It’s a troubling time for prudent savers around the world.
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.
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.
Make saving great again
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?
What if I also told you to earn interest like this you don’t need to have a huge amount in savings either?
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).
BlockFi was founded in 2017 and is a privately owned NYC-based lending platform. It calls itself a provider of wealth management products focussed on cryptocurrencies and cryptoinvestors.
BlockFi offers three services:
1. Crypto interest accounts – deposit crypto with BlockFi and receive interest each month. The interest rates depend on the crypto you deposit.
2. Crypto trading – trade cryptocurrency pairs between BTC, ETH, LTC, USDC and GUSD.
3. 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.
This BlockFi review is of its interest account specifically. I have yet to use its trading service or crypto-backed loan option.
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.
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.
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.
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.“
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.
My experience using BlockFi
If you’re going to write a review of a service that you intend to trust with valuable assets then you should have skin in the game.
Before writing this BlockFi review I did a little digging around to see who else had done a review on the service.
Surprisingly I found some that were written by people who aren’t a customer of the company.
Personally, I can’t review and recommend something I don’t use myself. Every review I write and every recommendation I make is because I like and use whatever it is.
I’ve been a customer of BlockFi for a couple of months and so far I’m more than happy with the service. I’m beginning to see the interest I’m making on my bitcoin compound.
Compounding interest is what makes you wealthy. Einstein said compounding is the eighth wonder of the world and Warren Buffett attributes his billions of dollars of wealth to it. Read the book The Compound Effect to understand why.
BlockFi has both a web interface and smartphone app that pretty much allow you to run your account the same way. I use the iOS app most of the time to check my balance, see my interest or to deposit some more bitcoin.
Here are a couple of screenshots of my account below.
I’ve added 0.2 bitcoin (20 million sats) into my account so far and intend to add more over time.
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.
Within the app you can see:
- The total account balance
- The balances on each crypto
- The total interest paid (the approximate USD value of payments made)
- Accrued interest (the interest made in the particular month)
- Transactions including interest transactions
By default, you are paid interest in the same currency you deposit so in my case I receive bitcoin. You can change to ‘Flex’ your interest payments to be paid in any supported currency.
I only buy bitcoin in the UK as I believe is the greatest form of currency so I’m happy to receive my interest payments in it.
I haven’t withdrawn any bitcoin yet and as long as BlockFi continues to perform I don’t intend to for a long time and will only add to my balance.
Adding currency to your account is as easy as transacting with any crypto. You simply send from your crypto wallet to the address BlockFi provides like any crypto transaction – all of which can be done within the app.
Do I recommend BlockFi?
If you’ve read this BlockFi review all the way through you’ll probably guess that yes in my experience so far BlockFi is a great way to earn interest on your money.
At a time when interest rates on savings have never been lower and we’re moving toward an era where it may even cost you to keep your money in a regular bank, services like BlockFi are pioneering a new way to save.
To generate wealth your assets should earn while you sleep and BlockFi is one such service that helps you do it. After all, why should savers be penalised for being sensible?
Even if you don’t intend on owning crypto like bitcoin, litecoin or ethereum and want to stay in the dollar (or any other fiat currency) the rates are so good that converting it to a stablecoin to earn 8.6% interest could be a no-brainer.
BlockFi isn’t a bank so its crypto interest service comes with risks but I believe the company has mitigated any potential downsides with insurance and its partnership with Gemini. The quality of its investors provides peace of mind also.
For me, personally, as long as the service continues to remain the same (or indeed gets better) I’ll continue to allocate more of my bitcoin to BlockFi and will continue to be a cheerleader for the company.