Is BlockFi Safe? Safety And Security Explained
Posted by Frank Gogol in Crypto | Updated on August 23, 2022
Every millennial nowadays knows that if you want to be successful, you need to invest. Stocks are not the only things you may earn interest from; you can earn money with cryptocurrency as well. There are many apps and platforms that may be used in that regard, and a very popular option is BlockFi.
That being said, money is money – and when you are dealing with high earnings in interest, you need to be certain that your money is safely stashed away. So, is BlockFi safe? Is your money ever in any danger there? You’re about to find out.
Table of Contents
What Is BlockFi?
To put it simply, BlockFi is a cryptocurrency exchange. Rather than focusing on a selling system (although the possibility exists), its purpose is to work on a loan system. You take a USD loan against the cryptocurrency that you have in holding, exchange it at a certain rate and then earn interest as the cryptos gain value.
BlockFi was founded in 2017 by Zac Prince and Flori Marquez in New Jersey. It can be used by both individuals and businesses worldwide. The platform offers a variety of currencies from BTC and LTC to ETH, GUSD, and USDC, all of which can be transferred on a credit card. Its primary custodian is Gemini, which adds to the efficiency of the platform.
Is BlockFi Safe?
BlockFi pretty much passes every safety test. In fact, one may say that it is as safe as its primary custodian, Gemini, which is considered highly secured. 95% of the cold assets are stored by Gemini, whereas 5% of the hot wallets are protected by Aon in insurance.
From experience, the odds of having any crypto losses due to hacks are very low on BlockFi. Indeed, the BlockFi accounts do not have any SIPC or FDIC insurance, making them less safe as compared to a traditional bank. However, while it is lacking in one area, it makes up in another.
To optimize safety and security, BlockFi uses measures such as the two-factor authenticators. Unless they have all of your connecting data (which hackers rarely have), they are not likely to be able to access your account.
Last but not least, BlockFi is seen as safe mostly because it is backed up by a good reputation. Gemini has been around for a while, and since Gemini is BlockFi’s custodian, the platform is legit and trustworthy. The business is legitimate, so you don’t have to worry about anyone running away with your money.
Gemini is compliant with SOC 2 Type 1 Security and is also regulated by the New York State Department of Financial Services (NYSDFS). Thanks to its licensed depository trust, your funds are as safe as they can be.
BlockFi Security Measures
With the appealing rates of BlockFi, you might be curious about the safety measures that they employ. Are they insured? Do you have any account protection? What happens if the platform gets hacked? As a responsible user, you need to keep every possibility in mind.
Is BlockFi Insured?
The coins in BlockFi are insured – but not in the traditional way that you might think of. BlockFi is not insured by the FDIC, nor is it covered by SPIC like most banks. At the same time, this does not mean that your funds are unprotected.
Rather than calling it “insurance,” some may call it “collateralization.” For instance, if some borrower wishes to get your money’s worth of Bitcoin in order to do a trade, they’ll need to put up the same amount of money in their own Bitcoin.
This means that the amount of general Bitcoin will always be on the platform. Even if they fail to pay back, the collateral will still be there, and BlockFi won’t have a shortage of funds, should you want to access your Bitcoin.
At the same time, while it does not have typical insurance, the platform still takes some measures to protect your funds. To do this, it will keep most of your funds in cold storage – or, in other words, in a segregated offline account. In the event of a loss, BlockFi places the client’s funds before the employee or equity funds.
What Happens If a BlockFi User Account Is Compromised?
From the moment BlockFi started operating, there have been no issues of people losing their funds from their accounts. Overall, everything seems safe. However, BlockFi did consider that while they may protect against disaster, sometimes it may be beyond their control. This is why they set up a protocol to help protect your funds in case your account gets compromised.
If suspicious activity is caught on your account and it is believed that it has been compromised, then BlockFi will freeze your accounts for 7 days. During that time, you will be contacted through a video conference in order to straighten things out. They will verify the identity, and ask you a couple of questions to help get to the source of the problem.
Rarely, your account may be frozen after the user tried to log from an unapproved medium – or, say, you forgot your password several times in a row. Mistakes can happen, which is why BlockFi contacts you to verify these things. If it turns out that you were the one trying to access your account, then your funds will be unlocked.
Still, if your account was indeed compromised, steps will be taken so that you could once more gain control over your account. You’ll be logged out from every device, and BlockFi can change your email address and your password. This will help you regain control over your account.
What Happens If BlockFi Gets Hacked?
BlockFi claims that so far, no money was lost due to hacking. However, a hacking attempt did occur, as BlockFi is a financial platform that poses a lucrative target for hackers. Like any other platform of this type, BlockFi can get hacked. While no funds were lost before, hackers managed to obtain access to published information – i.e., birthday, address, or activity history of the user.
An advantage of this is that even if the funds are technically placed and traded with Blo9ckFi, the financial key is held by Gemini. To get to the funds in BlockFi, you’d have to get through Gemini first – a roundabout that can cause problems for hackers. Since most of the funds are kept in cold storage, even if hackers do get in, they won’t be able to do much financial damage.
In case they do manage that, and clients lose their funds, then BlockFi will set up a repayment plan. This is something that most companies of this type need to adhere to, and BlockFi is no exception. The repayment will be done through Gemini, which is why you need to read into the security features of Gemini as well.
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While BlockFi may not be insured like a classic bank, it still has its own security measures put in place. So far, no money has been lost, and your funds are kept in storage areas that are difficult for hackers to reach. It has all the regulations necessary as well, making BlockFi safe to use.
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