Crypto: The only certainties

Taxes and death are quite certain. While the former has become apparent this month of April to holders of digital assets who have to report their capital gains to the taxman, the latter is less clear when it comes to inheritance planning for such assets.

The complicating factors are that in the absence of legal evidence to the contrary, the holder of the private key is the owner of the asset; and in “non-hosted wallets” or “decentralised” exchanges, the identity of the owner remains unknown.

A number of solutions are used to ensure that the assets are inherited as intended (a) writing down the private key on a piece of paper for the heirs; (b) describing and locating the digital assets in the will but storing separately the private key; and (d) more creatively, encoding in a smart contract a “dead man’s switch” that transfers automatically the asset to another account if the holder remains inactive for a certain period (e.g. a number of days without online activity or movement of a GPS-enabled phone).

See the image attached for a prototype of a “dead man’s switch”. This was designed by Alex Precosky et al in a Launch Academy Hackathon (Vancouver). If you want to know more about this macabre but, interesting nonetheless, topic, get in touch.