Keeping it with the Custodians, BlockFi’s Bothersome Withdrawal Process & Hypothecation
Earlier we reported how the 6 percent annualized return announced by BlockFi has actually been too good to be true. Just recently, the company reported the change in its interest rate with balances over the limit of 25 BTC and 500 ETH to earn at the rate of 2 percent interest.
This step has been taken due to the reported “overwhelming” support from the new clients. The BIA private beta launched in January bought $10 million to the company. And since its public launch on March 5, the company said it is seeing an increase of 400 percent.
It has been further reported that the interest earning deposit amount will be dropped in the coming months.
Apart from decreasing the interest rate for top tiered clients, from April 5th onwards, the firm will levy a flat withdrawal fee of 0.0025 BTC and 0.0015 ETH.
Withdrawal Process, Confirmation via Phone Call
Talking about the funds’ withdrawal, the process adopted by the company is manual which requires one to “just email” BlockFi. It states, though usually, the withdrawal takes 24 hours, they reserve 7 days for this.
For the client confirmation, each client is required to complete its 2FA process. Here, BlockFi asks for a crypto address and an amount from the client, either via phone call or by an email.
One Redditor shared his qualms about it,
“I don't like it, my english not enough good and they want call me before withdraw.”
Once the personal information of the client is verified via 2FA, typically through a phone call BlockFi will be sending a test transaction to the address provided, that if lost would cost only BlockFi. The firm further verifies if the test transaction amount appears on the blockchain.
“Send a test transaction to verify the amount appears on the blockchain? Lmao. And they want me to trust them with a minimum of 1 BTC?,” added another Redditor.
Once confirmed BlockFi will send the remaining withdrawal request. In the near-term, the company says, it will be integrating with the Google Authenticator.
A number of bitcoin enthusiasts showed their concern as one commented on Reddit,
“They make the “delivery process” a pain in the ass in order to easily fractional reserve lend Bitcoins to short sellers (see BlockFi's Terms of Service -> rehypothecation). They need to make it almost impossible to withdraw to prevent a “bank run.”
Under the section 10th “Consent to Rehypothecation,” of How accounts can be owned, the company states,
“In consideration for the interest earned on your account, you grant BlockFi the right, subject to applicable law, without further notice to you, to hold the cryptocurrency held in your account in BlockFi’s name or in another name, and to pledge, repledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such cryptocurrency, separately or together with other property, with all attendant rights of ownership, and for any period of time and without retaining in BlockFi’s possession and/or control a like amount of cryptocurrency, and to use or invest such cryptocurrency at its own risk.”