Presently, there are over 1,600 different cryptocurrencies in the world. Bitcoin is by far the most popular cryptocurrency at the moment, with 32 million Bitcoin wallets set and 7.1 million active Bitcoin users.
What happens to a person’s cryptocurrency when they die? We take a look at what cryptocurrency is, how to include cryptocurrency in your will and the potential difficulties associated with it. At present, cryptocurrency and probate is a hot topic – it can be very difficult to prove who inherits what.
Cryptocurrency in a nutshell
Cryptocurrencies, or “cryptoassets” as they are sometimes known, are a type of digital currency that’s controlled independently from a central bank. The currency is supported by technology called Blockchain, a public ledger that can’t be changed.
A few of the most popular forms of cryptocurrency include:
Cryptocurrency is stored using a virtual wallet. However, the currency itself doesn’t sit in the wallet – the wallet holds the digital “keys” required to access the cryptocurrency. The currency itself stays in a ledger in the blockchain.
What is the current legal stance on cryptocurrency?
There isn’t a concrete legal stance when it comes to cryptocurrency and inheritance. But what we do know for sure is that cryptocurrency is similar to property in that it can be owned, gifted and inherited.
If a person dies and the private keys are lost to a cryptocurrency wallet, then the cryptocurrency is essentially lost forever. This is because blockchains are highly secure and the entire process is decentralised, so there is no way to restore a private key.
Guidance published by HMRC explained:
“If an individual misplaces their private key (for example, throwing away the piece of paper it is printed on), they will not be able to access the cryptoasset. The private key still exists as part of the cryptography, albeit it is not known to the owner any more.”
Where should I leave my cryptocurrency wallet information?
Your loved ones may be able to prove they are the beneficiaries of your cryptocurrency portfolio if they can provide proof of death certificate and your will. However, this is extremely difficult to do as there is no central organisation in charge of the wallet.
As a result, it is crucial that you keep the details of your cryptocurrency wallet somewhere safe and to let your beneficiaries know all the information when the time comes.
So, where should you keep your crypto wallet information? There are several choices you can make.
Types of cryptocurrency wallet
Hot wallet: The private key is kept online, though it can be a target for theft.
Cold wallet: The private key is written on a piece of paper, stored on a USB stick or even stored on a computer that doesn’t have access to the internet.
Hosted wallet: The private key is held by a third party service such as Coinbase Custody.
Banks: Some banks, especially online banks such as Bitwala, allow you to buy and sell cryptocurrency from a new bank account. They can also store wallets and private keys on behalf of clients.
The route you take is completely up to you. Some people prefer to keep their wallet information on paper in a safe, some prefer using third party services online and some keep it on hardware such as a BitBox (for Bitcoin).
One of the most significant factors to consider when leaving cryptocurrency in your will is the volatile changes in value. For example, in May 2013 the value of Bitcoin was around the £135 mark, but this summer the value swung between £8,000 and £13,000.
How do I leave cryptocurrency in my will?
If you want to leave your digital assets to certain people in your will, there are important steps that need to be taken to ensure that your wishes are carried out. You will need to keep a note of specific instructions on how to access the private key in the wallet, all usernames for online accounts and any details on the public and private keys themselves.
Many people don’t appreciate that once a grant of probate has been obtained, your will becomes a matter of public record, so you mustn’t provide specific details in your will when it comes to your crypto assets or any other online accounts. But there are ways to ensure that the assets are accessible when your loved ones need to claim the cryptocurrency.
A report from The Law Gazette regarding the City of London Law Society’s financial law response said: “Assets such as bitcoin rooted in blockchain encryption technology may need to be classified as a new type of personal property in law […] different types of cryptoasset may need different treatment in law.”
We can offer advice and guidance on cryptocurrencies and wills – simply get in touch with our team today: