What Will Happen to Your Crypto When You Die?
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What Will Happen to Your Crypto When You Die?
And how to transfer it to your loved ones after you die.
It’s weird to talk about your own death when your main goal in crypto might be to get rich.
We also spend so much time making sure our crypto tokens are safe, and no one can access them.
In fact, I shared my guide on how to stay safe just last week.
However, have you considered the fate of your crypto upon your death? Few do. It's vital to develop a strategy that balances security with accessibility, enabling the safe transfer of your assets to the right individuals when (but not soon) the time comes.
According to this very scientific survey by DegenSpartan, 71% don’t have a plan to transfer assets to their loved ones.
In this post, I will discuss this balance and provide suggestions for protecting your crypto assets in the event of your passing.
Hope it helps.
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Plan Ahead (But Don’t Die Just Yet)
Your own death isn't the most fun topic to think about, but it's crucial to have a plan.
A plan to transfer (life-changing) money to your loved ones. Without it your crypto is likely gone forever, locked in a digital wallet/exchange that can’t be accessed.
To make sure your digital assets are secure and accessible, it's essential to plan ahead.
The asset recovery plan depends on where the tokens are stored:
Centralized exchange or;
In a cold/hot wallet and only accessible with a seed phrase/private keys
Multi-sig wallet, etc.
Plan A: If You Store Crypto on Centralized Exchanges
In case of a centralized exchange, you will most probably need a will. I asked Binance support, and they shared the list of documents required.
If there's no will, a Letter of Administration or a Grant of Probate are needed All documents must be in English and certified.
Bitstamp too has a similar process, but you MUST ask your exchange on what documents they require. I guess smaller exchanges don’t even have a recovery plan in place, so it’s another reason to stick with more established exchanges.
Alternatively, you might create a plan to transfer your exchange login data to your loved ones. Yet it requires a balance between security and accessibility.
This comes to…
…Password Managers…
Password managers such as LastPass have a feature to give Emergency access to all password and notes to a trusted contact if you don't interact with your account for specified period of time.
This might work if your exchange is additionally secured by a 2FA, so access to the physical phone is required. It means you’ll need to think how to transfer YOUR phone password to family members.
🔔Yet it's ABSOLUTELY not recommended to store your private keys on a password manager.
Plan B: If You control Private Keys Yourself
Remember never to share your private keys? So, how do you ensure that your assets end up in the right hands after you are gone?
The balancing act between security and accessibility intensifies.
A possible solution is to have multiple hardware wallets such as Ledger or Trezor and create a safe way to share your password so they can open it after your death.
Another solution is offered by Trezor Shamir backup. It’s like a multi-sig wallet you can generate multiple unique recovery shares and establish a threshold (like 2/3) required for wallet recovery.
You then distribute these shares among trusted family members or secure locations and inform them of the threshold requirement. This way, you ensure that your crypto remain secure and accessible to your loved ones when you ☠️
Find what works for you, and your family members.
Multi-sig wallet. Multiple Problems.
And multiple solutions.
Vitalik Buterin recently shared how he stores his crypto on Reddit. He uses multisig wallets and social recovery wallets:
Multisig Wallets: Multisig (short for multi-signature) wallets require multiple private keys to authorize a transaction, which provides a layer of security against theft, hacking, or the loss of a single private key.
Social Recovery Wallets: These are a variation of multisig wallets where a single key is usually used for transactions. However, if this key is lost, a group of keys held by others (often referred to as "guardians") can be used to recover the funds.
These "guardians" - these are the holders of the other keys necessary to authorize a transaction or recover the funds. There are two crucial considerations when choosing guardians: (i) who to choose and (ii) what instructions to give them.
Vitalik’s guardians are geographically dispersed, using various types of wallets, and diverse operating systems to minimize shared risks. Moreover, they shouldn't frequently communicate with each other, and preferably, should remain unaware of each other's identities to prevent possible collusion.
As you can guess, this extra security makes transferring funds after your death more difficult, because of a very steep learning curve for your non-crypto family members.
Your family can become your guardians, but education is crucial.
Educating Your Loved Ones About Crypto
However, even with the access to your wallets your loved ones need to:
Need to know where your assets are stored
Learn how to use the exchange/hardware wallet
Learn how to withdraw tokens from DeFi protocols, unstake etc.
Does your mom or dad know how to use crypto?
Without a detailed guide, they ABSOLUTELY WILL have difficulties using crypto platforms and could fall victim to online scams.
This is why a user-friendly interface (looking at you, 99% of DeFi apps), and clear instructions are crucial. Imagine someone who never used crypto trying to use Curve Finance for the first time. Absolute nightmare.
Potential Business Idea 💡
An interesting possibility for transferring assets in case of inactivity involves the use of smart contracts.
For instance, a smart contract could transfer your assets to a different wallet if you don't interact with them for a specified period of time. This approach could provide an emergency access solution for DeFi while offering an additional layer of protection for your crypto.
There are a few platforms that offer such services. A few examples I’ve found:
Guard - Web3 inheritance where you choose a guardian via Email. If you die, your guardian requests access to your tokens, but you need to pre-approve token transactions.
Webacy - Set up a backup wallet in case you lose access to your original wallet. With it you can make sure your assets are protected even after you’re gone with our Beneficiary feature.
Inheriti - decentralized digital asset inheritance service that encrypts and stores private keys and recovery phrases. You can select a beneficiary who, upon your ☠️, can access your crypto by providing the required legal documents.
Overall, a multi-signature (multi-sig) account is likely the most effective method for preparing token transfers after your death.
This strategy allows you to set up multiple devices to access your coins; however, it requires a high level of technical knowledge and requires educating your loved ones starting NOW.
At the end of the day, you need to think what works for you and your family.
Conclusion: Start planning now
To sum up:
Plan ahead
Prepare a will
Learn how your exchanges deal in case of death
Teach our loved ones about how to recover assets
Enjoy your life & live happily ever!
What Will Happen to Your Crypto When You Die?
A great post that reminds us about thinking more long term!
Thanks a lot for it.
There is also the point that if you're dead, it does not matter anymore. :P