Digital inheritance has become a major focus since we’ve needed passwords, PINs, and private keys to access online accounts. While it would be relatively easy to gain access to the Facebook or Twitter accounts of deceased people, getting hold of their digital assets can be daunting from a technical perspective.
Add to that the difficulty that many have in facing death and we have an explosive scenario of bitcoins in limbo, ready to be given up for good.
Approximately 20% of the total Bitcoins mined are believed to be lost forever, and indeed a good chunk of it might be coming from digital assets that have not been recorded and passed on to heirs at the owner’s death. Rather shocking if we think that it’s only a matter of securely passing on a private key really!
Infamous is the case of QuadrigaCX Exchange CEO Gerald Cotten who disappeared (died?) taking with him the private keys to all crypto-assets and there was nothing anyone could do to retrieve them. The same fate occurred to other crypto owners over the years, like Matthew Mellon, who died prematurely taking with him $1B worth of XRP at the time of death, which will never be recovered. These relatively sporadic episodes laid the grounds for what will be a growing issue in the years to come.
Before Bitcoin and other digital assets, local jurisdictions would determine the allocation of estates to heirs, even in the absence of a declared and recorded will.
However, due to the very nature of Bitcoin which benefits from privacy and mostly anonymity, in the case of premature death very little to nothing can be done by the law if the owner of the digital assets has not instructed anybody about their existence, and the ways to access them.
The brilliance of bitcoin is the algorithm that fixes the supply. Therefore, when bitcoins are lost, the remaining supply in circulation becomes more valuable through scarcity. Bitcoin has introduced a new type of sound money, one that cannot be seized, counterfeited, or censored. Except in the case of exchanges, Bitcoin’s self-sovereignty property means that funds can only be accessed by the owner. Therefore, preparing another person to gain access to the asset before death is necessary, despite it might represent a tremendous challenge.
Other than being aware that the dead individual had digital assets, which only happens if the person has left a trace, another obstacle to overcome is the technological savviness the heirs must own to access the assets.
While it is at the owner’s discretion to believe their heirs are reliable and trustworthy, nothing can be done in case of external theft or system hack which might lead to the total loss of the funds, especially if they are kept in an exchange.
Therefore, storing the access data in a secure location such as a safety deposit box, a flash drive, or even a good old-fashioned piece of paper must be the first step to unlocking the digital assets for inheritance.
Estate planners recommend leaving a trusted attorney or family member a guide to accessing the assets, including full disclosure of Bitcoin ownership and a secure method to transfer their private key. The solution may be as simple as a detailed letter of instruction to a successor trustee, which is placed in a safety deposit box along with the trust.
However, in the true spirit of Bitcoin, nobody should need to resort to a third party to deal with inheritable estates. There are self-sovereignty ways to secure your funds for you and your family, and we’re exploring them here.
- One of the most recently developed methods is a Lightning-powered Dead Men’s button that transfers the bitcoins upon failure to check-in, releasing a secret when the owner of the secret “dies” so that the beneficiaries get access to the asset when the button is no longer pressed. This method has already been successfully used by whistleblowers, for example, to release a key to decrypt leaked documents.
- Another method is a “time-locked” transaction that will take place in the future. It’s a type of smart contract that locks up bitcoins for a predetermined period of time and transfers the digital asset automatically upon notification of death. This transfer occurs on the blockchain, removing the need to write out any instructions for how to access or transfer them and avoiding a potential security risk.
- The most innovative solution, however, is provided by Casa and their bitcoin inheritance plan, built specifically for that purpose.
The service is called Casa Covenant and secures your bitcoins even after passing away, using multiple signatures to execute the transfer only when it’s the right time and works with your existing estate lawyer to ensure bitcoins are passed on together with the rest of the inheritance assets.
All things considered, let’s face it: who likes to talk about their death and plan inheritance management in case the event happens prematurely?
However, as much as you want to HODL onto your bitcoin, you might want to do that while you’re still alive and make sure your heirs are protected and gain access to them after your death.
Posthumous losses of cryptocurrency will likely become more of a problem in the years to come, as investors will remain inclined to value confidentiality over public knowledge to safeguard their wallets.
Bitcoin is still a relatively new asset class though and, as time goes on, there will be an increasing number of solutions available that even the non-techie owner will be able to embrace with ease.
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