Cryptocurrency Inheritance: Ways Cryptocurrencies Can Be Passed on to Next of Kin
Over $20 billion worth of Bitcoin alone has been lost. A proportion of lost Bitcoin was the result of owners dying without establishing a procedure to give their Bitcoin to a next of kin. In 2015, over 3 million Bitcoin wallets were inactive. While legal procedures differ from region to region, simple methods exist that make it possible to pass on digital assets even for those who are not technologically savvy.
Dead man’s switch is a semi-automated solution to estate planning on the blockchain. A computer program sends emails to a user who must reply at specific times. If the user does not respond, the program checks whether there are any death certificates that indicate the death of the user. After finding a death certificate, the contents of cryptocurrency wallets are sent to a pre-determined account.
Alternatively, multiple streams of access to cryptocurrency funds can be shared with trusted parties. Sharing keys among different individuals could serve as a useful method. This allows individuals with different signatures to access funds.
Certain exchanges have policies which give families instructions on how they can receive the digital assets of deceased users. Coinbase tells families of users to provide a death certificate, last will and testament, letter with instructions to Coinbase in the probate documents, and identification.
Some applications use data to check for activity signals on platforms. Once a pre-determined period of inactivity passes, the application transfers the digital currencies to the specified addresses. It’s important to consider the risks of automated platforms making mistakes in timing of transfers. As with most things made by humans, programs are susceptible to attacks and bugs which may not surface until its too late. Furthermore, the transfer of control over private keys to such platforms could present a risk of unauthorised third parties compromising a user’s property.
Hardware wallets could serve as a safer alternative to storing cryptocurrencies for next of kin. For a seasoned user of hardware wallets, it may not seem difficult to retrieve cryptocurrencies but for next of kin who may be unfamiliar with the technicalities, instructions may need to be left. Clear directions should be set for actions to take incase unexpected situations arise such as when a web service closes down.
Families and friends need to be made aware of the tax implications of inheriting cryptocurrencies. Laws differ depending on the geographic region and other factors. More nations are creating bills to tax families for inheritance of digital assets. As blockchain technology develops, thus making life events more easily traceable, it may become far easier to identify tax obligations. Accountability will effectively increase.
In 2013, a 26 year old cryptocurrency miner died in a plane crash. A single Bitcoin was worth less than $100 at the time of the crash. Now, the same Bitcoin is worth over $8,000. That amounts to $25,000 in cryptocurrency that does not have an owner. This issue is likely to keep occurring as time passes with new inexperienced owners leaving behind cryptocurrencies without concrete plans for transfer to next of kin.