If you are a young fortune-hunter toiling away on a computer in a basement, the prospect of death probably isn’t among your top considerations. Equally, if the main draw to crypto is its relative privacy, you may not be particularly eager to share your private keys with your loved ones, as a hacker could sift through your papers, weaponize your keys and empty your savings.
Prepare for the Inevitable
Most privacy-obsessed, wealth-chasing geeks are used to keeping their private keys a total secret. But when the Grim Reaper shows up unannounced, the family of an anonymous crypto-millionaire can be left without access to their relative’s riches. In one of the most widely publicized recent examples, paranoid U.S. investor Matthew Mellon died earlier this year, leaving few clues to a crypto fortune reportedly valued at more than $500 million.
In South Africa, for instance, thousands of people have invested in cryptocurrencies. However, once they pass away, many of those individuals will die with their holdings.
“As a young industry, with little regulation, it is crucial for investors to become more responsible in their attitude towards cryptocurrency investing,” Eran Brill, an investment management director at Stonehage Fleming in South Africa, recently told one news site. “Investors need a storage execution strategy for account information, as well as advice on the implications regarding the deceased estate, including access to accounts, distribution to beneficiaries, and tax implications.”
The ‘Double Funeral’ Dilemma
There have already been several examples around the world of bitcoin investors who have died without leaving their keys for their relatives. In such cases, families must deal with a kind of “double funeral,” as they mourn the loss of their loved ones while coming to terms with the loss of an irretrievable fortune that might have been theirs.
This underscores how bitcoin’s main attraction — its safe remove from regulators and impenetrable privacy from regulation — can also become its fatal weakness. Users may enjoy immunity from high bank fees and taxes, but they miss out on the good side of the old system, such as help with the administration of their estates.
According to Chainalysis, about 25 percent of all bitcoins now in circulation (valued at roughly $23.5 billion) have already been lost forever. Death likely accounts for a good portion of these losses. But the recent example of Mellon, in particular, may encourage investors to start thinking beyond their own lives.
Mellon died in April at the age of 54. He passed away with up to $500 million in ripple stashed away in cold storage under fake names in banks across the U.S. But the secretive millionaire took his fortune with him, because he failed to name heirs to his wealth and did not provide information on how to access his crypto wallets.
Posthumous losses of cryptocurrency will likely become more of a problem in the years to come, as investors will remain inclined to value secrecy to safeguard their wallets. While death is a concern, bitcoin wealth can also be lost through theft, accidental deletion, security breaches, and the loss of passwords and hard drives. This explains, in part, why cryptocurrency investors are secretive about their details.
Mixed Blessing
Legislators in South Africa, the second-largest crypto market on the African continent after Nigeria, are still wrapping their heads around bitcoin regulation, nine years after the introduction of the virtual currency. But regulation could prove to be a mixed blessing for account holders. On the negative side, the South African tax regulator now recognizes cryptocurrency as an “asset of intangible nature.” But on the positive side, the introduction of new rules could mean that players operating in this decentralized space will be able to claim greater protection if the need arises.
South Africa’s formal recognition of bitcoin means its laws of succession apply to cryptocurrencies, as with other investments in the estates of deceased individuals. However, it is still up to investors themselves to formally identify their heirs in their wills.
That said, having a will does not automatically mean that one’s bitcoin wealth will get passed down to loved ones. Private keys are still needed to unlock crypto wallets, which is why individuals need to leave clear instructions on how their heirs can access their fortunes.
Inheritable digital safe services such as Digipulse help people to keep their bitcoin information safe, while allowing it to be utilized for legacy purposes. Simpler methods might include entrusting third parties with copies of private keys, either on paper or in digital format, but such options necessitate a level of trust.
What do you think about the relationship between cryptocurrency, privacy and death? Let us know in the comments section below.
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