What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Arcade tokens or casino chips have some similarities – you need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralised technology spread across many computers that manage and record transactions. Part of the appeal of this technology is its security.
More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. The largest digital currencies are Bitcoin, Ethereum, Binance Coin and XRP.
Cryptocurrency is stored in a digital wallet, which can be hardware-based or web-based. In order to access this digital wallet, users must have their cryptographic keys, which come in the form of a private key and a public key. The easiest way to understand public and private keys is to think about how email works:
- Your email address is public so anyone can send you an email. Providing the public key to your wallet means anyone can send you cryptocurrency.
- You do, however, need a log-in and password for you to read the emails sent to you. And so, it’s the private key that lets you move funds (or send funds) out of your wallet, from one person to another securely. Just like with your email login and password, these private keys must always be kept secret – they are the only thing protecting your digital assets.
How is cryptocurrency different from other assets in a Will?
Like any other asset, cryptocurrency can be part of a deceased person’s estate (money, property and possessions) and be left in a Will to the people the testator person making a Will wanted to benefit – their beneficiaries. However, stating to whom cryptocurrency should be left is straightforward. The issue is how the executors access and transfer it.
Unlike property, where access can be as simple as signing transfer papers, it’s impossible to access cryptocurrency without the private key, which is secret.
Millions of pounds worth of cryptocurrency have been lost forever because owners have died without leaving a contingency plan. According to a 2020 study by the Cremation Institute, nearly 90 percent of all cryptocurrency owners are worried about what will happen to their crypto when they die but fail to make provision so it is not lost forever.
Accessing a cryptocurrency wallet
Even if a beneficiary is named in the Will as being entitled to someone’s cryptocurrency, it’s not possible for them or a personal representative (their executor) to access a digital wallet without holding the private keys. Even if the executors know the crypto exists and can see that it is sitting in a wallet on the blockchain, without the keys there is no way to access it. So, owners of cryptocurrency should always have a contingency plan in the event of their death.
Where should you leave the details of your private key?
You should not leave details of your private key in your Will. Never share your passwords and never your pin numbers. A Will becomes a public record once probate and can be requested by anyone for a fee. Anyone who knows how crypto works could easily read and use the keys to obtain all the crypto before the chosen beneficiary is able to do so.
Some cryptocurrency users leave specific instructions on how to access their private access codes, but there are issues with this as passwords are changed regularly and are also tied to 2FA (Two-Factor Authentication) – this means that access to a secondary device, such as a phone, would also be needed. Leaving cryptographic keys with a lawyer would also make them a custodian and only a specialist will be prepared to take on this role.
Multi-person access control
There are several ways to ensure that cryptocurrency assets are accessible after death and in a way that doesn’t compromise safety and security in the meantime:
- Purchase and store cryptocurrency at a cryptocurrency bank and have the bank manage the keys on your behalf. This will mean that you just need to leave details of the crypto bank and your account with your loved ones. The downside is that this means you won’t actually own your cryptocurrency or have control of it as it will be stored with a custodian.
- Store your cryptocurrency online in a non-custodial multi-sig wallet and sign up for a cryptocurrency inheritance solution. Here you keep full control of your assets in your own wallet, with your own keys but in the event of a loss of access, or death, the services provide for two independent parties to come together to retrieve the funds on your behalf. In this instance you would be provided with a beneficiary card to give your executors, identifying who they should contact when you’re gone.
- Hold your cryptocurrency on a hardware wallet in which you have stored a copy of the private keys for the wallet, or the 12-word seed recovery phrase for the wallet along with step-by-step instructions on how the wallet can be accessed in a safety deposit box or vault.
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. This is because cryptocurrencies generate no cash flow, so for someone to profit, someone else has to pay more for the currency. This is sometimes referred to as “the greater fool” theory of investment.
As with all investments, research and professional advice is essential.