Many users want to earn interest on their Bitcoin.
However, let’s take a dive into the history of companies that allowed users to earn interest on Bitcoin and learn the risks.
The main risk of earning interest on bitcoin is simple:
When you lend your bitcoin to another company, they own your bitcoin!
You do not own your bitcoins when you deposit them to earn interest.
While mentally you may feel that you still have bitcoin in your account, the company is usually free to distribute your bitcoin as they see fit.
FTX was one of the world’s largest crypto exchanges. It had celebrities pushing it on social media and offered users up to 8% interest on their bitcoin or USDT.
FTX is famous for losing all of its customers money. FTX filed for Chapter 11 bankruptcy on November 11, 2022.
Its founder and CEO Sam Bankman-Fried’s $16 billion net worth fell to near-zero overnight.
FTX is a classic case of the risk of earning interest on BTC:
Once you leave your coins with another company, they are not yours.
As is the case with FTX, the company’s users had claims to over 100,000 BTC, but FTX owned zero bitcoins.
This means that all the bitcoins that FTX customers thought they deposited with FTX were not even there!
Blockfi was another US company that also allowed users to earn interest on BTC, USDT and other coins.
In November 2022, Blockfi also filed for Chapter 11 bankruptcy.
Blockfi claims that the issues at FTX are what caused it to fall.
Regardless of what caused Blockfi.com to lose its funds, the issue remains the same:
When you trust another company with your coins, you are placing your trust in their decisions. And the coins you deposit there are not yours.