One of the most exciting developments in the blockchain space in the last couple of years is the ability to earn interest on bitcoin and other cryptos.
With crypto interest accounts the entire ecosystem moves one step closer towards replicating the existing banking system.
Blockfi is the easiest way to earn interest on Bitcoin, Ether, Litecoin, USDC and GUSD.
BlockFi is an American non-bank lender company based out of New York.
To date they’ve raised over $60 million in funding and have achieved a respected status within the cryptocurrency ecosystem.
In this article we’ll look at:
Let’s jump into it.
When considering whether to open a BlockFi account it’s important to check whether the service is available where you live.
BlockFi is not available in all US states. More information on its availability can be found on their website.
BlockFi has a mandatory KYC program to enforce their policies.
To get started earning interest on your Bitcoin with BlockFi you can follow these steps.
After completing KYC you can select Bitcoin, Litecoin, Ether, GUSD or USDC and click deposit.
BlockFi will provide you with a crypto address to send your coins to.
You now have an account funded with Bitcoin or other crypto which will begin earning interest immediately.
To keep your account secure you must enable 2FA (2 Factor Authentication). This is a standard requirement for many exchanges and other cryptocurrency protocols within the cryptocurrency ecosystem.
The amount of interest it’s possible to earn using BlockFi varies quite frequently, depending on supply and demand.
Given how volatile the cryptocurrency market is sometimes there is high demand for crypto so the interest rate will be higher, and sometimes the demand slackens so the rate goes lower.
As of publication the interest rate for USDC on BlockFi is 8.6% APR while the rate for Bitcoin is 5% APR.
Ethereum can earn just 3.6% APR.
The best way to find out how much you can earn on BlockFi, as well as compare rates on other platforms, is to use LoanScan.io.
Although BlockFi is most famous for their support of Bitcoin, this is not the only currency that it’s possible to use on their platform.
In addition to Bitcoin they also offer interest rates on stablecoins like USDC and GUSD. As of publication the interest rate for both of these dollar-pegged coins is 8.6%.
In terms of pure cryptocurrencies BlockFi supports Bitcoin, Ethereum and Litecoin. They typically offer the highest interest rate on Bitcoin and the lowest interest rate on Ethereum. In fact the interest that they pay out for Ethereum and Litecoin deposits is often 2 to 3% less than what they pay for Bitcoin.
Yes, interest compounds on the BlockFi platform.
An annual interest rate of 6% actually ends up yielding 6.2% interest on an annual basis due to compounding interest.
This makes BlockFi an especially attractive option for those who would like to earn a passive income from their crypto holdings.
BlockFi pays out interest just once at the beginning of each month.
This infrequent interest payment is done to reduce complexity.
Traders who absolutely must have daily interest payments may want to consider working with a DeFi platform.
While it’s possible to take out a loan against the Bitcoin in your account there are a number of requirements that must be met before you can do so.
For instance, BlockFi requires your social security number, a full KYC verification and also a copy of your financial history. Besides that there are other requirements.
If you meet all of these requirements and would like to take out a loan you can follow these steps.
Within a day of the collateral being received BlockFi will send either USD to your bank account via a wire transfer or a stablecoin to a wallet address of your choosing
Interest payments can be made using ETH, LTC, BTC or USD.
If you as the borrower stop paying off the loan then BlockFi can “repossess” your crypto. The only way to get your crypto back again is to pay off the loan in full.
Standard terms for the loan are twelve months with a 4.5% interest rate. However that interest rate can change at any time depending on market conditions. Loans can be payed off early or also refinanced after the loan term has ended.
A loan can be originated for up to 50% of the value of the crypto deposited as collateral. For example, if you deposit $50,000 worth of Bitcoin you can take out a loan worth up to $25,000.
As a startup BlockFi still depends on seed funding from investors.
Thankfully they’re not having any trouble getting it as they just raised another $30 million. The purpose of the money, according to BlockFi, is to help the company go “mainstream.”
Whether that’s a viable goal now, when the crypto ecosystem is still so small, remains to be seen. However, the amount of assets that BlockFi is currently holding is quite impressive. They have more than $650 million in AUM (assets under management) which makes their company not that much smaller than the entire DeFi movement which just reached $1 billion AUM.
To reach mass adoption BlockFi plans to release a mobile app and also to make it easier for users to integrate their bank account directly with BlockFi for seamless transfers. Finally, they also want to release a crypto reward credit card. Instead of giving customers points this card would reward them with crypto.
It’s a novel idea but it may be just the thing to expose more people to crypto. If they sign up for the credit card and receive a bonus in crypto, it may incentivize them to get involved in the blockchain ecosystem.
Given the long history of hacks in the blockchain space, and the billions of dollars’ worth of assets stolen so far, it’s a really good idea to consider BlockFi’s security record.
In fact they have an excellent security record that is bolstered by their partnership with the American exchange Gemini. Well-known for their methodical approach to security, Gemini has never been hacked and is generally considered an extremely reliable exchange.
Partnering with Gemini in order to store funds was a smart move for BlockFi as they didn’t have to worry about building a cold storage model from the ground up.
Besides the security measures that Gemini employs, BlockFi also institutes a couple of their own. For instance, they have made 2FA mandatory for all accounts. That means that all users must work with Google Authenticator in order to generate one time passwords in order to log in to their accounts.
BlockFi also has a monitoring system that scans all withdrawals to look for suspicious activity. All things being said the platform is very secure and they’ve yet to be hacked. Whether you’d like to earn interest on your crypto or take out a loan against it, you can feel safe using BlockFi.
By far the most popular way to earn interest is through the DeFi movement based on the Ethereum blockchain.
Unfortunately this mostly only works for Ethereum, DAI and other ERC20 tokens which run on the Ethereum blockchain.
Currently it’s not possible to earn interest on Bitcoin via DeFi, at least not without jumping through some hoops. Thankfully there’s BlockFi.