Attorney Mankiw: How to safely inherit cryptocurrency inheritance?

The advantages of decentralization and anonymity will turn into disadvantages when facing certain issues - inheritance.

Author: Ye Yang, Lawyer Liu Honglin, Mankun Blockchain Legal Services

Since Satoshi Nakamoto released the first Bitcoin software in 2009, virtual currencies have developed significantly, withstanding market tests and transforming from a niche speculative project to a popular investment option. Today, virtual currencies are favored for their decentralization, anonymity, and global nature, with more people considering adding virtual currency investments to their asset allocation. However, the advantages of decentralization and anonymity will turn into disadvantages when facing certain issues - inheritance.

Before Death - Wallets and Private Keys

Passing down crypto assets requires early planning in life.

In the predominantly anonymous and decentralized world of virtual currencies, wallets and their core private keys serve as identity proof. In other words, by entrusting the wallet and private keys, inheritance is directly completed.

A wallet is an application for managing virtual currencies. Mainstream wallets include PC wallets, browser extension wallets, mobile wallets, and hardware wallets. For PC wallets, browser extension wallets, and mobile wallets, it's important to clearly communicate the wallet application type to the heir. For hardware wallets, the device must be preserved and ensured to be intact when transferred to the heir.

Private keys are equivalent to a combined username and password for wallet login. In practice, private keys are converted to seed phrases, and when transmitting to heirs, the accuracy of the seed phrase must be guaranteed. If there's a password, the method of password use must also be communicated.

How should wallets and private keys be transmitted to heirs? Inheritance is ultimately just a precaution, and early notification to heirs might lead to avoidable losses and disputes.

1. Paper Transfer

You can record wallet types (or wallet location for hardware wallets), seed phrases, etc., on paper and place it in a safe, similar to the paper wallet commonly used in crypto. You can put the safe's password in the will or directly store the paper wallet in a bank's safe deposit box, ensuring heirs can only access it after inheritance.

2. Hardware Storage

You can save necessary inheritance information on a USB or external hard drive, set a password protection, and store the hardware and password separately, ensuring heirs can only access the information after inheritance.

3. Incapacity Switch

You can use an incapacity switch application like the Sarcophagus project built on Ethereum and Arweave. Specifically, you can upload necessary inheritance information to the application, which will encrypt and permanently store it in the network. You'll need to set a file decryption time and designate an heir as the recipient. Before the decryption time, you can choose to extend the file storage time or terminate the service; otherwise, the file will automatically decrypt for the recipient.

Each method has its advantages and corresponding risks. Please choose a method suitable for passing down your virtual assets.

After Death - Centralized Platform Accounts

If you didn't leave wallet and private keys before death, virtual assets are highly unlikely to be inherited, as decentralization is a fundamental characteristic of virtual currencies. However, after years of development, centralized exchanges have emerged in the virtual currency world, sacrificing some decentralization and anonymity for safety and convenience. If the deceased primarily used centralized exchange accounts to manage virtual assets, heirs can inherit by knowing the account name and filing a claim with the platform.

Inheritance processes may vary across platforms. Using Binance as an example, here's how to inherit a deceased's virtual currencies.

Previously, Binance's inheritance claim process involved heirs registering their own account and informing customer service of their inheritance claim, accessing the inheritance claim page through AI customer service.

The required materials are not complex. Besides the Binance account to be inherited, heirs need to provide three items:

1. Identity documents of both the heir and the deceased;

2. Death certificate of the deceased;

3. Will, inheritance rights notarization, or other legal documents proving inheritance rights.

These three items must be notarized or certified by a lawyer and include an English translation.

The third item can be complicated, as reaching the inheritance claim stage usually means no will was left for this virtual property. If there are no inheritance disputes, you can obtain an inheritance rights notarization from a notary office, typically requiring the deceased's death certificate, proof of family relationship, personal archives, and property certificates. If inheritance disputes exist, you'll need to engage a lawyer for inheritance litigation, with the final effective judgment serving as a legal document proving inheritance rights.

After submitting these materials and passing Binance's review, the virtual currencies can be inherited in the heir's account.

Recently, Binance launched the "Emergency Contact and Heir" feature in its APP platform. Specifically, users can add emergency contacts in the "Account Security" settings of the Binance App, with the path being: Homepage-Personal Information-Account Security-Emergency Contacts. When the account remains inactive for a long time, Binance will automatically notify the emergency contacts, who have the right to apply for inheritance.

CZ, the founder of Binance, commented on Twitter: "This is a topic people are reluctant to discuss, but humans have not yet achieved immortality. Every platform should have a 'will function' to ensure that when a user is no longer around, their assets can be allocated to specified accounts in the specified proportion."

He Yi, Binance's co-founder, responded in the Twitter comments that Binance users are mostly young and in good health, which greatly reduces the probability of accidental death, but they have indeed handled some cases without a will, requiring death certificates and dealing with disputes over direct and non-direct heirs.

Mankun Lawyer's Summary

Crypto is an asset with a high entry barrier. You may have accumulated considerable virtual assets by avoiding market fluctuations, hacker fraud, legal risks, etc., but your family might know nothing about virtual currency. In extreme cases, it's possible that even after an investor's death, their family or heirs are unaware of the virtual property; or they only know the investor was involved in virtual currency but have no idea about the wallet or platform; or they might obtain virtual currency based on the investor's clues but encounter issues during the transfer, leading to disputes.

Therefore, effective communication within the family is crucial. The lawyer recommends that in daily life, you can hold family meetings to explain the operating principles, value, and management of virtual currency to your family. Through education and communication, you're not just leaving a virtual asset for your family, but also your investment philosophy and management skills, which is the key to ensuring smooth virtual asset inheritance.

Disclaimer: As a blockchain information platform, the articles published on this site represent only the personal views of the authors and guests, and are not related to Web3Caff's stance. The information in the article is for reference only and does not constitute any investment advice or offer. Please comply with the relevant laws and regulations of your country or region.