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What Happens to Your Crypto When You Die?
Cryptocurrency
What Happens to Your Crypto When You Die?
It’s a morbid subject, we know, but it’s important to plan for all eventualities
when investing in crypto.
(Dazeley/Getty Images)
By Benedict George
Apr 12, 2022
Crypto Explainer+
Terra
Beginner
If you hold any amount of cryptocurrency, you’ve probably given some
thought to its security. After all, what good is investing your money in
assets if other people can easily steal them?
But there’s another aspect of crypto security that’s equally as important
and often overlooked by both novice and experienced users: What will
happen to your crypto after you die?
This might seem like an obvious consideration, but according to
Glassnode data from late 2020 it’s estimated that over 10% of bitcoin’s
circulating supply is lost forever. Of course, it’s impossible to know
exactly how those coins were lost, but we can assume that at least some
were because of people not having adequate measures in place for after
they passed.
So what do you need to do to ensure your loved ones receive your crypto
should the worst happen?
Read More: Only 23% of Hodlers Have a Crypto Estate Plan: Survey
The security trade-off and
importance of choosing the
right person
Before we look at the steps you’ll need to take to properly secure your
assets, it’s important to first understand the significant security trade-off
that comes with telling another person or people about where and how
to access your crypto-based wealth.
Choosing the right person to give your crypto assets to is a lot more
complex than it sounds. It’s not exclusively about trust, but about how
technologically savvy is that particular person or group of people.
For example, Bob has five bitcoin (BTC) that he wants to leave to his wife
Alice in the event he dies. However, Alice has no idea how to use a
hardware wallet or an exchange. This means she must either find or
employ another person to help her access the funds – which can present
a significant security risk – or try and learn how to use these platforms
and devices. Again, this also presents a security risk given how easy it is
to send crypto to the wrong address, get locked out of devices or
withdraw assets using the wrong token standards.
Tether (USDT) is an example of a crypto asset that has three different
token variations – OMNI, ERC-20 and TRC-20 – depending on what
blockchain the tokens are issued. Sending any one of these to another
would result in the coins being permanently lost. So, for instance, OMNIbased USDT coins sent to an ERC-20 wallet address would not be
recoverable.
Read more: 4 Ways to Stay Safe in Crypto
Another big question is, how much information should you divulge?
Obviously you’ll need to disclose enough about your crypto holdings for
someone to be able to access them, but do you entrust that information
to one person or is it worth dividing the instructions among several
trusted individuals?
Only you will know what is the best course of action, but it’s certainly
something to consider.
Hedging your bets across a group of people has its pros and cons.
Namely, it prevents any single person from being able to steal your
crypto funds while you’re still alive, but the main drawback of enlisting
multiple trustees is the whole system collapses if one person mislays his
or her piece of the instructions.
What steps all crypto users
should take
Once you’ve decided on whom you’re going to elect as the beneficiary of
your crypto funds, the next step is to outline the procedure for locating
and claiming them.
Location of your funds
The first piece of information you’ll want to include in your instructions is
where to find your assets. This includes the physical location of any
hardware wallet(s) you own as well as in what hot wallets you have
crypto stored.
If your assets are located in multiple places – such as decentralized
finance (DeFi) liquidity pools, centralized exchanges and non-fungible
token (NFT) marketplaces – it might be a good idea to consolidate them
into crypto wallets that support multiple asset types. MetaMask is one
example of a service that lets you store fungible and non-fungible tokens
in a single, easy-to-access wallet.
Passwords, private keys and backup codes
Second, you’ll need to carefully list all the passwords, private keys and
seed phrases for the crypto wallets, email accounts and exchange
accounts needed to access your funds.
If you have two-factor authentication (2FA) switched on, you’ll also need
to provide either the location and password for the device where the app
is stored or a list of 2FA one-time backup codes.
If your accounts are set up to receive SMS security messages, you’ll also
need to include details pertaining to the location and password of your
current mobile device (updated periodically as you change handsets).
Technical advice
You may wish to include steps on how your beneficiary should handle or
liquidate your assets. This might include instructing on which exchange is
best to use or outlining a brief walkthrough guide on how to set up his or
her own wallet and transfer the funds across.
You’ll also need to be mindful that certain platforms come and go over
time, not to mention some experience security breaches that may force
you to transfer funds over to new wallets. This means you’ll likely need to
update your instructions over time.
How to copy down your
sensitive crypto information
Making copies of your private crypto information doesn’t mean writing
your seed phrases on a post-it note and sticking it to the fridge or
sending the information via email.
These details should be copied down on paper and copied several times.
Each copy should then ideally be stored in different locations to remove
any single point of failure. For example, if you kept only a single paper
copy in a bedside table and the house caught fire, your beneficiary would
never be able to access the funds – that might sound a bit wild, but it can
happen.
To maximize the level of security, there are companies that provide kits
for storing seed phrases and passwords on metal plates. These provide
additional protection against things like house fires, water damage and
most other things that could damage a paper copy. Leading providers
include:
Cryptotag
Cryptosteel
Crypto Key Stack
In addition, British law firm Farrer & Co points out that when you do get
around to creating a list, you should not include it in your will. That’s
because any information in the will, including your crypto passwords, will
become legally available to the public after you’re gone.
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This article was originally published on Apr 12, 2022.
DISCLOSURE
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a
media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.
CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies
and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial
employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a
multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Benedict George
Benedict George is a freelance writer for CoinDesk. He has
worked as a reporter on European oil markets since 2019 at
Argus Media and his work has appeared in BreakerMag,
MoneyWeek and The Sunday Times. He does not hold any
cryptocurrency.
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The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media
outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is
an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain
startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive
exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk
journalists are not allowed to purchase stock outright in DCG.
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