Blocking with knife hand is for grabbing/grappling blocked arm or leg for counter-attacking. Blocking part is four fingers distance from the wrist.
Unless blocking and grabbing happened simultaneously, I believe we can do blocking with closed hand(fist) and then grabbing. Grabbing the actual punching or powerful kicking is really hard in real situation and fingers are vulnerable. We are also told to retrieve our punching and kicking not to get caught.
Yes, it looks beautiful but need a lot more training to make it effective. Have you ever use it?