-known investors.
Sign up and earn bonus on BlockFi here
BlockFi Interest Rates
The interest BlockFi offers in its interest account varies depending on the cryptocurrency you hold with them as you can see in the table below.
If you store up to five bitcoin you can earn 6.2% on it each month. Any more than five and the rate drops to a still-healthy 3.2%.
Bitcoin is the only currency that has an interest cap on the amount you invest. With the other currencies you can invest as much or as little as you like without any change in the interest rate.
For example, if you store GUSD, USDC and PAX you can earn a whopping 8.6% on your savings regardless of how much you have.
These three stablecoins are pegged to the US dollar meaning their value has little volatility and doesn’t suffer the highs and lows of a cryptocurrency like bitcoin.
Personally, I like volatility as it’s a sign of a growing asset but if you prefer to have your cash in US dollars you can convert it to a stablecoin and be safe in the knowledge that your money will still be worth the equivalent of your deposit plus 8.6% interest.
You can also earn 4.5% on ethereum and 5% on litecoin, but I am personally more invested in bitcoin both financially and philosophically so, for now, it is my only holding in BlockFi.
Sign up and earn bonus on BlockFi here
Is BlockFi legit?
Or, in other words, is BlockFi a scam and are they going to steal your hard-earned crypto? The short answer is no.
The BlockFi management team come from a variety of backgrounds within the technology and financial industries which is what you would hope for given the business model.
The CEO and co-founder Zac Prince has had various leadership roles at multiple successful tech companies in adtech and broker firms.
What’s just as important for me as a BlockFi customer is he is active on social media and occasionally appears on podcasts in the crypto space. He’s a highly visible and public CEO which is a good sign.
The official BlockFi Twitter account is very active too — regularly posting updates and memes and responding to customer questions. I’ve tweeted them a couple of time and always receive a quick response.
I first discovered BlockFi from listening to Peter McCormack’s What Bitcoin Did podcast as they were (or still are) a regular sponsor to the show.
The company is committed to its online presence and digital marketing and in my experience has been open and responsive so far.
Sign up and earn bonus on BlockFi here
Is BlockFi safe?
Of course, there is a difference between asking if BlockFi is legit vs asking if it’s safe to keep your crypto with them.
It’s an important question because by giving BlockFi custody of your crypto assets you are entrusting the company to safeguard them and return them when you ask.
The crypto industry is riddled with stories where people have lost small fortunes through hackings, scams and negligence. It’s estimated that around five million bitcoins have been lost due to negligence alone.
First and foremost, cryptocurrencies aren’t legal tender which means they aren’t backed by government insurance. BlockFi specifically states on its ‘what are the risks‘ page.
While it isn’t covered like a bank, BlockFi has a robust custodian policy which is supported by the crypto exchange, Gemini, which is owned by the famous Winklevoss brothers.
“Gemini is BlockFi’s primary custodian. Gemini keeps 95% of their assets in cold storage and 5% in hot wallets that are covered by insurance provided by Aon. Any funds compromised in cold storage would be covered by their new insurance policy which you can read about here. Gemini is a licensed custodian and regulated by the NYDFS. Deloitte recently completed a SOC2 examination of Gemini’s custody solution — you can read more about Gemini’s SOC2 compliance here and about their security here.“
Sign up and earn bonus on BlockFi here
Conclusion
I interpret this as the crypto you lend to BlockFi is insured — but like any insurance, a claim has to meet the requirements of the policy to be valid.
I assume that BlockFi follows the correct protocol to ensure any insurance will be valid so therefore the crypto I lend to BlockFi is both safe and insured.
Long answer short, BlockFi is safe but like any prudent investor you should evaluate and understand the risks.
I think it’s best to show a little caution when using these types of services before you commit fully. As a customer BlockFi has to earn my trust and so far they have.
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