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How Dead Wallet Can Have Afterlife

Within a little more than a decade since the first bitcoin was minted, almost 20% of coins are now unavailable.

They are trapped in wallets that can’t be unlocked, and thus, lost forever. Dead cryptocurrencies in dead wallets. Doomed to be forever haunted.

But even in the darkest times, magic can happen. Wallets can rise from the dead to once again interact with the living world. Everything is possible when owners have prepared well for the worst.

But first things first.

What is a Dead Wallet?

Dead crypto wallets are cryptocurrency addresses that are inactive for multiple years. They always hold funds, but have neither incoming, nor outgoing transactions, and most of them never will have.

Reasons for such inactivity vary. Sometimes owners are long-term holders that patiently wait five or more years for the best time to sell. Some have simply lost private keys and can no longer access the funds. Sometimes dead wallets belong to people who have simply passed away.

Related: Cryptocurrency Wallet: Everything You Need to Know

Can Anyone Access Wallet After Its Owner Dies?

Cryptocurrency wallets use cryptography to secure digital assets. They contain an unchangeable password, called a private key.

The private key is generated together with the wallet address at the moment of creation. It looks like a string of random characters and serves as the only way to confirm ownership and open the wallet.

Because of encryption, nobody except the owner can access locked funds. This is an huge advantage of the mechanism, but only so long as the cryptocurrency owner isn’t dead.

If they haven’t left a private key somewhere, the coins are doomed to stay locked in that wallet forever.

How Can Crypto Wallet Have Life After the Owner’s Death?

Lost and locked crypto can yet be extracted back into the world of the living. Especially if the owner prepared for them to be accessible after their death.

Here are a few recommendations on how that can be done.

Write Private Keys Down and Hide Them

All survivalists know that it’s mandatory to be prepared for doomsday, so that when bad things happen, they will be ready. The same principle applies to crypto.

You never know what may happen to you, or when. That’s why, to make your crypto holdings accessible to loved ones should the worst happen, it’s best to make your crypto wallet available after you die.

Whether you hold your coins on an exchange, or in a non-custodial wallet, write down the logins, passwords and private keys. Hide them safely offline, so they can not be leaked.

Find a way to leave a hint for your loved ones for where the data is hidden. Otherwise, they might never know that you left them a digital treasure.

Add Your Crypto to Your Will

Even if your family is unaware of your cryptocurrency holdings, it’s useful to put digital assets into your will. This lets your dearest ones know about your secret wealth, and ensures that the coins will not be lost forever after you die.

If you have left a will, the beneficiaries will not have to go through a probate process, in which the court distributes your wealth according to respective inheritance laws. However, they will have to pay inheritance taxes, which can be expensive.

Having said that, don’t forget that wills become public documents to some extent. This means that it is risky and unwise to simply disclose private keys there.

Use a Post-Mortem Trust

To bypass inheritance taxes, some crypto holders set up a special trust in their will, which would contain cryptocurrencies and become active after the owner’s death.

Trusts are an old and common way to preserve family wealth for future generations. They are legal entities that manage personal or corporate assets for beneficiaries. Although it is managed by a trustee, be it a person or company, some trust creators can also manage their trusts personally.

In addition to a testament, trusts only document the existence of cryptocurrency holdings, and where to look for them.

To ensure the highest level of safety, it’s best to keep direct access instructions on a separate document, which is secured in a safe location.

Use Crypto Vaults

The growing number of crypto millionaires has created a new industry of specialized vaults for digital assets.

Crypto vaults are storage solutions that offer extra layers of security for cryptocurrency wallets. Typically, they are used for their ability to halt the immediate withdrawal processes. Transaction confirmation might take up to a few days, giving owners the opportunity to cancel the transfer in the meantime.

There are companies that offer cold storage private key custody on encrypted servers that are remotely accessible by owners 24/7. Some of them even store private keys on drives, hidden in military-grade bunkers deep beneath the Alps.

Besides that, all crypto vaults service providers apply multi-step authentication, making it more secure, and more difficult to hack.

On The Flipside

  • Cryptocurrencies are still largely unregulated assets. The majority of countries worldwide lack laws that govern the inheritance of digital currencies.
  • Local laws, however, name inheritance taxes that beneficiaries must pay. The amount of tax depends on the value of the wealth inherited. As cryptocurrencies are highly volatile assets, there is always a risk that they may drop in price after they are valued for inheritance taxes.

Why You Should Care?

It is impossible to know what the future holds for us. Preparing for the worst possible scenario helps to ensure that our accumulated coins will not be stuck in a dead wallet and lost forever.

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    This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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    Author

    Simona is a fintech journalist and content editor at DailyCoin Academy, which focuses on educating new crypto investors. She entered the crypto space in early 2018, got burned, but discovered a passion for trading, and now it’s her hobby. Simona covers crypto and blockchain-related topics and takes a deeper look at what lies behind the latest industry trends.