A last will and testament – ensuring that crypto wealth is passed on to successors

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Money never sleeps, they say. More than that, though – mone never dies. Humans do, of course. It is this fact that drives us – to make life meaningful, to create and leave our mark and hopefully leave something behind.

Society has well-established processes available to ensure that our wealth and other assets are passed on to those we leave behind.

Yet, with the sudden arrival into our world of digital assets such as cryptocurrencies, estate planning has been found wanting. Meanwhile, such assets are becoming an increasingly large part of investors’ portfolios.

The problems of inheritance

The new nature of this form of wealth adds another layer to the usual problems that come with planning for our inheritance. Naturally, most of us do not want to face our mortality head on. Therefore, it is perfectly normal to procrastinate on such tasks as writing a will.

For large parts of our lives, we believe that our last hour is far in the future – so it doesn’t even seem much like procrastination most of the time.

Many people are also ignorant of the process, they do not know what to do or whom to consult, and they remain so until events rudely prompt them quite suddenly. And then there is the difficult problem of allocating to whom it will all go and in the proportions that best suit.

Once all of these common obstacles and considerations are addressed, the technical question remains of how to incorporate estate planning for digital assets such as cryptocurrency. Unfortunately, many have fallen at this last hurdle, leaving various significant digital hordes forever lost in the event of their death.

A famous example involved Andrew Mellon of the famous Mellon banking family. One might think that someone with such a financial pedigree would have a plan in place to ensure that all of his holdings are passed on to successors. But his death unfortunately left around $200 million worth of cryptocurrency unavailable in cold storage wallets.

Although not all are as spectacular as this case, there are many such examples of digital assets becoming irretrievable after the death of the owner.

Research shows that around four million Bitcoins – or the equivalent of $95 billion based on current prices – has already been irreversibly lost. Not all of this will be due to lost access due to lack of endowment. However, it shows how easy it is to lose access to this new form of asset.

How to transfer cryptocurrencies to successors

It is now possible in many countries to specify digital assets in wills. However, they create unique challenges as they tend not to have any personally identifiable information associated with them.

Also, as seen in the Mellon case above, it is important to ensure that successors can receive all necessary current access details to the digital wallets where the assets are held. According to 2020 research, only 23% of investors have a documented plan for their crypto wealth in the event of their death.

To ensure that the beneficiaries receive cryptocurrency after death, the estate planning attorney must be provided with detailed information.

Then comes the problem of having to keep all this information up to date, which can be a common occasion for many who like to change both passwords and holdings, especially if they are regular traders or investors.

One solution is to leverage the underlying technology itself to solve these problems. Cryptocurrencies run on blockchains – decentralized and peer-to-peer. There is therefore no reason to prevent the beneficiaries of one’s property from becoming one or more of these “equals”, without the need for any mediating intermediary, such as a lawyer.

A blockchain solution for crypto heritage

It is now possible to create a fully decentralized and secure blockchain will to approve the transfer of assets to the digital wallets to one’s successors in the event of death.

The user determines the amounts to be transferred and specifies the destination wallet addresses, all of which are entered into a DAO (decentralized autonomous organization) through the multisig mechanism, which provides full security.

No human or central authority receives any of the passwords or seed phrases that may provide access to the user’s assets. All data is stored cryptographically in smart contracts on the blockchain.

The user himself assigns the wallet to the heirs, interests and executors, who confirm the testator’s death by voting in the DAO to trigger the execution of the blockchain will.

As a fail-safe, there is a grace period of several months before the transfers are made, during which the user can stop the process in case of error or fraud.

This type of solution will no doubt appeal to many crypto enthusiasts who appreciate the decentralized nature of the technology – free of banks, lawyers and other mediation – along with the high level of privacy.

Another strength of using this type of technological solution is the ease of updating details, which is a simple matter of updating the details in the DAO, without the need to contact lawyers.

in summary

With the rapid growth in popularity of cryptocurrencies and other digital assets, it is increasingly important to plan for their transfer to one’s successors upon death.

As outlined, traditional estate planning methods are not always adequate for digital assets.

However, their underlying blockchain technology provides a unique facility for decentralized, secure and automated solutions that will almost certainly become the default mode of transferring digital wealth in the coming years.

Vsevolod Sazonov is the founder and CEO of Blockchain Testament, a mechanism for independent and decentralized transfer of crypto-assets from the wallet of a deceased person, and co-founder of Recovery Crypto, a fully decentralized recovery tool that ensures the transfer of assets from the original cryptocurrency wallet after its loss.

Featured image: Shutterstock/camilkuo