Inheritance Complications In Bitcoin’s Wild West
Due to the lack of legislation and regulatory concern regarding how bitcoins are passed on to beneficiaries following an investor’s death, it is estimated that 3.7 million bitcoins have been lost. At the current exchange rate, this is worth up to £18.5 billion.
Although cryptocurrency has seen erratic fluctuations over the past decade, it continues to be a lucrative investment, with one Bitcoin currently worth £2,600. For those that were mining these coins at the infancy of cryptocurrency, their digital wallets can be worth millions of pounds from very little initial investment.
Whilst many may have entered the digital version of the Wild West, few have considered the inheritance implications associated with this type of technology/currency.
Every investor in cryptocurrency deposits their bitcoin in a cryptocurrency wallet or ‘cold storage wallet’ if their wallet is stored on a hard drive outside of the internet, with each wallet requiring a private key to access the contents.
The private key equates to a permanent password, created when you open the digital wallet. However, the password is vulnerable as it is the only barrier protecting the online currency from attack. It should therefore be kept as secretly as possible to avoid theft which makes passing on this asset after death overly complex when using conventional methods.
Here lies the first potential headache: how does a bitcoin investor successfully pass on their bitcoin fortune safely and securely? If the investor dies without passing on their key, the bitcoin is locked in their wallet permanently and the money is lost to the potential heirs.
Additionally, a will can become more public after a death, which means passing on the password that is the only defence against a person’s assets an extremely precarious method of passing on the currency and methods of accessing it.
Although there is usually a clear procedure for claiming a person’s assets after their death, unconventional and new digital products, lacking tangibility, are more difficult to recover.
To complicate matters further, many cryptocurrency exchanges will not allow a person to name a beneficiary, placing the responsibility to have the necessary tools to recover the bitcoin on the heirs. No password, no bitcoin.
This is a scenario that has been hotly contested in recent weeks as cryptocurrency executive, Gerald Cotten, who died of Crohn’s disease complications on December 9th, had failed to inform his family members of his crypto wallet passwords; meaning his digital fortune worth in excess of £100 million is lost to the family forever.
Whilst this is terrible for the already grieving family to come to terms with, it is difficult to sympathise with the loss of bitcoin assets when this issue has happened to prominent cryptocurrency figures in the past.
Having died in a plane crash in 2013, early bitcoin user, Matthew Moody, also died without leaving the passwords to his beneficiaries, losing the digital fortune in the process. As more and more bitcoin is lost, it seems as though there needs to be more regulatory consideration to these issues.
Some have advocated the use of multisignature bitcoin wallets which will require more than one key to access the currency. However, once again, if a person dies without sharing their password, a similar problem can ensue.
Others have suggested dividing the password amongst trusted family members or friends. However, in this scenario, a donor is trusting them to avoid exploiting the information whilst they are alive.
Whilst there are ideas around how to pass on these assets in death whilst protecting them during life, there is no concrete way of ensuring all people investing in bitcoin are savvy enough to consider what happens to it if they die. It seems as though a process is needed to ensure it is compulsory for a person to prepare for their digital currency before they are able to purchase it.
Quadriga’s website has claimed: “For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets. Unfortunately, these efforts have not been successful.”
Gordon Fisher, estate planning attorney, said: “I would strongly advise against anyone putting any information they consider private into their will. Wills, after your death, become court documents and are generally public documents, accessible by anyone.”
Iqbal Gandham, the UK managing director of trading platform eToro, said: “Somebody out there needs to know how much you own and who you want to give it to. You just need to include crypto into that jigsaw puzzle with a lawyer.”
Whilst the Wild West witnessed successful prospectors being stabbed in the back for their patch of gold-filled land, something as simple as a misplaced digital key can have similarly devastating consequences for the digital prospectors that fail to prepare for their death in the instantly changing modern world.
Have you dealt with digital currency whilst making a Will? Will this become increasingly more poignant in the future?