Topic: How can a Pension Company use Bitcoin / the blockchain? (Read 1342 times)

This is not an altcoin spam post.

I have been looking at the issue of pensions and bitcoin for a about a month now.

The main issues I have found (my thinking might be considered flawed on this but its my view) is:

* index linking to maintain the value of a pension; and
* having restricted access to funds in order for them to qualify for pension tax and contribution top-up status by governments and employers.

Bitcoin in its infancy will have volatility. As one gets older, one would want more certainty in order to plan for the years when there is no income other than from pensions.

What Bitcoin needs to do is cross the divide to stockmarkets.

Once this divide is crossed, a Bitcoin pension fund can be index linked to an ETF which smooths out the risks of investing in specific stocks and uncertain currency markets, of any shape or nature, but still provides a return.

My approach to the issue was to use Peter Todd's future lock to prove an individual can't access their bitcoins until a future date that qualifies as a pension accessibility date for tax and pension contribution status.

However, between the current period and the future accessibility period, those Bitcoin funds would need to be invested in an ETF, with dividends either being exchanged back for Bitcoin or reinvested into the ETF.

When the pension approaches the unlock date, the ETF investments could be wound down with proceeds being converted back to Bitcoin.  If Bitcoin should fail by the time they reach retirement, the ETF can be liquidated into fiat.

This approach doesn't necessarily mean the that beneficiary has to rely on a company to invest their Bitcoin in an ETF.  They can do their own investing and the time lock, in addition to the blockchain, could be used as proof of accessibility but within the pension qualification rules.

The main issue to doing all this was the mechanism. That is where (just for the sake of the discussion let this altcoin intervention be used) decentralised nodes with services running come in to play. The services they can run include multi-sig and escrow.

The enabling mechanism then becomes an escrow to your future self, and a multi-sig party that can lock the funds in trust until a future date but allow them to move to a stockmaket brokerage account (your own or managed).  The ETF execution orders can then also be handled by the same client which gives instructions to move funds between the ETF and specific Bitcoin addresses that are locked until a future date, else to Fiat.

Actually, what got me started down this line of thinking of using multiple services to link to a pension pot was a way to encourage those under 20-30 to use a Bitcoin change tip to send small daily amounts to a pension pot that they couldn't touch.

An average of $5/day in change over 50 years, when invested via an ETF, can yield between $90k to $200k, in BTC.

More on the nodes concept here

https://bitcointalksearch.org/topic/m.10656234

http://www.reddit.com/r/worldnews/comments/2z877r/negative_interest_swiss_bank_denies_pension_fund/

That 1:100 risk/reward ratio only counts from the end of 2012 to the end of 2014, just 24 months. If you think 5 years time is not enough, you might also think 10 years time is not enough, you should wait 20 years before you confirm its success, but by then you will lose most of the potential gain from it

Actually the decision making difficulty is almost the same when bitcoin is at $0.03 or $3 or $300, you always face an uncertain future and ridiculous price, and large wild swing of exchange rate, so that you never know for sure if one day you wake up and find out it just crashed 90%. That's the reason a pension fund should never allocate more than 1% of its funds, but that is like buying a lottery with 50% chance of getting the value of your whole portfolio doubled, almost a no-brainer buy

And the worst performance of 2014 is definitely not bitcoin. If you adjust the volatility of other investment to be the same as bitcoin, then their performance will be much worse: A 90% retracement of bitcoin comes after a gain of 100X, but a 90% retracement of crude oil, comes as a result of a gain of only 2x (when you adjust the crude price by 2x leverage)

Lol. You're funny.

Citing 5 year returns makes things look marvelous, never mind that barely anyone on this forum was here back then, and the huge returns you cite were only achievable because Bitcoin started from nothing, where even rising in price to a dollar a coin would yield phenomenal returns statistics. Plus, by zooming out to 5 years, you get to pretend that bitcoins on an ever increasing upward trajectory,and that its been a phenomenal investment year in and year out. Never mind the last 16 or so months,never mind thAt BTC was at the absolute bottom of investment results last year.

But yeah, somehow thee entire world is going to hop into BTC, I'm sure...

The truth is, if everyone use bitcoin to save for retirement, then bitcoin will rise to at least millions per coin, thus make that pension plan a huge success, it is just a matter of time before major institutions start to dive in. Currently lots of private person already started to do private long term savings using bitcoin

For 5 years performance, bitcoin beats every single investment in human history when it comes to risk adjusted return: With a 1% risk you get 100% return. And typically for a successful investment, with 1% risk you get 3% return. So from the view of a pension fund (they typically measure 10+ years performance of any investment), this is the top choice, just need regulation to be in place

Well the most obvious answer would be Smart contracts, because it's set in stone... BUT there are something that may be more beneficial to Pension funds --> VC investments in Bitcoin Startups.

There are MANY Bitcoin startups with loads of potential and these Pension funds could make HUGE returns on their investments, if they get in early.

They normally structure their investments in High and Low risks and I would put Bitcoin startups in the high risk portfolio for now.   

I don't think China is interested in pension plans so perhaps it's Iceland. It could be more feasible as a long term investment as the climate is conducive to cost effective mining operations.

I can understand not revealing the name of the company, but you can't even name the country it whose citizens it serves? Not all citizens, mind you, but people who live in Country X and work for Company Y... Kind of hard to come up with ideas without knowing what frameworks it has to operate with

I don't think it is possible in the near future. Due to the high volatility and low adoption rate, the the pension company wouldn't consider to invest bitcoin in the near future. There are still long way to go.

There was a case about a pension fund in switzerland being denied to withdraw their balance in fiat paper money to escape from negative interest rates. I am not saying they should do it, but converting fiat money to bitcoin is a possibility. However, there's no future guarantee that in regards to the bitcoin price. So it might not be a risk that a pension fund is willing to take.

Allocating 1% of pension fund to bitcoin is quite enough. Since when it rises, it typically rise in 100x, thus the value of the whole fund will double as a result

Security wise you might use multi-sig to enable some legal organizations to grant some of the access

Bitcoin as a Retirement Account

Proof of concept

OP_CHECKLOCKTIMEVERIFY


One thing you may want to do, from the perspective of using Bitcoin as a retirement account, is "lock" a sum of Bitcoins on the blockchain so that they can't be spent before some future date.  This is a rather old idea, yet has never been properly supported in Bitcoin, for a few reasons.  As far as I'm aware, the closest it has ever come is the proof-of-concept "Bitcoin bond" linked above.

Satoshi did include a field, nLockTime, that can be set in every transaction which will prevent that transaction from being included in the blockchain before that time.  Notice, though, that this isn't quite the same as what you want.  Satoshi had a different use case in mind altogether.

But it can be used to create the behaviour we want, with just a few caveats.  We can use the current behaviour of nLockTime to create a "bond" of sorts, which will pay out only after an approximate future date of our choosing.  To do so requires multiple parties, at least one of which must be trusted not to collude to double-spend before that time.  If you're one of the parties, great!  You trust yourself.  All of the other parties trust themselves as well.  So they can all trust that the transaction will not be confirmed before the agreed-upon time, and will not be double-spent, unless they consent.

So it works, from the point-of-view of a small group of parties that each trust themselves.  The problem (from the point-of-view of my original use case, generic economy-wide bonds) is that no one outside of the group that originally creates the transaction can really trust that the parties will not collude to pay out before the agreed-upon time.

Perhaps OP_CHECKLOCKTIMEVERIFY will be supported soon, the responsibility not to double-spend locked transactions can be transferred to the entire Bitcoin network, and Bitcoin will have a mechanism for true economy-wide "bonds".

Until then, for this kind of use case it doesn't really matter.  If you just want an instrument between two or more parties that will only pay out after a certain approximate date, it can be done with Bitcoin.  So that's one application.

edit:  Found an older thread describing the Bitcoin bond concept.

Hi all - I've had some interest from a pension company that are pretty new to the world of crypto/Bitcoin/blockchain (in the sense that I'm expecting most people to not know anything about it but there's an opportunity to talk about the subject to a fairly large number of people. I can't disclose the country or company but does anyone out there have any great ideas/concepts to introduce them to?

I'm thinking around document verification and obviously smart contract payments further down the line. But are there any immediate applications that jump to mind for this type of business at this stage? How would you approach this kind of opportunity?

Thanks guys