Can Blockchain Solve the Global Retirement Crisis?

Debunking Financial Myths and Technological Hype in Retirement Savings

Reviewed by David KindnessReviewed by David Kindness

Blockchain technology is a very unlikely candidate to solve the so-called global retirement crisis despite the hype surrounding its potential applications in retirement management. The notion of an impending retirement catastrophe and the promise of blockchain as a cure-all have both been exaggerated in recent years.

While retirement planning for many Americans faces profound challenges, the situation is far more complex than perennial sensationalist headlines of a “retirement crisis” suggest, primarily when related to the fate of Social Security, which has been subject to opposition and talk of its immanent doom since its beginnings in the 1930s.

This article will debunk common misconceptions about retirement savings and critically assess the proposed role of blockchain technology in addressing these issues. By separating fact from fiction, we’ll have a clearer picture of retirement planning for tomorrow’s world and the potential (or not) for blockchain to be of use in this field.

Key Takeaways

• Many argue it’s now up to employees to save for their retirement, though many are saving either too little or nothing at all.
• Blockchain technology is said to offer potential improvements in managing retirement accounts, including improving security, better recordkeeping, and increased transparency.
• The major problems in retirement planning—like income inequality, job market volatility, and financial literacy—are rooted in economic and social factors that blockchain technology can’t directly solve.
• Dealing with problems in the U.S. retirement system means being clear-eyed about the issues at hand and the solutions on offer.
• Widespread adoption of blockchain in the retirement industry would require overcoming significant hurdles, including regulatory changes, universal participation, and substantial infrastructure investments, thus creating problems of its own making.

Understanding the “Retirement Crisis”

The notion of an impending “retirement crisis” is not new. For decades, financial experts, policymakers, and media outlets have warned of a dire future for those planning for retirement. A Lexis-Nexis search easily pulls up hundreds of headlines in the 2020s mentioning such a crisis, with that number growing voluminously with each decade added going backward. However, a closer examination of historical predictions and recent data reveals a more complex and often less alarming reality.

Such media depictions tend, over time, to merge into a “common sense” that gets repeated but remains unexamined—too often, with the suggestion that simply one change would fix it all. That’s not to say there aren’t issues before the U.S. and the world related to aging populations and the falling rate of workers to retirees. However, those are policy discussions that require more than the short-circuited emergency thinking that invocations of a crisis are often meant to provoke.

Without picking on one particular source—we could choose from hundreds of examples in the last decade—a 2024 article in the usually staid and reliable Trust & Will (T&L), a finance journal, provides an excellent example of this enduring genre of journalism articles, the 800-word or less “retirement crisis” think piece.

The article, “The Retirement Crisis in America: How To Plan in the Face of Uncertainty,” begins by laying out how “the retirement savings system in the U.S. used to be made up of a golden trifecta.” It helpfully enumerates the parts of that “golden” system:

1. Pension plans: By this, the article means defined benefit (DB) retirement savings, usually provided by employers, based on length of service and other criteria.

2. Social Security: Created by the Social Security Act of 1935, this program has long been the primary safety net for American retirees since then. Social Security is funded by current workers, previous surpluses when funds from workers outpaced payments to retirees, and interest on those surpluses.

3. 401(k) accounts: Named after a section put into the U.S. Internal Revenue Code in the early 1980s (after an earlier legislative change), the 401(k) is an employer-provided, defined contribution (DC) plan. Defined benefit plans tell you exactly what you’ll receive when you retire, while defined contribution plans tell you exactly how much will come from your paychecks before you do. Your savings and what will be available for your living expenses after your working years are over is up to the vagaries of the market and your choices among different financial products.

With this sturdy three-legged stool in place, the T&L article notes, “Americans were more or less covered in retirement so that they could live comfortably. They could withdraw from the labor force completely and permanently, and expect to have enough funds to cover living expenses until they passed away.”

From Executive Tax Dodge to America’s Primary Form of Individual Retirement Savings

Originally a tax dodge for executives, the 401(k) provision of the IRS code was never meant to become the widespread means of retirement it has become for Americans today.

Introduced as part of the Revenue Act of 1978, Section 401(k) was meant to allow executives to defer compensation from bonuses or stock options—a tax advantage specifically targeting corporate executives. It wasn’t until 1980, when a benefits consultant named Ted Benna recognized that this provision could be adapted for broader employee retirement savings, that the 401(k) plan began to take shape as we know it today. By 1981, the IRS was issuing regulations enabling employers to offer so-called 401(k) plans, setting the stage for their widespread adoption.Having set up a past against which to compare a despairing present and future for retirees, the piece then moves to the section that usually comes next in such articles from the retirement crisis genre, namely one detailing how that “golden” era is now over:

1.T&L points to a 2024 CNN article that said “pension plans are essentially a thing of the past,” arguing, as did CNN, that “in the 1980s, roughly half of employees in the private sector were covered by these defined-benefit plans.” That “roughly half” (at a maximum, about 40%) is then compared with more recent figures, which put the percentage of workers covered by pensions in the 2020s at about 15%.

2. The article then attempts to kick out the second leg of the stool. “The Social Security system is collapsing as well,” the article points out. “If you’re an older adult right now, you may be in the last generation to be receiving this benefit.”

3. Lastly, T&L points to data on 401(k)s suggesting that while “almost 70% of workers in the private industry have access to this retirement savings account…only 50% are using it.”

American retirement has indeed changed significantly over the past few decades. However, with the decline of traditional pension plans and the rise of 401(k)s, this shift doesn’t necessarily equate to a crisis, at least in the ways typically suggested. Let’s deal with the three parts of the old retirement system, as often depicted:

1. Pensions: Pension plans were never as widespread as is often assumed. Even at their peak in 1975, less than 40% of private-sector workers participated in defined benefit plans, and just 9% of retirees in 1980 were covered by one—the supposed height of the pension plan era. See below:

2. Social Security: In addition, headlines about the Social Security trust fund being “depleted” could lead one to believe that, as T&W puts it, the “Social Security system is collapsing” and older adults “may be in the last generation to be receiving this benefit.”

However, this would be like saying losing a job is the same as a pay cut. Without doing a thing—which, given the voting power of Social Security recipients in the U.S., is unlikely—the Social Security Administration can cover about 80% of its benefit commitments (adjusting for inflation) for those receiving retirement and disability income from the agency starting in 2034. This is certainly a problem to avoid from occurring (if policymakers wish) a decade down the road but we need to be clear about what the problem is lest we end up being sold radical solutions to fix a less-than-grave problem.

3. That leaves the 401(k) system. Since its introduction, it’s been clear that as they rose in significance, DB plans would decline, putting more of the onus for non-Social Security retirement income on the shoulders of individual Americans.

It’s important to point out that the usual left-right divide in the U.S. can get a bit murky at this point: while conservatives have been critics of Social Security from the beginning, and liberals have been of a system that’s put American retirements in fee-driven plans directing trillions to Wall Street, there are legitimate questions about how successful 401(k)s have been as a policy.

For example, a 2024 paper by Boston College-affiliated economists on the left, right, and middle of the U.S. political spectrum argues that to bolster Social Security for the future, the best way to do so would be to remove the tax breaks employees and employers receive for 401(k) savings. The authors, Andrew G. Biggs, Alicia H. Munnell, and Michael Wicklein, note that these are not cost-free or truly free-market plans, as often suggested. Rather, the tax incentives for employers cost the U.S. Treasury (conservatively, they say) about $200 billion a year, more than enough to shore up Social Security for the long haul. They also note that most of the benefits that accrue from these incentives go to the wealthiest Americans.

Meanwhile, “the best evidence suggests that the federal tax preferences do little to increase retirement saving.” Biggs et al. point out, too, that retirement plan participation in the U.S. has barely budged in the decades since 401(k)s, individual retirement accounts (IRAs), and similarly structured retirement savings have come on board, undercutting the idea that they’ve been a boon for inclusion of a wider swath of the population in saving for retirement:

For some, like BlackRock‘s CEO Larry Fink, this means that not enough has been done to lure or compel Americans into 401(k)s, which form the bulk of the trillions in his company’s assets under management. In a 2024 investor letter that drew wide attention, Fink noted that nearly half of Americans aged 55 to 65 “reported not having a single dollar saved in personal retirement accounts” the previous year. Seeing the same data about the stagnant level of Americans with retirement accounts as the Boston College-affiliated economists, he argued for moving in the opposite direction, namely finding ways to move far more Americans into the 401(k)s and individual retirement account system. “As a nation, we should do everything we can to make retirement investing more automatic for workers,” he writes.

Left unnoted, of course, is that automatic retirement savings come in many forms, including defined-benefit pension plans, Social Security-like programs, and other plans that aren’t necessarily routed through companies like his. There’s little argument that it would be great to have more Americans saving for retirement; the question is how that should be done—whether that means bolstering Social Security to keep benefits at their current levels into the distant future, automatically enrolling workers in 401(k)-like programs, or something else entirely to reform the U.S. retirement system.

However, this is a very different conversation from declaring an otherwise unresolvable crisis that calls for one of the most radical solutions yet suggested: running America’s retirement system on the blockchain.

Note

For Social Security beneficiaries age 65 and up, Social Security represents more than 50% of the income for 37% of men and 42% of women and 90% or more for 12% of men and 15% of women.

Despite evidence challenging the severity of a retirement crisis, the narrative persists for several reasons. Media outlets often gravitate toward alarmist headlines, as stories of impending doom generate more engagement than nuanced analyses. The financial services industry, including investment firms and financial advisors, stands to benefit from a perception of crisis, as it can drive individuals to seek their products and services. Less cynically put, these are the tools advisors and planners have seen change lives firsthand, so it follows they would want more Americans to use these same products for retirement savings.

Policy advocates across the political spectrum may also amplify the crisis rhetoric to make their preferred reforms more compelling. In addition, the complexity of retirement planning and the genuine anxiety many people feel about their financial future create fertile ground for crisis narratives to take root.

Indeed, talk of a retirement crisis and the loss of many traditional DB plans has undoubtedly affected how Americans view the issue. A 2014 Harris poll found that 74% of Americans were worried about having enough income in retirement, a figure mirrored a decade later in an Employee Benefit Research Institute study.

The point isn’t to deny everyday Americans’ real worries and concerns about their futures, especially as there are profound problems around who can save for retirement within the American workforce. About two-thirds of working-age Americans think they are not on track to save for retirement. Meanwhile, many also feel out of their depth with investing, with a majority of those not in the top 10% of annual income reporting that they aren’t confident managing such accounts, which could make one worry about these same future retirees negotiating the blockchain while doing so.

Proposed Solutions to the “Retirement Crisis”

Those declaring a need to address the “retirement crisis” have called for the following: 

• Expanding Social Security benefits
• Cutting such benefits
• Making Americans work longer
• Implementing a universal basic income for retirees
• Mandating automatic enrollment in 401(k) plans for all workers
• Eliminating the cap on Social Security payroll taxes
• Eliminating Social Security taxes
• Working longer for the health benefits
• Boosting longevity via biohacking so people can extend their work lives to support retirees.
• Implementing a “Robin Hood” tax on financial transactions to fund retirement programs
• Offering tax incentives for caregivers who leave the workforce
• Creating a government-backed annuity program
• Starting a national financial literacy curriculum for adults and kids
• Introducing a mandatory savings rate for all workers
• Implementing a “negative income tax” for low-income retirees
• Creating a national database to track all retirement accounts
• Introducing a “retirement bond” program similar to previous eras’ war bonds to cover current state and local retiree obligations
• Creating a national home equity release program for retirees
• Creating a national “gig worker” benefits program
• Putting in place a national “retirement score” system to encourage saving
• Creating a government-backed cryptocurrency for retirement savings
• Requiring more individuals to invest in equities for better returns
• Putting Social Security’s funds into equities for better returns
• “Making every baby a capitalist.”

Significant changes may be needed, and against this list, many might consider the blockchain as less extreme an answer after all. Still, we should be clear-headed about the issues rather than treating Social Security running out of surpluses in a decade as “collapsing” or depicting the pre-1980s era as the golden age of America’s golden years.

From 2005

“Looking historically, if one had accurate projections for the future, Social Security would have appeared in much worse shape in the decade of the 1950s, 1960s, 1970s, and 1980s, all decades in which the program needed immediate tax increases. In short, if Social Security is facing a ‘crisis’ today, then it has faced a crisis for most of its 70 years of existence,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., in 2005.

Blockchain to the Rescue?

Typically, when proposing radical solutions, one diagnoses a problem that otherwise can’t be managed by the current system. What problems are there that blockchain or other proposals for the retirement system should address?

The Problems of American Retirement

Let’s list just some of the issues that experts have been raising about the U.S. retirement system:

• Inadequate savings: Many Americans aren’t saving enough for retirement.
• Social Security sustainability: There are concerns about the long-term solvency of Social Security, with projections suggesting benefit reductions by the mid-2030s if no changes are made.
• Loss of traditional pensions: The shift from defined benefit to defined contribution plans has transferred retirement planning responsibility and risk to more individuals, even as fewer Americans than commonly believed had such pensions at their height in the mid-1970s.
• Longevity risk: As life expectancies increase, there’s a growing risk of outliving one’s savings.

• Healthcare costs: Rising healthcare costs, especially in later life, can quickly deplete retirement savings.
• Income inequality: Widening income gaps contribute to disparities in retirement preparedness across different socioeconomic groups.
• Financial literacy: Many Americans lack the financial knowledge to make informed retirement planning decisions.
• Job market shifts: Frequent job changes and the gig economy make consistent retirement savings more challenging.
• Student loan debt: Increasing student loan burdens, particularly for younger generations, can hinder retirement savings.
• Late-career job insecurity: Older workers often face age discrimination and difficulty finding employment, potentially forcing early retirement.
• Caregiving duties: Many Americans, especially women, face reduced retirement savings because of familial responsibilities.
• Housing costs: High housing costs in many areas can strain retirement budgets and limit housing options for retirees.
• Divorces later in life: “Gray divorce” can significantly impact retirement plans and financial security for both parties.
• Limited access to employer-sponsored plans: Many workers, especially in small businesses or part-time roles, lack access to employer-sponsored retirement plans.

Blockchain and Retirement

Before turning to what proponents suggest blockchain can improve in the American retirement system, let’s set out the basics first. Blockchain technology is a decentralized digital ledger system that securely records transactions across a network of computers. Originally developed as the underlying technology for cryptocurrency systems like Bitcoin, blockchain has since been studied for its potential for various industries, including finance and retirement planning.

Proponents claim that blockchain could provide a secure, transparent, and immutable record of all retirement-related transactions. This would include contributions to retirement accounts, investment performance, and disbursements, all recorded in a way said to be resistant to tampering or fraud.

You don’t need to wait for a blockchain future to track down potentially lost retirement funds. Among the resources to check if you think you might have unclaimed retirement benefits are the National Registry of Unclaimed Benefits, the Department of Labor’s abandoned plan database, and U.S. Pension Guaranty Corp.’s database of unclaimed pensions.

If you think you might have lost track of something else of value (like a bank account or property), there’s Missingmoney.com, a multistate search tool run by the National Association of Unclaimed Property Administrators.

As people change jobs more frequently, keeping track of multiple pension accounts is said to have become more of a challenge, and it’s been suggested the blockchain could mitigate this problem. The U.S. Government Accountability Office estimates billions in unclaimed retirement savings, with an oft-repeated statistic from the 401(k) rollover platform company, Capitalize, that there are about 28 million “lost” accounts. More grounded is the Pension Benefit Guaranty Corporation, which puts the number at about 80,000. Proponents suggest that blockchain could be the answer, though it’s also a system notorious for people losing millions to misplaced private keys.

Here is a table of other issues that blockchain is said to address, along with potential reasons for skepticism that the blockchain is the right answer for doing so:

These problems represent real challenges in the present retirement system that technological solutions, including but not limited to blockchain, could address. However, technology alone is not a panacea, and any such products would need to be implemented thoughtfully with consideration for regulatory compliance, very long-term sustainability since the timespan is decades, and the ability of older Americans to feel comfortable using the technology.

“The Super”

Australia fights well above its population size in the amount of the country’s retirement savings, which ranks fourth in the world by size. The government’s superannuation guarantee mandates that all companies contribute about 11% of a worker’s salary toward an investment account the employee controls and can add into. The U.S. has no such mandate, and firms that offer 401(k)s typically put between 4% and 6% of taxable salary toward their portion. Known as the “super,” Australia’s system covers both full- and part-time workers, covering about 80% of its workforce.

What Problems Would Blockchain Solve?

Putting aside any such concerns, we’d still be hard-pressed to figure out how the list above addresses one or more of the major issues facing American retirees, now or in the foreseeable future. The fundamental challenges of the American retirement system are economic, social, and policy-oriented in ways that blockchain technology, for all its potential innovation, can’t solve or even begin to address.

Consider the most pressing issues mentioned above. The median retirement account balance for working-age households remains alarmingly low but the blockchain doesn’t inherently encourage or enable people to save more; it merely provides a different way to record and manage those savings. The looming shortfall a decade from now in Social Security funding is a demographic and policy challenge. Blockchain can’t create more funding or resolve the imbalance between workers and retirees. Blockchain also doesn’t reverse the trend away from DB pension plans or provide the guaranteed income that pensions once did.

Important

About a third of adults age 65+ are economically insecure, defined as having incomes below 200% of the federal poverty level (FPL). The numbers are higher for minority older adults: 43.4% of Black and 44.1% of Hispanic adults age 65+ have incomes below 200% of FPL.

Despite talk of it as a “democratizing” technology, blockchain can’t and doesn’t address wage stagnation or wealth concentration directly—nor should it be expected to. In addition, many Americans lack the knowledge to make informed retirement planning decisions. While blockchain might offer new tools, it doesn’t inherently improve anyone’s understanding of financial concepts—indeed, it would throw up a whole other set of notoriously difficult technologies to learn.

Blockchain also doesn’t stabilize employment or make it easier for gig workers to access retirement benefits. It doesn’t provide solutions for the aging of the human population worldwide. It doesn’t address the root causes of rising education costs or debt, and it doesn’t create job prospects for those facing late-career job insecurity or help combat ageism.

While blockchain might offer some administrative efficiencies or improve recordkeeping, it isn’t directed at the core issues at the heart of America’s retirement challenges. A given technology, no matter how innovative, can’t solve problems that are fundamentally about policy, economics, and social structures. Too often, those with an eye on the latest technology make a fundamental category mistake between means and ends. Technology can be a tool for implementing solutions to various problems, but it isn’t the solution itself.

What Problems Could Blockchain Create?

If we’re unpersuaded that the problems blockchain is meant to solve are of central import, we are impressed, however, with the massive resources needed to embed blockchain technology into the retirement system on such a large scale. Here’s what that would entail in practical terms:

1. National digital identity system: Creating a secure, blockchain-based digital identity for every American worker and retiree would mean having a universally recognized system accepted by all financial institutions, employers, and government agencies involved in retirement planning and management.
2. Overhaul of recordkeeping systems: All pension funds, 401(k) providers, IRA custodians, and the Social Security Administration would need to transition recordkeeping to a shared, interoperable blockchain network. This enormous technical challenge would dwarf the massive, decades-long effort to digitize retirement and other records.
3. Regulatory overhaul: The entire regulatory framework governing retirement accounts would need to be updated. This would likely require new legislation at both federal and state levels to recognize blockchain-based records and transactions as legally binding, which would itself mean a massive shift of responsibility for such systems out of government oversight—perhaps outside the legal system altogether.
4. Cybersecurity: A powerful cybersecurity infrastructure must be developed to protect this new system from attacks. Given the sensitive nature of retirement data, it would need to be extraordinarily secure.
5. User interface development: User-friendly platforms would need to be developed to allow individuals to interact with their blockchain-based retirement accounts. These would have to be accessible to people with varying levels of technological literacy. Certainly, many blockchain-based platforms have proven highly accessible already, but these would need to be scalable to millions.
6. Smart contract: The development and implementation of smart contracts to automate various processes (contributions, distributions, transfers) would be a significant undertaking, requiring extensive testing and auditing before they could be rolled out. Just one error could affect the support millions rely on, and those who remember the glitch-filled Healthcare.gov rollout in the early 2010s—or even the havoc wrought by a comparatively modest change in payment systems at one’s place of work—understand the heavy lift this would be.
7. Data migration: Existing retirement account data would need to be accurately migrated to the new blockchain system—a process that would need to be done with maximum precision to avoid errors (or, perhaps, purposeful falsification) in people’s retirement savings records. Should there be errors, who would handle corrections, and from what records? What systems would be in place as a backup, and would those, too, be on the blockchain?
8. Education and training: A massive education initiative would be necessary to train financial professionals, HR departments, and the general public on how to use this new system.
9. International coordination: For the system to truly solve issues of portability, there would need to be cooperation with other countries to ensure compatibility with their retirement systems.
10. A futuristic system that would need to be future-resistant: Given the long-term nature of retirement savings, the system would have to be designed with future-proofing in mind, potentially including quantum-resistant cryptography.

Such a project would take many years—decades even—to implement while requiring cooperation among government agencies, financial institutions, technology companies, the messy crypto spaces of the present, and so many others who often, to say the least, find cooperation difficult. If such collaboration were possible, one wonders if problems in the retirement system would exist in the first place.

In any event, such a change would mean rebuilding the entire infrastructure of the retirement system from the ground up, while remaining useful to people now retiring. It’s not too much of a stretch to suggest it would be like building the plane while flying it.

This is before we take on the massive costs involved while already concerned that it addresses problems not central to the retirees it’s meant to serve. Finally, blockchain, for all its promise, utilizes a massive amount of energy at a time when we’re trying to cut back on consumption so that the world workers retire into is one where they have savings and a livable environment.

All told, the problems thrown up by a systematic move to the blockchain make the challenges of America’s retirement system look almost trivial in comparison.

Important

Only 4% of private-sector workers now rely entirely on a defined-benefit plan for retirement.

Cryptocurrency Retirement Investments

While blockchain technology may not solve the fundamental challenges facing American retirees, it has spawned a new asset class, cryptocurrencies, that are being included now into many retirement accounts. Cryptocurrency investments offer a more immediate, though potentially riskier, way for individuals to engage with blockchain technology in their retirement strategies.

Cryptocurrency investments, especially through exchange-traded funds (ETFs), can be accessed through 401(k)s, IRAs, and other retirement plans. That said, many retirement plan managers have been shunning them. This means many people are still unable to invest in digital currencies for their retirement.

Not all blockchains are 100% impenetrable. They are distributed ledgers that use code to create the security level they have become known for. If there are vulnerabilities in the coding, they can be exploited.

Regulator Warnings About Crypto and Crypto-Related Frauds

Qualified retirement plans like 401(k)s must meet the minimum standards under the Employee Retirement Income Security Act, and the body in charge of that law’s enforcement has repeatedly issued alerts about cryptocurrencies. The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor has made it plain that it has “serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”

“Cryptocurrencies can present serious risks to retirement savings, including valuation concerns, obstacles to making informed decisions, and extreme price volatility,” said Ali Khawar, acting assistant secretary for EBSA. “These large swings can leave participants vulnerable to significant losses.” He noted that scammers have used misleading information to inflate the price of cryptocurrencies, and “then sold their own holdings for a profit before the value of the currency drops.”

Other regulators are upfront with their concerns as well, and they aren’t just about the Wild West of unregulated crypto exchanges. In 2024, the Financial Industry Regulatory Authority (FINRA) released a study of crypto-related communications between its members and the public. It found violations in 70% of the communications it reviewed (advertisements and other forms of marketing). This is about 10 times what it finds in those for other financial products.

“With the growth in this market and increased interest in crypto assets, the potential harm caused by problematic communications has also increased,” said Ira Gluck, FINRA’s senior director of advertising regulation. “We’ve been concerned about how communications discuss the protections offered through the federal securities laws or FINRA rules… However, there are no such protections for accounts held at crypto asset entities.”

In addition, while the Securities and Exchange Commission (SEC) approved applications for spot bitcoin and ether ETFs in 2024, it’s also been unambiguous in its warnings about the plethora of scammers specifically targeting retirees with crypto-related cons. Promoters are trying to “capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. Gary Gensler, the SEC chair, has been more blunt, saying that “the whole field is rife with abuses and fraud.”

Many investment experts suggest keeping the bulk of your retirement assets in securities, preferably in low-fee, index-tracking ETFs. High-risk alternative investments should be reserved for a part of your investments that are not critical for your day-to-day living in the future. As such, because of their risk and volatility, many investors are being advised to avoid crypto in their retirement accounts for now. Should you want to do so, it’s prudent to limit your stake to a small, low-single-digit percentage of your overall portfolio.

“There is no comprehensive federal regulation of any type of digital assets or cryptocurrency,” said V. Gerard Comizio, associate director of business law programs at American University’s Washington College of Law. “The key takeaway is to do your due diligence. It’s going to be challenging to make sure you understand what financial products you’re dealing with.”

Of course, not every finance and investment expert or advisor is negative about the future of this area of blockchain investing. Christina Lynn, a behavioral finance researcher and certified financial planner at Mariner Wealth Advisors, explained that “advisors are trained to dismiss shiny new alternative investments that boast spectacular returns, as such opportunities often prove too good to be true and unsafe for client funds.” Despite this, she remains relatively bullish on crypto-related products overall. “There’s genuine value to be found in this space,” she said. “Crypto … represents the biggest technological and economic shift since the internet.”

Here are the primary ways investors are seeking out crypto investments short of buying cryptocurrencies directly:

What Is Blockchain?

Blockchain is a shared database or ledger. It’s best known for maintaining a secure and decentralized record of cryptocurrency transactions, though, in theory, it can be used to store any data efficiently and safely. Transactions are permanently recorded and viewable by anyone, and no one person has control of the database.

What Is a Smart Contract?

A smart contract is a self-executing program that automates the actions required in a blockchain transaction. Once completed, the transactions are trackable and irreversible. One way to think of a smart contract is as a vending machine. When you put in the correct amount of money and pick out what you want, the smart contract activates the machine to dispense your chosen item.

Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.

What Is the Purpose of the Blockchain?

Blockchain’s primary purpose is to secure the data stored within it and remove the ability for humans to change it. There are several methods used to encrypt and secure the data on the blockchain.

Why Don’t Millennials Save for Retirement?

Various studies suggest Millennials, meaning people born from around 1981 to 1996, are not saving or saving too little for retirement. This situation has been blamed on a number of factors, including a shift to 401(k)-type plans, longer lifespans, heavier student debt burdens, and less disposable income.

The Bottom Line

Blockchain technology has been proposed as a solution to the challenges faced by the U.S. retirement system. Proponents suggest that the blockchain could create a comprehensive, secure record of retirement accounts, increase transparency, streamline administrative processes, and improve account portability. However, there are limitations to blockchain’s effectiveness in this context, including the need for universal adoption, potential conflicts with privacy regulations, and the fact that many proposed solutions can already be achieved with existing technology.

More broadly, blockchain is a solution in search of a problem, and it fails to address the fundamental challenges American retirees say are essential. Their voices and concerns should matter most of all, yet it’s telling how often invocations of a retirement crisis repeat the topline poll number of the percentage of Americans worried about retirement without digging into their specific concerns and needs.

Experts who have done so argue that the core issues in the U.S. retirement system are rooted in economic, social, and policy matters that blockchain can’t and shouldn’t be expected to resolve. While it might offer some administrative efficiencies, it doesn’t increase wages, lower healthcare costs, create jobs for older workers or provide effective education about finance and retirement investments. Real solutions to problems within the American retirement system will require policy and economic changes, along with potentially further societal shifts, not simply another tool that targets problems resolvable in less radical, less onerous, more relevant, and far less expensive ways.

Read the original article on Investopedia.