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Could Your Family Recover Your Crypto

02/14/2019 13:07

Could Your Family Recover Your Crypto?

 

Passing along family heirlooms, values and possessions is a reasonably straightforward process. With the advent of digital assets, it is more important than ever to make sure you have a proper setup in the case of a tragic accident or incapacitation. It is not something which requires tremendous amounts of time and when it’s done, it’s done.

What are the ramifications of not properly preparing an inheritance and the beneficiaries of your crypto? Total loss.

It’s Already Happening!

Crypto enthusiast Matthew Moody, died in a plane crash and passed away without giving anyone access to his wallet details. Now almost six years later, his father, Michael Moody, is still searching for ways to uncover his son’s fortune.

https://www.bloomberg.com/news/articles/2018-02-13/bitcoin-industry-grapples-with-age-old-problem-of-inheritance

“Moody says entrepreneurial young people, unfamiliar with emerging digital currencies, need to be better educated about the steps needed to be taken to ensure their investments are properly secured, both for themselves and for future heirs.”

This story strikes me as sad not only a young man passing away leaving his family but then the child they raised as a family is not able to see a financial accomplishment such as being an early adopter in the crypto sphere. This is why having something simple and organized is so important. As sad as it sounds, something, in this case, would have been better than nothing.


Don’t Let Your Keys Die With You!
(February - 2019)
CEO of Canadian Exchange QuadrigacX Dies With Private Keys of Millionaire Cold Wallet
https://cryptocrimson.com/ceo-quadrigacx-dies-private-keys-millionaire-cold-wallet/

“Lost funds amount to about $190 million. Cotten was the sole manager of the funds and was in charge of transferring the cryptocurrencies from a cold wallet to a hot wallet manually. The reason for this “one-man operation” was for security reasons: Cotten wanted to protect the funds from being hacked, preventing possible inside jobs.”

This story gets crazier by the day and by the time you read this I am sure there will be a host of other important updates for those affected by the loss. This company was so negligent I am not sure there are words to describe how many errors they committed. Even so recently as sending over 100 discovered bitcoin to a supposedly inaccessible cold wallet. Unraveling within this story is a young engineer who lost his life savings of over $400,000.  You truly have to be responsible for yourself as entrusting others always employs some risk. I truly hope they discover the private keys or uncover this being a malicious situation to prosecute the theft.

 

Areas To Avoid Storing Your Cryptos for Inheritance

1) Online wallet (web wallet, https, etc.)

2) Any hot wallet

Taking the time to understand the different types of wallets and key management is imperative to keep your funds safe. Not putting yourself at risk as the future of the crypto markets grow. Leaving coins on an exchange for extended periods of time is the first no-no in crypto. If you are buying bitcoin or altcoins, it’s in your best interest financially to understand how the particular coin wallet works.

Read my article on wallets here.

 

What we discovered…

We polled the followers of Bitcoin Live on Twitter with a hypothetical scenario. It shows most people haven’t really considered this topic and you should explore some of the options I provide below.


Could Your Family Recover Your Crypto?
(If you were incapacitated or dead)

  • Are your private keys stored in a secure place?
    • Now, does your family have access to it in an emergency?
      • If they had access to them, do they know how to use them?
  • Educating family on exchanges, private keys, wallets & passwords.
  • How should you do this? Methods to educate (acknowledge this won’t be easy for most lamens)
  • A video ‘will’ – step by step instructions on what to do?
  • Have you told them who/what to avoid!

Cryptocurrency isn’t merely a fancy decentralized way to make money. It's a whole new way to trade, exchange and profit from digital assets & technology. Cryptocurrency is here to stay and the implications are wide-reaching. As values increase, the inheritance process will become that much more critical.

Distributing crypto assets via a third party will only work if the executor of those instructions is able to perform the necessary actions. Those aspects include private keys, passwords, seed phrases.

Some of this may seem obvious...

Keep in mind that if you don’t create a plan that is simple and workable, most likely the people you intend to receive your cryptocurrency will not be able to access it properly. Missing one step in retrieving coins means they are inaccessible.  Unlike the general assets we are so familiar with, a court has no power to distribute your crypto holdings should you pass on without proper procedures in place.

 

The Four Goals for a Good Inheritance Process

  1. Allow beneficiaries to take possession of the crypto assets.
  2. Minimize operational security in regards to protecting the assets while you are still alive before delivery.
  3. Make sure the beneficiaries can store the crypto easily and safely for when they inherit it.
  4. Make sure the crypto assets get to the right people. Avoid potential conflicts.

 

           Do not put KEYS or PASSWORDS in Wills

Three Primary Questions to Ask Yourself?

  1. Where will I store this?
  2. Am I going to get help?
  3. Am I going to make a copy?

Information to consider passing along

  • Device Type
  • Crypto Asset Types
  • Wallets
  • Backup - Person or People
  • Where are Passwords
  • Any Helpful Notes to add

Stick to backing up seed phrases &/or wallet.dat backups and maybe paper wallets. Given the choice know your seed and you will always be good to go.


Here are Your Choices

Write Out Directions - Roadmap

The simplest solution. Write out all the details and hand them to your chosen beneficiary.

One piece of paper containing private keys and be done with it. This is the most simple method, but it can have a very high ability to fail and they could end up losing all of the cryptos.

Pamela Morgan who wrote the book Cryptoasset Inheritance Planning: A Simple Guide for Owners is written to help people start building their own crypto-focused estate plans. She put out a template that people may use that looks like this:



See this Google Doc I put together that has the template:

https://docs.google.com/document/d/1x_xBuGj_VJKpe5CI5UAHe6U-ISzOVlGCszhVv1S38X0/edit?usp=sharing


Dead Man's Switch?  

This semi-automated method of estate planning involves a computer program which emails you at regular, specified times and awaits your reply.

If the program does not get a reply, it automatically checks death certificate records to see if you passed. If it finds the record or you simply do not reply during a specific period of time the transfer the contents of the crypto will be sent to the designated account. At the current time setting this up is not nearly as simple as many of the other methods. As the ecosystem grows I see this as being an extremely viable solution. Until then unless you have a programming background and technical skills it is far more cumbersome.


M-of-N Transactions

This involves splitting access to your funds between multiple trusted people. The only way to access an account via M-of-N is for a certain number of your chosen peoples to provide their details together to have the transactions released.


One Option for Custody:

Essentially, Custody Service functions the same way that a traditional safety deposit box does, only with cryptocurrencies — Bitcoin, Ether, and other significant cryptos. BANKEX Custody Service is secure and protects you from human error — for example, if you forget your password, you can recover it.

https://custody.bankex.com/

I am not recommending Bankex, however. As we advance, we will be seeing more and more qualified and legitimate custodian solutions for people with large amounts of capital to protect.


Avoid Unencrypted Cloud Solutions!

Well Known ICO Investor Ian Ballina Hacked, Millions Worth of Cryptocurrency Lost
https://www.newsbtc.com/2018/04/16/well-known-ico-investor-ian-ballina-hacked-millions-worth-cryptocurrency-lost/

“Balina’s tweet indicates he acknowledges he failed to set up robust security measures to prevent the incident. “I’m not worried about the money. I learned my lesson”, he wrote. The millionaire investor explained how he thinks he got hacked: “My college email was listed as a recovery email to my Gmail. I remember getting an email about it being compromised and tried to follow up with my college security to get it resolved, but wasn’t able to get it handled in a fast manner and gave up on it thinking it was just an old email.”


Things To Consider

At the end of the day, a reputable bank vault with a hardware wallet and private key would be enough to fend off almost everything. The problem remains that you must provide details to third parties whom you don’t really know enough to be able to fully trust. The above guidelines will work best with a single heir or multiple heirs who get along and can make it happen. In the case of numerous uncooperative heirs, the best method to deal with them is set aside their portions upfront and into separate wallets. One thing I see quite often is crypto holders just avoid educating those people. It will help tremendously both while you are living and should an unfortunate event occur if you take the time to educate those close to you!

If you want the most comprehensive coverage from A-Z, Start to Finish, covering anything you could think of then check out this book.

https://www.amazon.com/Cryptoasset-Inheritance-Planning-Simple-Owners/dp/1947910116/ref=sr_1_1?s=books&ie=UTF8&qid=1549465821&sr=1-1&keywords=pamela+morgan


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