This article is a contribution from the community. The author is Richard Marshall, a cryptocurrency lawyer in the UK.
The views expressed in this article are those of the contributor/author and do not necessarily reflect the views of Binance Academy.
In brief
The decentralized nature of crypto assets creates some unique challenges when a person passes on cryptocurrency after death.
You need to carefully consider how to locate, identify and access your cryptocurrency after death to benefit your loved ones.
There are many solutions, from written seed phrases to encrypted private keys and conditional toggles.
What will your cryptocurrency look like after you pass away?
As cryptocurrencies continue to gain popularity, it becomes increasingly important to consider what will happen to your crypto assets when you pass away.
Inheritance planning is a common practice to ensure traditional assets are distributed according to your wishes. But since the concept of crypto assets emerged, we will need to consider other unique challenges that need to be taken into account.
With a multitude of software, hardware, and exchanges that can hold crypto assets, locating and identifying crypto assets is the first hurdle to overcome when someone passes away.
If wallets and accounts are inaccessible due to missing information regarding private keys, seed phrases, or pin numbers, any efforts to locate and access these assets may be futile. This means your cryptocurrency, such as bitcoin, ether or other altcoins, could be lost forever.
Here's how you can plan for this situation as a cryptocurrency holder or recover the deceased's assets as a beneficiary.
How to leave your crypto after death
If you want to transfer your cryptocurrency after your death, it's important to plan early. There are many options for doing this, but the most common solutions include the following.
Physical, low-tech solution
Paper and pen
At a basic level, the private key and seed phrase can be written down and stored safely in a safe along with instructions on how to access your assets after your death. This simplicity comes with trade-offs, as information can be stolen, lost, or destroyed during your lifetime or after death.
For added security, this information can be stored in a secure vault at banks that offer insurance protection and have a rigorous process in place for your beneficiaries or executors to May you gain access when you are gone.
USB or hard drive
An alternative is to save the private key and seed phrase on a USB or external hard drive and password protect this information to ensure it doesn't fall into the wrong hands. The most significant risk is that the USB or hard drive could become damaged or the damage could make information inaccessible. You should create multiple backups if this is your preferred method.
If the files are password protected, you still need to store the password somewhere, which can be written down and stored securely or saved using an online password manager.
These options come with risks such as theft and hacking, so cryptocurrency holders should take care to ensure their beneficiaries are knowledgeable about how to recover assets through these means. This.
Advanced solutions
Emails are encrypted
The private key and seed phrase can be shared in an encrypted email to a trusted recipient, with instructions on how to access the funds after death. This method relies heavily on a trusted individual to follow these instructions without compromising the security of your encrypted email for life.
Third-party hosting sites can also be used to access encrypted email, which may require a password to gain access. However, if the third-party hosting site no longer exists, this information may be lost.
Dead man's switch - Conditional switch
You can also set up a conditional toggle command, which will release your private key to the specified recipient if you fail to verify that you are alive.
This verification can be as simple as accessing an email or performing a quick task, and can be set up to run weekly, monthly, or at other intervals. If you fail to verify your presence within a certain time, the deceased person switch will be activated and private key information will be automatically revealed to your designated recipient.
There is one big caveat to this method. You may not be able to verify your presence due to issues other than death, such as illness or lack of internet connection. Another issue is that designating someone to receive your cryptocurrency access information may not necessarily mean that you intend for them to benefit from those assets or that the law will permit this form of transfer. This property is within your jurisdiction.
If you decide to include a deceased person in your end-of-life planning, be sure to consult with a professional on how to do this safely to ensure that assets are transferred to beneficiaries. your benefit.
Restore society through data custody services
You can use social recovery through data custody services, whereby multiple guardians are appointed to work together when the owner passes away and restore the deceased's access information .
Guardianship providers often require verification of death with appropriate documentation. Some of these services are hosted on traditional websites, while others are online, providing an extra layer of security.
When using such services, it is essential to choose the best custodians and set the appropriate terms. It is also important to approach custodial services with caution if they allow the majority of custodians to recover private keys without requiring verification of the account holder's death.
It is also important to state whether those appointed as custodians should only receive access information or whether they should also benefit from the crypto assets.
Ethereum Smart Contract Wallets & Legacy Wallets
Ethereum's smart contract wallet allows multiple signatories and is a good choice for social recovery. You can create a legacy multi-signature wallet with yourself and your beneficiaries as wallet owners. With this method, the majority of parties will need to verify any transaction, even while you are alive.
Upon death, the wallet will be accessed by the co-owners and one or more personal representatives of the deceased, thus smoothly transferring access from the deceased to the designated beneficiary.
Another form of legacy wallet can be created to allow cryptocurrency to be transferred to the wallet and placed in a secure physical custody during your lifetime. Third party access is not possible during your lifetime. Upon death, personal representatives will have to provide proof of death and a court order showing they have access to the deceased's assets, after which they can access the wallet. . Such physical secure storage facilities often provide insurance protection.
How to add crypto assets to your will
There is a difference between designating someone to have access to your cryptocurrency and wanting them to benefit from those assets. It is important to ensure that any crypto wealth planning is included in traditional estate planning.
The laws in each jurisdiction regulate how assets may be transferred after a person's death, usually through a will. As the majority of jurisdictions worldwide do not recognize digital wills and still rely on paper wills with fresh signatures, it is imperative to ensure that all wishes relating to financial assets are met. Your crypto assets are legally recognized.
It can be done by making a will that reflects how the private keys pass to the recipient on death, or to clarify who will benefit from the underlying assets if this is different from the guardian or presenter.
What happens to crypto assets held on exchanges after a user passes away
Centralized cryptocurrency exchanges often provide assistance in locating and accessing crypto assets upon the death of an account owner.
If the deceased used the exchange app on their smartphone or laptop and the account was set up to log in automatically after opening, determining the assets held by the deceased can be a simple task.
However, anyone handling a deceased person's estate should be careful when accessing a person's accounts after that person's death. For example, this could be a criminal offense in the UK under the Computer Misuse Act 1990. Each exchange also has its own rules about disclosing passwords and granting third party access in its Terms their service.
To avoid accidentally violating the law, the executor of the will needs to contact the exchanges to notify of the death and provide all relevant information and documents. The correct way to do this is usually specified in the exchange's Terms of Service. This step typically requires proof of death, such as a death certificate and proof that you have the right to handle the deceased account holder's crypto assets. For example, the executor may provide a copy of the will or the court authority.
How to access private keys as beneficiary
If you hold your cryptocurrency in a self-custodial wallet, such as a hardware or paper wallet, it is important to put a plan in place to allow certain trusted individuals access to your private keys. you after you pass away.
In most cases, there are several ways to recover these assets, even if the deceased did not have a plan in place. Files containing private keys may be saved on one of their devices, or papers with the seed phrase may be found in their notebooks or safes. But if the deceased took additional steps to protect their private key, such as through encryption or passwords, it becomes much more difficult to locate the private key. This also means that the deceased person's digital assets could be lost forever.
Can you leave behind your mining activity or role in the DAO after your death?
There are questions surrounding whether games played for money should continue to be played after death, and if so, by whom. There is also controversy surrounding who should benefit from the royalties of NFTs or unmined works, as well as what happens if the deceased was involved in cryptocurrency airdrops or mining activities. convert or join the DAO.
All of this can be made clear in an accompanying will or letter of wishes, but full thought must be given to all the issues and realities that may arise.
summary
Having an estate plan that allows you to locate, identify and access your crypto assets upon death is important. It's best to include crypto estate planning in your overall will setup process. You must ensure the will is legally recognized and that the crypto assets meet your local jurisdiction's requirements.
Without this, your beneficiaries may have to fight over your crypto assets through complicated legal processes or your crypto assets may be lost forever.
Read more:
What is a cryptocurrency wallet?
How to protect your cryptocurrency
Terminology: Private key
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