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Is BlockFi the bank of the future? A growing number of financial analysts are starting to pose this question, and with good reason. Signs of the maturing crypto market abound, including the growth of traditional financial products constructed for digital currencies.
Rising head and shoulders above the competition, you'll find BlockFi. What has rendered BlockFi so popular? For one, it recognizes there are crypto holders who want access to the value of their crypto-assets without the necessity of selling off their cryptos.
What else do you need to know about BlockFi? Let's take a closer look.
The BlockFi platform was founded by Zac Prince, whose vision of a banking system that had moved beyond fiat became the basis for his financial experience. What were the results of his hard work and innovative approach to earning high yields off investments?
The realization that the future of banking may look quite different than what we're used to. Put another way, the cryptocurrency world is giving the high street retail banking experience a run for its money. That's where BlockFi comes into the picture.
BlockFi is arguably a bank, or at the very least, a competitor of banks. It offers a growing range of financial products to customers located worldwide, including crypto savings accounts.
Although some users may wish to avoid stablecoins, the platform relies on providing financial products to users in emerging markets who prefer access to dollar loans. But can BlockFi disrupt banking? The answer to this question isn't immediately evident.
There's a fascinating dilemma when it comes to blockchain and cryptocurrencies. Crypto permits the world to nix banks, yet banks remain vital to the expansion and mainstream adoption of cryptocurrencies.
For this reason, many experts believe a crypto-native company will become the bank of the future. After all, consumers want the same institutional "feel" while taking advantage of crypto borrowing and lending services.
Of course, these borrow and earn paradigms are what traditional banks deliver to customers today. Hence, the need for centralized products such as BlockFi.
BlockFi found early traction with digital currency adoptees. But the company has much bigger plans for consumer-facing products that appeal to a broad swathe of the population. The platform permits consumers to borrow (with collateral) to passively earn yields that traditional banks could never offer.
The BlockFi site remains the leader in cryptocurrency in the West. Why? Because the platform is well-capitalized. This characteristic has followed BlockFi since its inception.
In August 2019, the platform raised $18.3 million in its Series A. Then, in February 2020, it raised $30 million in its Series B. During this period, BlockFi expanded from $250 million in assets to $650 million.
During the summer of 2020, the company announced a 100 percent revenue increase in Q2. This announcement put BlockFi on track to do $50 million in 2020 alone. The company's growth appears impressive.
Unlike Nexo and Celsius Network, BlockFi didn't host an initial coin offering (ICO). Instead, the platform has received plenty of institutional backing. This backing has come with the perception as the most reputable platform in the space.
BlockFi began with crypto borrowing, permitting users to leverage crypto-assets as collateral for loans. Later, the platform delved into earning, letting consumers deposit assets and earn interest on it. In 2020, the platform expanded its services to “exchange” functionality with the addition of a Visa rewards credit card in 2021. As you can see, BlockFi now offers many of the same services and products you'd expect from a traditional banking system.
Yet, the platform maintains lower overhead, which means it offers consumers higher yields than traditional banks.
Unfortunately, there's a downside to BlockFi's less regulated approach to financial products and services. As with other crypto companies, the platform remains dogged by security vulnerabilities that have made many consumers ward off cryptos at this stage in the game.
Yes, BlockFi has enjoyed incredible growth over the past few years, but we can't ignore the many product and security issues it has also faced. For example, in the spring of 2020, the platform's systems were compromised.
How? A hacker managed to access confidential account information from BlockFi users, including:
Full legal names
Dates of birth
No funds got stolen. But the case meant a significant failure for the company. It was both an embarrassment and a source of reputational damage. But this isn't the only incident that could risk the company's attempt to compete with traditional banking institutions.
Another incident in 2020 resulted in the discovery of a significant bug. This bug permitted a hacker to send the same funds to himself multiple times. The result? The user in question acquired more than one million dollars in his account before BlockFi figured out what was going on. Yes, the platform caught him before any significant withdrawals took place, but this added another chink to the platform's armor.
Security issues aren't the only factors impeding BlockFi's ability to compete with banks. The company also has work to do when it comes to product execution. Unfortunately, the platform has a reputation for releasing hard-to-use and buggy products.
These two characteristics aren't ideal when it comes to attracting a more extensive client base. Especially in the current environment where cutthroat competition abounds.
Don't believe us? Take a look at their customer reviews. You'll find a wide array of complaints listed, from app issues to lack of user-friendliness. Other bad reviews include verification codes taking "forever" and needing to log in every single time you use the app.
Glitchy products and confusing UX have some consumers heading for the hills. What's more, the company has done a poor job when it comes to branding. The company must remedy these areas before it can expect to compete with mainstream banking.
Are the problems listed above really that bad? We believe these issues could prove fixable. After all, BlockFi could hire a fantastic design agency to revamp its brand. It could hire the best of the best engineering consultants to hunt down and remedy glitches and bugs. But while these steps might address the issues listed above for a time, changes to company culture are also needed.
Unfortunately, BlockFi has been dogged by years of sloppy product execution. This belies something much more destructive, a top-down mentality that shipping anything other than excellence is okay. In other words, BlockFi upper echelons may not understand the vital importance of product experience. Company culture may not currently support design excellence. As a result, precision, craftsmanship, and strong execution may not ultimately matter.
Indeed, if this proves the case, BlockFi has serious obstacles to overcome. A mediocre mentality currently appears to permeate the BlockFi culture, and it rarely remains contained within engineering and product areas. Instead, this culture has tainted other areas of the organization.
In other words, no consulting firm or design agency alone can fix some of these insidious aspects of company culture. These deeper issues require strong leadership for course correction.
Can Zac Prince rise to the challenge? Only time will tell. But we can say one thing with certainty. BlockFi can't expect to clinch a role as the bank of the future without addressing these inherent issues.
Taking a closer look at BlockFi's team may reveal where part of the problem lies. The group hails primarily from Wall Street rather than the blockchain community. As a result, you could argue that BlockFi's blockchain and crypto integrations prove both superficial and awkward.
The company accepts crypto assets for deposits. But the team fails to leverage any of the low-level DeFi protocols that make this area of finance exciting.
The team at BlockFI's Wall Street heritage isn’t doing them any favors on the product and technology side. But it has served them well when it comes to securing institutional clients.
Securing these clients remains one of the company's primary strengths. BlockFi has a robust institutional business. For example, in 2020, they signed Three Arrows Capital as a strategic investor. This crypto hedge fund does A LOT of borrowing. Zac Prince noted in BlockFi’s announcement that bringing them on aligns well with its international expansion objectives.
BlockFi comes with both advantages and disadvantages for its many users. The company caters to business customers looking for a way to dabble in crypto investment not currently offered by mainstream banks.
But the company needs to spend some time seriously addressing the vulnerabilities that are currently constraining it from being a true competitor to more traditional banks. This will involve a greater focus on the product and technology side of things at BlockFi.
The company will also need to invest in better branding and cultivating a company culture that celebrates excellence in every area. With a more elegant product offering and focus on user-friendliness, the platform remains well-positioned to dominate the crypto-financial sphere.