When trying to build a passive income from any source you have to remain calm, you need to be patient. First thing you want to do is set a time frame, I've set mine at 5 years. This means for the next 5 years I am going to be working diligently to achieve my goal of having a passive income that supports myself and my lifestyle.
I want to be able to live comfortably, in a house that I own outright with an income that lets me eat, travel and be comfortable within the next 5 years. You may have to adjust that timeline to your own reality, I already own a property which I will be building on so that gives me a head start.
With that in mind let's get started.
Interest bearing crypto accounts
An interest bearing crypto account is an account that you deposit your funds into and earn interest on, not unlike a normal bank. Interests rates however are much higher. Most are run on exchanges and require an ICO token of some kind, can have long lock up periods and are aren't institutionally backed.
On paper the best option at the moment is Blockfi, they are currently offering 6.2% per year compounded monthly, they only accept deposits of ETH and BTC, which is fine. The maximum you can deposit is 25 btc or 500 eth, this is to discourage crypto whales and encourage investors like you and I .
In the case of blockfi the funds are held by the Gemini Trust Company (https://gemini.com/ ) a crypto exchange with a great reputation. I'm assuming the funds are used to provide liquidity to the exchange, finance short traders etc with the interest coming from fees charged by the exchange. That isn't a fact, just my assumption.
The worrying thing about this company, in my opinion, is even though the exchange is regulated , the terms of the insurance offered on their website is very vague when it comes to crypto, on their landing page it clearly states that your digital currency is insured, although when you read the section covering insurance it seems to me that in most cases it isn't.
Fiat currency is held in insured banks, that is banks covered but the government deposit guarantee, but crypto is held in a “proprietary Cold Storage system”. Make sure you satisfy yourself that your crypto is safe, these accounts have had tens of millions of dollars worth of crypto deposited by brokers so plenty of people see them as a safe option when compared to trading.
You really have to keep in mind that with these types of accounts you are handing over control of your funds to a third party, you don't hold the keys, the platform does, not your keys, not your coins.
The following is directly from the Blockfi website;
“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, re pledge, 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.”
In other words, once you have handed over your crypto BlockFi is in no way obligated to return it to you. Ever. This also means by depositing funds you accept that they may be lost to you and that the company, for all intents and purposes, becomes the owner of said funds.
Another issue is the withdrawal process, which is manual. You need to email Blockfi who will in turn call you on the phone. From there a test transaction is sent which the client (you) has to verify, blockfi then has to confirm the transaction appears on the blockchain.
After the 2fa process is satisfied your funds will be available to you between 24 hours and 7 days later.
Getting your money out is not an easy process and comes with a fee of 0.0025 for BTC and 0.0015 for ETH withdrawals.Setting up an account is a fairly straight forward process, or so it seemed. I uploaded my identity documents but unfortunately the “confirming your I.D.” screen seemed to be stuck, I left it for a good hour, maybe two but it remained stuck. I shut down the page, opened it again but now I can't even log in.
Look, at this stage I would be avoiding these schemes, let them mature a little, for all we know this is bit connect all over again. As far as helping us reach our goal of a passive income is concerned this type of investment, at this point, isn't going to help.
I'm sure that in the future there will be a place for interest bearing crypto accounts, once they have sorted out the trust issues and what they are actually trying to achieve. As of writing Blockfi had dropped it's rate to 2% for large deposits and as of next month they will be terminating the interest bearing products all together. What they are planning to offer instead is anybody's guess.
Next time I'll be looking at staking, if this is something that interests you then don't forget, tip and follow :) Peace people!
