The discourse of “what happens to your cryptocurrency when you die” is becoming more of a concern than a question by crypto investors as the year progresses. While there are known legal procedures for passing physical assets to beneficiaries or heirs, the process for cryptocurrency remains rather intricate, probably due to the nascency of the industry.
CZ reveals how families can recover funds from deceased Binance users
While there have been previous attempts from industry companies to address the issue, none has been vouched as the standard procedure for crypto inheritance. However, the CEO of Binance, Changpeng Zhao, has revealed that the largest cryptocurrency exchange has its “inheritance procedure” for passing the cryptocurrencies of deceased users to their families.
While responding to the question of whether families can retrieve funds from Binance using a kinship certificate, Zhao answered yes. To initiate the process, the families or heirs of the deceased would have to provide certain documents, including death and kinship certificates for verification before the transfer of the assets can be authorized.
According to Binance’s CEO, the timeline for the verification can last for about one month. This is to ensure “the account holder does not ‘come back from the dead,” Zhao said.
The problem of crypto inheritance
Unlike physical properties or assets like houses, cars, etc., the process of recovering cryptocurrency, especially in non-custodial wallets, is daunting. This is because crypto wallets are designed to be private and secure to the extent that users have full and autonomous control over their crypto holdings.
Without a wallet seed phrase, the families of a deceased cannot access any crypto-asset locked therein. One instance that depicts the complexity of crypto wallets is the case of Quadriga CX, the largest Canadian cryptocurrency exchange in 2018. The untimely death of Gerald Cotten, the head of Quadriga CX, resulted in the loss of millions of users’ crypto-asset because only Cotten had access to the exchange’s bitcoin account.
Although the chances of recovering funds from centralized crypto exchanges are quite higher compared to the former, most of the exchanges uphold strong security measures that equally prevent unauthorized access to users’ funds. Thus, without full information, funds on centralized exchanges cannot be retrieved by heirs.
This issue throws cold water on investors from keeping large funds in cryptocurrency or even using non-custodian wallets. For one, inheritance planning remains a heavy roadblock to self-custody.
Some practicals steps to crypto inheritance planning
One common approach to crypto inheritance planning is to inform loved ones about your crypto holdings, and also keep one or more copies of credential information in exchanges, wallets, and hardware devices. However, this approach comes with risks as anyone can meddle with your funds, even before your departure.
Another remedy could be using third-party inheritance planning services or relying on the procedures used by exchanges like Binance, Coinbase, etc., which might vary.