The Crypto Inheritance Dilemma

Maintaining security and privacy while still having a plan!

One big issue that is still persistent in the crypto space is how to manage digital assets in worst-case scenarios. It’s easy to see why this in general hasn’t been a bigger problem, since blockchain and cryptocurrency technology has only been around for just over a decade. Many of the early developers are still around and many of the communities built around this technology are predominately young and feel they have a whole lot of life left in front of them. This is what makes the inheritance and estate planning portion of crypto so incredibly important to deal with sooner than later. As the intrinsic value of cryptocurrency rises, many people that are already in the ecosystem are holding on to assets that could represent generational wealth and with that much value, it’s extremely critical to have a plan in place. The problem with creating a solid plan involves a couple of issues:

• The reluctance in generating a plan in the first place
• The technical challenges that will ensure the security/privacy of the assets
• The transfer of assets from someone who is incapacitated/deceased
• Lack of comprehension and/or understanding of how to treat and handle cryptocurrencies by legal professionals.

In this article, some of the challenges will be highlighted, as well as a possible web3-native solution for this problem, and how to learn more about this.

The Inheritance Challenge:

One of the biggest roadblocks to planning for inheritance is firstly having the conversation and idea to even do it. As humans, we think we are never going to die and never want to think about our own demise. As mentioned above, those who got into the space early will have wallets that will see insane gains as cryptocurrencies are adopted and used more and more by the general population. Creating a plan is really critical if you want to ensure that the wealth that you acquired is successfully passed to your loved ones. Without having a plan, the technical and legal challenges that I barely scratched above, will either ensure that value will be eroded by having to pay costs associated with not having a plan and paying excessive legal fees and/or taxes, and also there is a chance to lose everything if wallets and assets are not passed properly (associated with the private keys). Raising the awareness of the future implications of not having a plan should be the catalyst to drive people to go and make a plan

Managing the Change:

So say you’re in the know that having an inheritance plan for your digital assets is important, managing the nuts and bolts represents a whole new set of issues. The privacy and security that are enabled through managing your own wallet provide a different set of challenges that people will have to deal with compared to traditional finances and other assets. In a traditional finance setup that is largely coming from a centralized entity (say a stock brokerage firm). You can designate that your assets are handed over from yourself to another party and the entity will be responsible for that transition. In crypto, there is a whole new paradigm in what is meant by the transfer of assets. One may think that managing a future transaction is possible, but the user would need to be the one to authorize and that poses an impossible loop:

• I died and need to send a transaction to whoever I plan to send it to
• I need to approve/validate the transaction, but I’m dead

So setting a future transaction, in the simple context of how we do transactions in crypto wouldn’t work. To be able to transfer the wallet and all its contents, we’d need to think about the private keys and/or the seed phrase that protects it. As we have seen and experienced through various hacks, social engineering, and phishing attempts, minimizing the exposure of your private keys is imperative to protecting your crypto. There have been cases of people using “Life Hack” type methods to “protect” the private keys that really just cause them to lose them. Cases of people doing “dumb” things like breaking up and hiding their keys up and either losing it or making it undecipherable for someone to understand the order aren’t going to help with managing and/or transferring to the recipient. A derived solution that facilitates this process is going to be needed for this.

Legal Implications and Challenges

Unlike, normal transfers and transactions that occur in cryptocurrency, based on the local jurisdiction, there could be a lot of additional considerations to take into consideration. Estate/Inheritance Taxes, how assets will be divided/partitioned to the desired recipients, and who executes the request of the will and testament are all things that even in the traditional world will need to be considered. To make the crypto problem more complex, many lawyers may not be crypto-savvy and this will complicate things further. There will seemingly be a lot of hoops to juggle through to ensure that your assets (crypto and traditional) are preserved to the maximum value and then given to your loved ones and desired recipients.

For those in the US, understanding RUFADAA/UFADAA depending on which state you live in is important to at least have a basic understanding. UFADAA is the Uniform Fiduciary Access to Digital Assets Act and in a nutshell, gives access to the executor and trustees access to online accounts (which crypto wallets would fall into). A revised version, RUFADAA was written up to limit access to only the executor to protect the integrity of the assets. RUFADAA provides the legal framework (within the US) on how digital assets are managed upon death and incapacitation.

An Inheritance Solution

As always having a will and testament and the conversations around who would get what is the first step to having a solution, but when you look at how to effectively manage assets for such unforeseen issues, utilizing a Dad Man’s Switch is an ideal tool for this type of situation. The concept of a dead man’s switch is that as long as the actor in control of the switch has the ability to control the switch, nothing changes. As soon as they lose and/or can’t control the switch, it triggers a state change.

A simple example of this would be how a subway or train operates. The modern control systems require that the conductor hold down a switch to maintain power to keep the train moving, should something happen to the conductor and they can’t perform that feat then the train would stop.

Enter Sarcophagus

Sarcophagus is a blockchain solution built on Ethereum and Arweave to build a decentralized, dead man’s switch. The concept behind Sarcophagus is that enabling an actor to maintain control of their assets at all times, even when physically unable to do so is paramount. By utilizing a programmatic dead man’s switch in conjunction with a dual encryption system, anything can be preserved and ultimately passed to the desired recipient. This includes assets, secrets, seed phrases, and a litany of other use cases to give power and control back to the user and to release having ‘trusted’ services do this work for you. Sarcophagus is being developed as a fully open source codebase, developing from a focus and ethos built on decentralization and transparency. If you don’t have a plan, Sarcophagus is there for you.