There have been an increasing number of clients we have seen who hold cyptoassets or cryptocurrency which has led us to look into how these assets should be documented and dealt with whilst making a will. Due to the intangible nature of cryptocurrency, it would be incredible easy for it to become inaccessible for the people you have left it to.
What is cryptocurrency
Cryptocurrency is a virtual digital currency which uses encryption technology (cryptography) to ensure transactions are secure. Bitcoin was the first decentralized cryptocurrency in 2009 and there have been many more since that, for example Ethereum, Ripple and Cardano. Individual coin ownership records are stored on a ledger, called the Blockchain. A trade in cryptoassets is treated by HMRC similarly to a trade in shares, securities or financial products, meaning that there are tangible taxation and financial implications with as asset intangible and often volatile in nature. The estimated worldwide market value is currently worth almost £2 trillion, so as you can see, this is an asset class which is gaining momentum fast as more people enter the market.
There has also been a surge in popularity and value of blockchain based digital art known as NFTs or Non-Fungible Tokens. The most famous of these, a work called “Everydays: The first 5000 days” by Digital Artist Beeple, recently sold at Christies auction house for in excess of £50 million (Link to this at the bottom)
What is the Blockchain
The Blockchain is a digital ledger made up of transaction ‘blocks’ which are linked together using cryptography. Each block is linked to the previous block and transactions are verified by consensus with the network and are immutable (i.e. once entered onto the blockchain, they cannot be altered.) This makes it extremely difficult to hack, change or cheat entries and making it very secure as a result. Each transaction is time stamped which proves the data existed when the block was published.
Digital Wallets and private keys
A digital wallet is used to store, send and receive digital currencies. The software is connected to the Blockchain which enables you to submit transactions to the ledger. The Public key is the information you would give to others if you wish to receive cryptocurrency (like a receiving address) whereas your private keys remain be exactly that – private. This is your secure password and should it become compromised or lost, you lose access to your cryptocurrency and due to the nature of the cryptography, lost keys are virtually impossible to recover. There are four types of digital wallet; web wallet, software wallet, hardware wallet and paper wallet, each having their own pros and cons and differing levels of security.
Making your will
When you ma The Public key is the information you would give to others if you wish to receive cryptocurrency and is basically ‘the location’. Your private keys should be exactly that – private. This is your secure password and should it become compromised or lost, you lose access to your cryptocurrency.
Like your will, you should ensure that a ‘digital assets’ clause is included which grants authority to your named Executors. If you are appointing Executors with no/little experience themselves in dealing with Cryptocurrency, you may wish to consider appointing an Executor specifically to administer any digital assets you hold. It is imperative that details of your private keys are NOT included within the will itself as on application for Probate, your will becomes a public document and your digital assets could be compromised.
Instead, we recommend that your private keys are included within a letter of wishes which must be stored securely with your will. If your Executors have no experience with Cryptocurrency, we strongly advise that you include a step by step guide in accessing your cryptoassets within this letter of wishes.
We offer a free consultation appointment and would be happy to discuss any questions or concerns you have around digital currency.