Introduction
Bitcoin, Etherium, Coinbase, blockchain, mining. This is just some of the vocabulary used to describe what’s commonly known as cryptocurrency. As cryptocurrency has gained popularity (and ire) it has challenged traditional financial institutions. But what is the relationship between cryptocurrency and annuities?
The purpose of this article is to explore what cryptocurrency is, how it works, the implications for annuitants and if it’s possible to buy an annuity with cryptocurrency.
What Is Cryptocurrency?
Investopedia defines cryptocurrency as, “a form of digital asset based on a network that is distributed across many computers. This decentralized structure allows them to exist outside the control of governments and central authorities.” In other words, cryptocurrency is a form of digital money that exists on the internet. There is no centralized structure, meaning there is no one bank or government regulating or controlling it. This decentralization is the core of cryptocurrency. Cryptocurrency is tracked using blockchain technology. You can think of a blockchain as a digital notebook or ledger. Each cryptocurrency transaction is tracked and verified on this ledger. Because every node or computer must verify the transaction, it is considered very secure and trustworthy.
| Pros | Cons |
|---|---|
Decentralization: Exists outside the control of governments and central authorities | Volatility: High growth potential but unpredictable behavior |
Security: Transactions are verified and tracked using blockchain technology | Lack of Regulation: Absence of traditional regulatory oversight |
Accessibility: Can be used globally without being tied to a country's currency | Complexity: Requires understanding of new technology and terms |
Investment Opportunities: Growing acceptance for payments and investments | Fraud and Scams: Vulnerable to online fraud and scams due to anonymity |
Transparency: Public ledger allows for transparency in transactions | Irreversible Transactions: Mistakes and fraudulent transactions cannot be reversed easily |
Can You Actually Buy an Annuity with Cryptocurrency?
As of this writing, there are very few insurance companies that accept cryptocurrency as payment.
However, if you own cryptocurrency, you can convert it to fiat (in the US, dollars) by selling your cryptocurrency on an exchange such as Coinbase. Be sure to discuss this transaction with a financial advisor or tax expert to ensure you are fully aware of any tax implications (capital gains taxes, etc.) that may apply. Once converted, you can simply buy any annuity as you normally would.
The Future of Cryptocurrency and Retirement Products
Like few companies accepting cryptocurrency as a form of payment, few insurance companies also offer annuities with allocations towards cryptocurrency.
But with the advent of digital annuities. Digital annuities are the same as traditional annuities, except that all transactions are performed online. How does this relate to cryptocurrency? Well, the blockchain technology that currently makes cryptocurrency so secure could also be used for digital annuities. All the transactions and information would be contained in these online “ledgers” or blockchains. Thus, increasing transparency and protection from potential fraud. With digital annuities come the opportunities that AI and machine learning can bring to annuities as well. The customer experience could change drastically by talking with an AI chatbot about annuities and which one to purchase rather than a human salesman.
Conclusion
Bottom line: You can *indirectly* buy an annuity using cryptocurrency. Very few insurance companies, as of today, accept digital currency as forms of payment for premiums. With wider acceptance of cryptocurrency this could bring more insurance companies into the fold. Using cryptocurrency as medium of exchange is still an emerging frontier and investors should proceed cautiously and consult with both financial and tax consultants. If you're considerin
g this path, start by exploring reputable annuity providers and tax optimized crypto liquidation strategies.
The future of annuities, and paying for them, may be digital. However, this does not seem like an imminent change. So, whether you’re deep into cryptocurrency and mining it yourself or still using paper money to pay for most of your transactions, there are annuity options for you and a quickly changing technology landscape.