BlockFi Sends Free Bitcoin

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BlockFi

As the story goes, BlockFi accidentally paid out bitcoin instead of USD to customers in their accounts.

Some sources mention that they continued to have these bonuses for months.

They then, in some cases, let customers withdraw these funds. BlockFi reports this was limited to 100 accounts.

In most cases, it seems like they've been successful to get the funds back.

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

About BlockFi

"BlockFi is a crypto management platform that lets you leverage your cryptocurrency and put it to fair use." "This platform has been around since 2017, and while it’s independently owned, several financial giants like SoFi and Fidelity back it." "At BlockFi, you can earn up to 8.6% interest per year on your cryptocurrency holdings, borrow cash, buy and sell crypto, and access other bank-like services. It’s like an all-in-one crypto bank." "Today, a growing number of users are using BlockFi as a bank for their cryptocurrency. Just like you use Bank of America or a Credit Union for your fiat currency, you can use BlockFi for your cryptocurrency."

"BlockFi [recently] introduced trading at no fees for Bitcoin, Ethereum and the stablecoin GUSD. The startup has been known to allow users access to returns on their cryptocurrency holdings by offering loans to borrowers against users’ cryptocurrency holdings and then passing across the returns in terms of interest on the loans while securing the crypto assets that were used as security for the loans."

"Blockfi mistakenly overpaid bonuses to a group of customers, with some receiving up to 700 BTC in their accounts. According to reports, these payments were related to a stablecoin promotion Blockfi is running, that would give additional benefits to customers to maintain a determinate balance of dollars in their Blockfi Interest Accounts. The bonuses also included income from enrolling partners into the platform."

"Blockfi wrongly distributed a set of payments to a group of customers, who found deposits of up to 700 BTC in their accounts." "The payments were associated with a promotion they were running, in which users would receive bonuses in USD stablecoins." "The promotion was intended to be “paid out in one lump sum in GUSD” according to their website. Instead, some accounts were paid the amount denominated in Bitcoin, with some receiving over 700 BTC (worth >$28,000,000 at current prices)."

"While the crypto lender said it was fewer than 100 coins, the firm’s exposure is believed to be around $10m, though that amount is decreasing as more users return the coins." “The net impact to BlockFi’s was sub-100 clients that actually were impacted by this and less than $10 million USD in total value,” "said Zac Prince, co-founder and CEO of BlockFi."

"While most weren’t able to withdraw these funds, in the confusion, other customers that applied for withdrawals are now being threatened with legal actions against them."

"The drama that ensued illustrates a tension with centralized platforms. One of the key innovations behind bitcoin is that transactions are not supposed to be reversible. But centralized platforms like BlockFi seem pretty willing to try."

"“They had gone to the transaction history and inserted a transaction reversal of negative 329 BTC directly above where the deposit had originally shown up,” said Levine[, one of the users affected]. “So it’s very suspicious that could, number one, represent it as being the same exact time in the day and on the same date, but they also superseded any of the following transfers in chronological order.”"

"One user has reportedly posted a photograph of an email allegedly from BlockFi notifying them that “failure to return the erroneously received assets by 5.00 PM EDT today (May 18th, 2021) may constitute a crime and will result in BlockFi taking legal action.” The company has also offered clients a $500 payout in Gemini Dollars (GUSD) as compensation for “any trouble this may have caused.”"

"Another Reddit user in the r/blockfi thread has alleged that “2 days after their blunder, I made a withdrawal of USDC which I had deposited a month earlier. Completely unrelated to their claim. Now they send me an email accusing me of withdrawing funds that aren’t mine saying it’s fraud and a crime they will act on if not returned in the next 2 hours.”"

“I don’t think it’s too big of a topic,” he said. “We processed the promo payout and there was a bug and an error made where we processed it in bitcoin instead of in dollars. I think things got a bit confused online because there were some users who, for an hour, had 700 bitcoin show up in their BlockFi account. That was very quickly changed and corrected.”

"BlockFi holds crypto and dollars on our balance sheet as part of our normal operating procedures. The outstanding amounts are a small fraction of the loss reserves that we plan for as part of our normal accounting policies."

"We have learned from this mistake and have immediately implemented procedures to prevent issues like this from occurring in the future. Our business continues to operate normally at this time. We sincerely appreciate our clients for working with us through this time."

"BlockFi announced June 25 the lower interest rates on deposits of crypto including bitcoin, ether (ETH, -4.27%), chainlink (LINK, -3.44%), litecoin (LTC, -5.66%) and a few others will go into effect July 1. The annual percentage yield (APY) for bitcoin deposits larger than 20 BTC, for example, will go down to 0.25% from 0.5%."

“Rates on cryptocurrencies held in BIA (BlockFi Interest Account) are primarily driven by demand by institutional investors for borrowing these assets,” Rishi Ramchandani, director of business development at BlockFi in Asia, told CoinDesk in an email response. “When institutional investors demand changes, that affects the rates we can offer our BIA clients.”

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - BlockFi Sends Free Bitcoin

Date	Event	Description
May 19th, 2021	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $10,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

The BlockFi situation is unique in that they gave such a large bonus, that they openly and publicly admitted their mistake, and that they continued to operate withdrawals during the time period.

It does not seem like this situation caused a loss to platform users, and was instead borne by the platform itself. Using a multi-signature arrangement on larger withdrawals would have prevented the more significant cases of loss, while platforms should likely consider that some mistakes could be made on individual transactions.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.