This article was written by the community. Author: Richard Marshall, crypto lawyer from England.

The views expressed in this article are those of the author/creator and do not necessarily reflect the views of Binance Academy.

Carefully! Lots of text.

  • Decentralization of cryptoassets poses several unique challenges when transferring cryptocurrencies after the death of the owner.

  • Carefully consider how your cryptocurrencies can be discovered, identified, and transferred to beneficiaries after your death.

  • There are many solutions available to users now, such as seed notes, encrypted private keys, and a dead man's switch.

What happens to cryptocurrency after the death of the owner?

As cryptocurrencies continue to gain popularity, the issue of inheriting crypto assets after the death of the owner arises.

Drawing up a will is a common practice to ensure that traditional assets are passed on to beneficiaries in accordance with the owner's wishes. But in the case of crypto assets, there are additional issues that need to be taken into account.

There are so many programs, equipment and exchanges for storing crypto assets that searching and identifying cryptocurrencies is the first problem to be solved after the death of the owner.

If the beneficiaries are unable to open the deceased's wallet and cryptocurrency account due to the lack of private keys, seed phrase or PIN code, then any attempts to locate and access the assets may be futile. That is, all cryptocurrencies, including Bitcoin, Ethereum or other altcoins, will be lost forever.

Next, we'll look at how to plan for cryptocurrency access for your beneficiaries or access to the assets of a deceased person.

How to transfer cryptocurrency to beneficiaries after death

If you want to bequeath your cryptocurrency to someone, it is important to plan ahead. There are many options available to users to choose from, but below we will look at the most common solutions.

Physical low-tech solutions

Paper and pen

In general, private keys and seed phrases can be written down on paper and kept in a safe with instructions on how to access the assets after your death. This option is quite simple, but has its drawbacks: the paper with this information can be stolen, lost or destroyed during your lifetime or after your death.

For greater security, the note can be placed in a safe deposit box: banks generally offer insurance protection and have a streamlined process for transferring the contents to beneficiaries or executors after the owner's death.

USB or hard drive

Alternatively, you can save your private keys and seed phrases on a USB stick or external hard drive with a password to prevent the information from falling into the wrong hands. Of course, this option is not without risks: the USB drive or hard drive can be damaged or corrupted, causing information to be lost. If you choose this method, it is better to create several backup copies.

If your files are password protected, you will have to consider storing the password itself. You can write it down on paper or save it using an online password manager.

These storage options are also subject to the risk of theft and hacking, so cryptocurrency owners should ensure that their beneficiaries can access the assets through the solutions they choose.

Advanced solutions

Encrypted email

Private keys and seed phrases can be sent to a trusted recipient via email in encrypted form. The letter may contain instructions on how to access the funds after your death. Choose this method only if you are confident in the recipient: trust your data to someone who will follow your instructions and ensure the security of the encrypted message during your lifetime.

You can also use a third party host with a password to access the encrypted email. However, if this site closes, information may be lost.

Dead Man's Switch

You can also install what's called a dead man's switch: a mechanism that will send private keys to a specified recipient if the owner doesn't confirm they're alive.

Verification usually involves completing a simple email verification or completing a short task. Such checks are carried out once a week, month or other time interval. If you do not confirm your presence within the specified time, a dead man's switch will be activated and the private key information will be automatically transferred to the designated recipient.

However, this solution has a serious drawback. At some point you may not be able to confirm your presence for some reason, such as illness or lack of internet connection. Another issue is that designating a key recipient does not necessarily mean that you authorize them to use those assets or that local law allows this form of asset transfer.

If you decide to use a dead man's switch, be sure to consult with legal counsel about how to ensure the safe transfer of assets to your beneficiaries.

Social recovery through custodial services

Custodial services offer a social recovery feature: the owner can appoint several representatives who, after the death of the owner, will jointly restore information about access to the assets.

Custodial service providers usually ask for proof of death with appropriate documentation. Some of these services are hosted on traditional websites, while others are hosted on blockchain, which provides an additional layer of security.

When using such services, it is necessary to select reliable representatives and establish suitable conditions. It is equally important to choose a secure custodian provider: check whether it allows the recovery of private keys for the majority of designated representatives without confirming the death of the account owner.

Be sure to clearly indicate whether representatives are allowed to use crypto assets for their own benefit or can only obtain information about access to them.

Smart contract wallets on Ethereum and Legacy wallets

Ethereum smart contract wallets allow for multiple signatures and are suitable for social recovery. Assets can be deposited into a multisig wallet by naming yourself and your beneficiaries as the owners of the wallet. In this case, multiple parties will need to be involved in verifying transactions even during your lifetime.

Upon the death of the owner, access to the wallet will be given to the co-owners and one or more personal representatives of the deceased, who will have to transfer access to the beneficiaries.

In addition, you can create another form of Legacy wallet with the ability to transfer cryptocurrency into the wallet and place it in a physical custodial storage during your lifetime. Third parties will not be able to access the wallet while the owner is alive. Upon his death, the personal representatives will be required to provide a death certificate and a court order confirming their authority to access the deceased's assets, which will result in them being able to access the wallet. Such physical storage facilities typically provide insurance protection.

How to include crypto assets in a will

Giving someone access to your cryptocurrency does not necessarily mean that you are allowing that person to use the assets for their benefit. It is important that planning for access to assets occurs as part of the drafting of a traditional will.

How property is transferred after death will depend on local law. As a rule, the transfer of assets is carried out by will. Given that most jurisdictions around the world do not recognize digital wills and still rely on paper wills with a physical signature, be sure to confirm your wishes regarding crypto assets with a lawyer.

For example, a will could set out how private keys will be transferred after death or specify who can use underlying assets other than a guardian or representative.

What does the exchange do with crypto assets after the death of the owner?

Centralized crypto exchanges often help find and gain access to crypto assets after the death of the account owner.

If the deceased had an exchange application on a smartphone or laptop, and the account was set to automatically log in after opening, then identifying assets will not be difficult.

However, anyone dealing with a deceased person's estate should be wary of using their account. For example, in England this may be a criminal offense under the Computer Misuse Act 1990. Each exchange also has its own rules regarding the disclosure of passwords and granting access to third parties (please review the relevant Terms of Use).

To avoid inadvertently violating the law, the executor of the will must contact the exchange representatives, inform them of the death of the account owner and provide all relevant information and documents. The referral procedure is also set out in the Terms of Use. This step typically requires you to provide proof of death (such as a death certificate) and proof that you have permission to access the deceased's crypto assets. For example, the executor of a will may provide a copy of the will or a court order.

How beneficiaries gain access to private keys

If you store your cryptocurrencies in non-custodial wallets, such as hardware wallets or paper wallets, then develop a plan in which multiple trusted individuals can access your private keys after your death.

In most cases, assets can be recovered even if the deceased has not thought through an appropriate plan. Files with private keys can be found on an electronic device, and notes with seed phrases can be found in notebooks or safes. If the deceased took additional steps to protect their private keys, for example using encryption or a password, then it will be more difficult to obtain them. In this case, the deceased's digital assets may be lost forever.

Transferring a miner role or DAO status to a beneficiary

Many people are interested in whether it is possible to bequeath an account in a play-to-earn game, and if so, to whom. In addition, there is disagreement over who will be able to receive royalties from NFTs or unreleased works of the deceased and what will happen if the deceased was mining, participating in cryptocurrency airdrops or DAOs.

All of these details should be outlined in a will or covering letter detailing your wishes: think carefully about all possible issues and practicalities.

Conclusion

It is important to create a detailed estate plan with instructions for locating, identifying, and gaining access to assets. Try to plan for the transfer of crypto assets during the will process. Make sure that the will is certified by a lawyer and that the transfer of crypto assets is carried out in accordance with local law.

Otherwise, your beneficiaries will have to go through complex legal processes, and in the worst case scenario, your crypto assets will be lost forever.

  • What is a cryptocurrency wallet?

  • How to protect your cryptocurrency

  • Glossary: ​​private key

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