New York Estate Planning & Elder Law Blog
Estates lawyers are increasingly asked to help surviving family’s members locate cryptocurrencies because their loved one collected them during their lifetime, didn’t include it in their will or updated will, and now no one can find it. Planning for cryptocurrency is more complex than digital asset planning. For starters, cryptocurrency has no physical equivalent. Cryptocurrency were created online, are exchanged online, and are stored online.
Blockchain Technology
The first step to understanding cryptocurrency is to examine blockchain technology. Bitcoin and many other digital currencies or cryptocurrencies utilize blockchain technology to record transactions between parties efficiently, in a transparent and verifiable manner. Blockchain technology is a digital database containing information (no records, financial statements, or other types of data) that can be simultaneously used and shared within a large decentralized and publicly accessible network without any central authority. The entire enterprise is decentralized meaning no government or financial bank or company can revoke an account on a blockchain network, shut down the network, or prevent someone from using it.
Each block on the chain includes data and information that is then verified and validated before being added to the chain. Once a block is added to the chain the transactions are permanently recorded on the distributed ledger. The blockchains are composed and supported by thousands of computers that are located all over the world. These computers support the network called nodes and they are maintained by individual operators. Each node has a copy of the entire digital ledger.
The underlying technology of blockchain relies on cryptography. Each participant is identified by a public and a private key. The public key is public information and anybody could have this information and send information to it. This is similar to your home address. Your house number and street name, followed by town, city, and zip code are public information. Anyone can send mail to your physical home address.
The private key belongs to the participant or user whose own identity can remain anonymous. To open the information sent to a participant’s public key, somebody needs to have the private key, essentially alphanumeric codes that unlocks the information stored on the chain. This code is unique and only known by the participant.
At this time, if someone with private keys dies without telling anyone where the private keys are located, there is no way to access the cryptocurrency account. An executor or administrator will not be able to verify if such an account exists or understand its contents. If such an asset was bequeathed or gifted in the will, the distribution could not be made. No statements are issued, and no record can be accessed without the private keys. It is important if you have Bitcoin or other cryptocurrencies that you store the private key in a place where a responsible person can locate it, in the event you lose it, become incapacitated, or die. Some public exchanges can hold the private keys for account holders. Individuals can also hold their own private key in a digital wallet, memory stick, USB drives, or a safe deposit box in the bank.