Since humans are yet to device a means of taking along their earthly properties, they will always be left behind. As bitter as the truth sounds, we came empty-handed, and we shall all leave empty handed. Assets such as cars, houses, and even money in bank accounts are easily transferred because their ultimate control is in the hands of a trusted third party.
What happens to crypto assets like bitcoins, which are not directly accessible by a third party? That was the whole point of its creation anyways. Or in a worst-case scenario, the bereaved family have no knowledge of the existence of this digital asset, nor have any idea about how it works. Hence the question: “WHAT HAPPENS TO MY BITCOINS WHEN I DIE?”
The short answer is they get lost. If no one can access the wallet containing your bitcoins, it becomes lost forever. Just ask Michael Moody who lost his son, Matthew Moody, to a plane crash and has been unable to access his son’s blockchain.info wallet containing a few bitcoins. His son earned his bitcoins from mining, but of course, never gave anyone the private keys. Michael who is a software programmer himself has spent the last few years trying to access his son’s wallet with little success.
Before we proceed to address the elephant in the room, here are some reasons why the question comes up in the first place:
- Bitcoins are stored in a virtual unique way that guarantees security via cryptography. Each wallet uses a random set of characters, usually alphanumeric and known as keys. Public keys are accessible by anyone, it is those string of characters you call your wallet address. Public keys are equivalent to your email address or bank account number, anyone with it can send you a message or send you money. Private keys with which a wallet is controlled, are usually in the owner’s custody, with no one else having access. They are an indecipherable string of characters but can be made readable by converting them into simple words called SEED phrase.
- One well-publicized feature of Bitcoins and other cryptos is the pseudonymity it provides. For instance, creating a wallet requires just an email, which in turn can also be created using a pseudonym. Personal data and details are not provided. Moreover, it is possible for one to have more than one wallet.
- Flowing from reason number two, bitcoins are private currencies, not controlled (at the moment) by any government regulatory body or held by any traditional financial institutions. Usually, these third parties will have your full data such as names, addresses etc, with which your family or loved ones can trace and claim your assets. Most times, all they have to do to gain access, is prove their relationship through official documents like a death certificate.
Now, for options available to avoid your bitcoins spiralling into the abyss. First and foremost is that efforts have to be made towards planning about this. Intimating your heirs with details about your digital wealth is also important. The bitcoins will not stroll out of the wallets when your name is called. Interestingly, some exchanges do offer custody services and a process for transferring funds to next of kin. It’s an open secret rarely discussed because of theft risks.
- Leave a dead man file that details how your private and public keys will be passed on to your heirs. This file could be a simple notebook detailing passwords, PINs and keys. Last year, Jamie Redman, a Bitcoin.com news writer published a post about how he is leaving a dead man file, that will pass on his bitcoins to his wife when he dies.
- Storing the keys in a memory device or a place accessible by your heirs. For instance, storing the keys in a deposit box for those using hardware wallets. Or printing the keys and storing in a deposit box for those using hot wallets.
- Handing over the keys to a commercial company in the custody business.
- Utilizing multi-signature protocols. Pamela Morgan explains this option in depth in her book on crypto inheritance.
- Time locked transactions using smart contracts. At a stipulated time fixed in the future, the contract is triggered and funds transferred to the heir/beneficiary. However, there’s a possibility the owner could still be alive at the future date.
- Segmenting a wallet into a set number of pieces is the last option to be mentioned in this article. It works by the wallet owner dividing a wallet file into N pieces and then distributing the pieces among his heirs. Upon his death, they have to be in harmony and then bring together the pieces in other to access the wallet. A classic, non-digital example is the legend of the secret coca cola recipe. The story goes that the secret recipe has been split between two individuals who are never allowed to meet. Cons of this option are obvious: it is highly technical and could become sabotaged where feuds arise.
Whichever option is adopted, make sure your security is top notch.
In all, Bitcoin is scaling new heights, gaining new grounds, and mainstream adoption is accelerating. It is likely it will be around long after today’s investors are all gone.