BlockFi lost 700 Bitcoins, here's what that means

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BlockFi just lost 700 Bitcoins, here's what that means for investors in the cryptocurrency and for BlockFi's future. Here's what happened. BlockFi accidentally sent roughly 100 users random amounts of Bitcoin ranging anywhere from 6 Bitcoins to as many as 700 Bitcoins added to their account worth over 25 million dollars. This caused a bunch of speculation on the internet about loss of control, it’s going to tank the market so in today’s video, I want to look into what happened and what caused it.

WHAT IS BLOCKFI?

BlockFi makes money by lending our cryptocurrency to other institutions and businesses. In exchange, we make a relatively high interest rate from taking the risk of holding our coins with them. Recently rates have dropped to an effective rate of 2% which is a lot lower than they used to have but still technically higher than most banks still offer. Essentially the product is sold as a high interest yield savings account but for crypto (I keep all of my crypto with BlockFi).

WHAT HAPPENED?

BlockFi ran a promotion for paying people interest on their deposits but instead of paying people in GUSD (Gemini's stable coin which is worth $1 for every one coin), they changed the denomination to cryptocurrency which caused a mistake where they sent very large amounts of Bitcoin to those interest bearing accounts.

Luckily the moment BlockFi realized what happened, they immediately reversed the transactions before those transactions had a chance to get published to the blockchain. Still, some users fell through the cracks and withdrew the money for good. Luckily it wasn’t a huge amount of money in relation to the total they have on hand. For example BlockFi had $15 billion in assets under management in the the first quarter of this year and they raised $350 million in Series D funding - so they have money for situations like this but I still wanted to reach out to them directly and ask them a few questions so we can hear what happened directly from the source.

THE PROBLEM:

My concern is if BlockFi takes legal action, it may not work out in their favor since there is no precedent of something like this happening in crypto to this degree. What happens when the people who were sent this money pretend that they didn't know? What happens if they and they "forget" their passcode to their wallets? Even if someone the courts rule in BlockFi's favor - the user still gets to keep the money. There is no way for anyone to seize or take their crypto - which is part of the appeal of crypto but also a big downside in cases like this.

My guess is, no legal action will be taken against any users because there is a chance that crypto will not be given the same regulatory protections as banks and that would set a really negative precedent for the entire industry that is most likely not worth pursuing unless it was over a substantial amount of money.

THE OUTCOME:

90% of all the lost Bitcoins were recovered from the users they were sent to and BlockFi says in the future stricter internal requirements will be taken to make sure this won't happen again in the future.

*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.