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Money never sleeps, it’s said. More than that, though oney never dies. Human beings do, of course. It’s this fact that drives us to make life meaningful, to create and make our mark and hopefully to leave something behind.
Society has well-established processes available that ensure our wealth and other belongings 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 lacking. Meanwhile, such assets become an ever larger component of investors’ portfolios.
The problems of legacy provision
The novel nature of this form of wealth adds an extra layer to the usual problems that come with making plans for our succession. Naturally, most of us don’t readily want to face our mortality. Therefore, procrastination for such tasks as writing a will is quite normal.
For much of our lives, we believe that our final hour lies 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, not knowing what to do nor whom to consult, and they remain so until events rudely prod them quite suddenly. And then there is the thorny problem of assigning to whom it should all go and in the proportions most fitting.
Once all of these usual impediments and considerations are tackled, there remains the technical issue of how to incorporate estate planning for digital assets like cryptocurrency. Unfortunately, many have fallen at this final hurdle, leaving various considerable digital hordes forever lost in the event of their deaths.
One 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 be passed on to successors. But his death, unfortunately, left around $200 million of cryptocurrency inaccessible in cold storage wallets.
Though not all are as spectacular as this case, there are numerous such examples of digital assets becoming irretrievable upon the death of their owner.
Research reveals that around four million Bitcoins or the equivalent of $95 billion based on current pricing has already been irreversibly lost. Not all of this will be due to lost access due to a lack of legacy provision. However, it demonstrates how easy it is to lose access to this new form of asset.
How to pass on cryptocurrencies to successors
It is now possible in many countries to specify digital assets in wills. However, they create unique challenges as they tend to have no personally identifiable information associated.
Also, as seen in the Mellon case above, it is vital to ensure that successors can receive all the necessary current access details to the digital wallets in which the assets are located. According to 2020 research, just 23% of investors have a documented plan for their crypto wealth in the event of their death.
To ensure that beneficiaries receive cryptocurrency following death, the estate planning attorney must be given detailed information.
Then comes the problem of having to keep all of this information updated, which may be a regular occasion for many who like to change both their passwords and their 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 no reason, therefore, preventing the beneficiaries of one’s estate from becoming one or more of those ‘peers,’ without the need for any mediating middleman, such as an attorney.
A blockchain solution for crypto inheritance
It is now possible to create a completely decentralized and secure blockchain testament to enact the transfer of assets to the digital wallets of one’s successors in the event of death.
The user decides upon 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 being or central authority receives any of the passwords or seed phrases that can provide access to the user’s assets. All data is cryptographically stored in smart contracts on the blockchain.
The user himself indicates the wallets of the heirs, interest and trustees, who confirm the death of the testator by voting in DAO to trigger the execution of the blockchain testament.
As a failsafe, there is a grace period of several months before the transfers are made, during which the user can halt the process in the event of a mistake or fraud.
This kind of solution will no doubt appeal to many crypto enthusiasts who appreciate the decentralized nature of the technology free of banks, attorneys and other mediation along with its high level of privacy.
Another strength of using this kind of technological solution is how easy it is to update details, which is a simple matter of updating the details held in the DAO, without the need for contact with attorneys.
In summary
With the rapid growth in the popularity of cryptocurrencies and other digital assets, it is becoming 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 for passing on digital wealth in the coming years.
Vsevolod Sazonov is the founder and CEO of Blockchain Testament, a mechanism of 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.
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Source: https://dailyhodl.com/2023/02/22/a-last-will-and-blockchain-testament-ensuring-crypto-wealth-is-passed-on-to-successors/