Wikipedia defines cryptocurrency (or crypto currency) as a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.
The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. Transactions are recorded on a published ledger that identifies the transactions but does not identify those conducting the transactions.
Bitcoin first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency. Since the release of bitcoin, over 6,000 altcoins (alternative variants of bitcoin, or other cryptocurrencies) have been created.
It does not have legal tender status. The Government of Canada has stated that cryptocurrencies are not a form of legal tender in Canada (i.e., they are not money), and a few Canadian banks have banned the use of cryptocurrencies as a part of banking transactions. Backers of bitcoin (which has been referred to as “digital gold”) claim it is on its way to being recognized as real money.
Fans of gold bars, coins etc. claim that fiat money (paper money made legal tender) has no inherent value and therefore it inevitably declines over time. They contend that gold, on the other hand, continues to hold value (increase?) and has done so for centuries. The question becomes what the inherent value of the bitcoin is and how will it hold (or even yet redefine) value over time.
As it applies to wills and estates, and assuming they hold in value, cryptocurrency (in the form of bitcoin or others) presents unique challenges.
My fellow bloggers have commented on the challenges associated with estates that contain digital assets. First and foremost, executors/trustees must be made aware of the existence of cryptocurrency in the estate they have been asked to administer and managed. Perhaps the single most important consideration when estate planning with cryptocurrencies is ensuring that the executor knows which assets the estate holds and how they can be accessed. Access control mechanisms such as PINs, passphrases, multi-signature, or time lock requirements are key to administering the cryptocurrency.
While the selection of executors, trustees, and attorneys under powers of attorney is always an important consideration in estate planning, it is especially relevant when cryptocurrencies are involved. The information such representatives must be privy to creates considerable burden to those chosen to administer the estate and dare I write risk to the estate.
Holders of cryptocurrency can be quite capricious about how they store their digital keys and access codes. This is unsurprising, as these passwords allow for the access to digital wallets. On the other hand, if one is too secretive about these things, they run the risk of losing the code. And If this happens, there is often no way to recover access, and a wallet full of cryptocurrency tokens can go permanently unused I refer you to the QuadrigaCx saga as a case in point.
It appears cryptocurrencies are here to stay; however, they seem destined to remain too controversial for many. Ease of access vs. security, security vs. freedom from regulation vs. the rule of law, trusting individuals with the passcodes, etc. vs. naively leaving oneself exposed to someone who could not be trusted., etc.
Such conflicts are being addressed by practitioners, new technology, and new regulations. It will be interesting to see how this unfolds with time.