This is an opinion editorial by Prasad Prabhakaran, COO and cofounder of HexaWallet.
Over time, an estimated 4 million bitcoin have been lost and are now in inaccessible wallets. It is unknown how many of those coins belonged to HODLers who died without sharing access to their wallets with anyone else.
If you manage your Bitcoin keys, you must devise a strategy for passing on your wealth, or your bitcoin will be lost forever.
Bitcoin inheritance is still poorly understood because most Bitcoin holders are young and, as a result, do not often think about death or inheritance.
As this Cointelegraph article states, "According to a 2020 study by the Cremation Institute, nearly 90% of crypto owners are worried about what will happen to their crypto after they pass away. Furthermore, despite a high level of concern, crypto holders are reportedly four times less likely to use wills for inheritances than non-crypto investors.”
If bitcoin is a new investment for you, it's crucial to plan for the long term, which includes considering what will happen to your bitcoin after your death.
"If you don’t create a copy of that key and put that key in a safe place where the people that you trust can find it and know what to do with it, then the wealth that you’ve accumulated in crypto is just going to sit there." — Matthew McClintock, an attorney with a focus on bitcoin estate planning.
What Are The Current Options For Bitcoin Inheritance?
- Do nothing.
- Custodial Exchanges.
- Expensive Closed Solutions.
- Ill-constructed Cryptocurrency Solutions With Token Incentives.
Due to its decentralized nature, bitcoin has some special safety issues that don't apply to assets under the control of a centralized authority. Bitcoin should be seen as a physical item with value, like diamonds, precious metals, or cash, even though it is digital money. Anyone who obtains access to your bitcoin can utilize it, for good or bad. In contrast, your bitcoin will probably be lost forever if you pass away without giving anyone access to your keys.
One option is DIY storage systems such as the Glacier protocol. These noncommercial alternatives have the distinct advantage of being entirely private. There is no need for anyone to know that the user owns bitcoin or has set up a storage system.
The disadvantage is in usability and guidance. Glacier, for example, took eight hours to set up and four hours to withdraw bitcoin during initial testing according to the official site. Even though practice can cut this time in half, each transaction still takes several hours. Glacier necessitates the purchase of about $600 in equipment and a laborious process that includes modifying laptop hardware, using the command-line interface, installing operating systems, etc.
We are compelled to only marry other tech nerds because it is so technical.
People's money is in their own hands thanks to Bitcoin! You don't need to rely on any financial institution to get your money because you control your private key, and your bitcoin is stored on the public blockchain. Bitcoiners claim to be their own bank or even "self-sovereign" because they have complete control over their currency.
Because of this, a controlled inheritance like that on a custodial exchange undermines the libertarian foundation of Bitcoin. You must trust someone with your financial information if you wish to transfer your bitcoin to someone after your death. If you access bitcoin through an online exchange like Coinbase, you've given that company your key and depend on its staff to provide your heir your bitcoin when they ask for it.
Certain organizations permit customers to essentially lock their bitcoin keys inside multiple layers of other private keys, which may then be distributed among other signers. Although this technology is meant to make inheriting bitcoin simpler, it may also lead to more involved processes like beneficiary KYC, etc. Some of these inheritance programs are only accessible to certain customers who are willing to pay exorbitant prices and are only available in specific geographic locations.
Crypto Solution With Token Incentives
“Use DeFi apps to securely manage, store, and transfer your bitcoin … even after you pass away.”
Does this not sound like a scam to you? We’re not that bad, are we?
Overall, there may be individual variation in how bitcoin HODLers carry out their intentions after their death. While some may opt to entrust institutions with their money and their wills, others may prefer to follow the decentralized route and self-store their money while developing their own succession strategies.
Bitcoin HODLers deserve a better solution to secure bitcoin for loved ones and security shouldn’t come at the cost of privacy. They deserve a solution that is easy to set up and maintain and supports multiple trusted hardware signers in air-gapped and/or multisig manner.
In the end, it's crucial that users set up a structure that enables their beneficiaries to access their bitcoin assets in the event of their death.
Money that could change your life isn't truly life-changing if it can't be put to use.
This is a guest post by Prasad Prabhakaran. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.