Earn Crypto and enjoy freedom from State money! I know you will be thinking like, hey, we have Fiat currencies (like USD, EUR, JPY, CNY etc) that works fine in the economy and there is no need for a cryptocurrency.
Let me tell you that these are centrally managed by Private banks like Fed that has a monopoly over money issuance. They just print money excessively, increase inflation, reduce purchasing power and never pay back debt. Go check the outstanding US National Debt here.
As of writing this article, it stands at around $26.5T with no plans, whatsoever, how to repay them. Anything that is centralized doesn’t provide you freedom.
Choose sound money, Decentralized Cryptocurrencies. Decentralize and unbank yourself.
Official inflation rate in the United States has hovered around 2% over the last few years. For people with savings in USA, there aren’t many opportunities to earn interest above the official inflation rate. At the time of writing this article, the Fed funds rate is 0% – 0.25% which means you will get a pittance from banks as interest for your money.
Traditional financial platforms are there to earn money for themselves. When they don’t give you any interest on your checking or savings account, they still loan out money at a higher rate to other customers. More atrocious is they charge you around 18%-22% on your credit card debt.
Non-traditional financial platforms like BlockFi, Celsius Network etc may be the salvation against inflation. Before we jump into more information about them, let’s dive into first understanding the simple math concept of interest.
Simple Interest Vs Compound Interest?
Just to give a quick recap of your 5th grade math for folks who forgot what simple interest and compound interest is.
Interest is defined as the cost of borrowing money as in the case of interest charged on a loan balance. On the other hand, interest will be paid to you if own a deposit in the form of a CD.
Interest can be calculated in 2 ways
Simple interest is calculated on the principal, or original, amount of a loan. Your interest amount never changes over time unless the interest rate changes.
Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods. Interest on interest is the best way to build wealth. BlockFi allows you to compound your wealth
To easily understand this in two charts in different perspectives, I considered $100K as the initial investment which gains simple and compound interest at the same rate of interest (6%) for 30 years. Your end of 30 year amount with simple interest is just $280K where as compound interest worked wonders with time and amassed you $574K. Understand the power of compound interest and how it doubled your money.
How to Earn Crypto With Compound Interest?
For some Cryptocurrency investors, keeping their digital assets on a cold storage hardware wallet is their long-term strategy. HODL to the moon.
But, this doesn’t help create more wealth for you beyond the value of your investments increasing. If you are ready to take some risk and use the magic of compound interest to earn crypto, then there are various options that can help you achieve your goal.
BlockFi works exactly like the traditional finance world. You deposit your USD and get interest on deposits. It’s the same in BlockFi except you invest crypto and earn interest in crypto.
For instance, if you deposit 1 full BTC on June 30, 2020, giving yourself a chance to earn 6% CI rate annually. On August 1 your new balance 1.005 BTC. After 31 days, you will earn 0.005 in Bitcoin interest. Now your principal is 1.005BTC and the next month earns interest on your previous interest (which is now your principal) as well.
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Einstein actually said that compound interest is the eighth wonder of the world. Just kidding, that’s just attributed to him and no one knows if he ever said that. What matters is that the quote is absolutely true and have become the universal truth in Financial world.
The BlockFi Interest Account (BIA) is the best way to start earning interest on crypto. It takes a couple minutes to sign up and create an account. Once you get started and finish the extremely easy KYC process, you are ready to amass Compound interest in your account. Earn interest daily and get paid out on the first business day of every month.
BlockFi continues to expand into financial services with its recent launch on trading feature and the recurring trade feature. It totally focuses on helping people grow their net worth and manage their digital assets in one place. Finally, BlockFi has a clean and easy to understand user interface.
BlockFi Menu
Deposit menu helps deposit any cryptocurrency. Make sure to check the address and the type of Cryptocurrency you’re sending. There is no customer service in blockchain if you send it to a wrong address.
Withdraw menu helps to withdraw any supported cryptocurrency. Look up for the current withdrawal rates befoire you transfer and don’t get surprised later. I personally feel BTC transfer fee is too high at 0.0025BTC. It could be because most of earn interest in BTC and to discourage the withdrawal, fee for BTC alone is too high.
Trade menu executes market orders on your behalf. If you’re looking for limit order functionality, it is currently not available but should be available in this quarter (Q3 2020), according to BlockFi Cofounder Zac Prince.
New Loan menu helps to take out a Crypto loan. Remember to repay the interest and add collateral on time, otherwise your position will be liquidated.
BlockFi Dashboard
Dashboard section clearly explains how much dollar value of Crypto you have in your account, Total interest paid to you since you opened BIA account, Accrued interest for that month MTD.
If you scroll a little bit down, that’s where you will see all coins. Currently, BlockFi supports 6 coins.
You can click on them to navigate and see how much you earned in each Crypto historically and the current month’s accrual. You can also perform the same actions like Deposit, Withdraw and Trade from Dashboard section that you could from Menu.
Profile – You can see whatever information you entered when you signed up. To make changes to your profile information, you need to email [email protected]
Security – You can change your password. But, the two most important features are here. Enable two factor authentication (2FA) as soon as you sign up and enable Whitelisting of addresses. You will be able to send Crypto to only those approved addresses.
WalletAddresses – Once you enable Whitelisting, this is where you go and add all your Crypto addresses to approve for withdrawal. Be careful and enter only your cold storage hardware wallet address and not exchange wallet addresses.
Interest – This is where you choose whether you BlockFi pays you in the same currency or choose all interest to go to one coin. They charge a hidden fees which is difficult to find on their website. So just leave it on default settings and not touch it.
Reports – This section holds past reports containing detailed information about coins and interest deposited. This was earlier sent in the email itself which is less secure.
Wire Details – It gives you the 8 digit PIN number if you want to wire money into the account. BlockFi, by default, converts the USD into GUSD. But you are free to move them between USDC or PAX with 1:1 peg later.
BlockFi Data Breach
BlockFi had a data breach on 14th of May, 2020 and hackers stole personally identifying data from user database. Privacy experts fume that data breach could have been avoided if Bitcoin mixing services were used.
Hackers used the most common technique of Subscriber Identity Module (SIM) swap to get fraudulent access to BlockFi’s servers. Next, stealing user information is a no-brainer next step for hackers after gaining entry into databases.
Personally identifying information like full name, email, birth date, residence address and other additional information were wrongly exposed to hacker.
Finally, The company’s official statement states the hackers did not get access to highly confidential data like SSN, TIN, bank info, photo identification cards or account password.
This is exactly why I stress on having your 2FA on and whitelisting address enabled. You can never trust anyone so much in the Centralized Finance world.
Please also ensure you only keep the amount you are willing to lose in these lending platforms. Don’t lend out all the money you have in the world. Diversify and reduce your risk.
What is BlockFi’s Lending Model?
If you want to use your cryptocurrencies as a collateral to get a crypto backed loan, BlockFi allows you to do so. The Annualized Percentage Rate (APR) on BlockFi’s loans ranges a wide margin. Apart from charging APR, there may also be an origination fee to disburse the loan.
We all know BlockFi has been giving us 8.6% on all Stable coins in 2020. In order to make the lending model sustainable, BlockFi has to earn more return than 8.6% to remain profitable on the lending business.
BlockFi has been giving this high rate for a long time. It can be possible only because of two reasons.
The model is unsustainable but they are burning Venture Capital cash to gain more market share in Crypto lending business.
People are taking really high LTV loans that makes the APR shoot up above 8.6%
We don’t know what is the truth behind the lending model. But, we hope the APR will go back to the true interest rate of the average loans processed on the platform, in the long term.
What Is BlockFi’s Collateral And Margin Call Policy?
If people opt for high LTV, they need to provide less bitcoin collateral to BlockFi. So, for these customers the APR of their loan is high, since the platform is taking a risk on them repaying the loan.
In any case, BlockFi uses their right to liquidate the collateral and pay in case they default on the loan interest payment. If everything goes well, you can keep netting a really high 8.6% interest rate, when the world is moving towards “zero interest rate” policy or “negative interest rate” policy.
Interest rate changes based on the demand and supply in Market. BlockFi doesn’t change it as often as Celsius Network and provides some consistency. If you have been in the lending space for long enough, you will know that BlockFi changed their interest rate for Ethereum in May 2019.
Remember, this is Centralized finance and people have to “trust” BlockFi that they do their due diligence before giving out loans. If they do it properly and invoke margin call policy, depositors face no risk from BlockFi becoming insolvent suddenly.
However, BlockFi is a trustable company with famous VCs backing them and raising series of funds successfully. So, users can trust them to do what is right and make sure they are transparent with following the user agreement policy.
In CeFi, trust and centralization forms the core. It’s totally different from DeFi. You need to trust that BlockFi is doing the right thing to help its customers to earn Crypto.
My Take on BlockFi
I personally have invested with BlockFi to earn crypto interest for more than 8 months now. Majority of my CeFi lending portfolio is with BlockFi. Granted, I shifted some funds to Celsius Network to diversify my holdings, after the hack.
But, they quickly hired a strong Chief Security Officer and have been taking great security initiatives since then. So, I am still willing to give them another chance, considering I get to gain awesome amount of interest from them.
Nevertheless, BlockFi pays amazing interest rates and has paid on time every single time till now. Beware of Margin calls on BlockFi if you’re taking a loan.
