The traditional finance world already has a well-established legal framework to deal with the death of an account holder. Guided by probate courts, banks contact “next of kin” to receive the assets of the dead owner as their rightful heir. This is not so clear-cut in the world of Decentralized Finance(DeFi). The approach used by traditional finance runs into the obstacle of the philosophy of decentralization: “Not your keys, not your coins.” While this philosophy is empowering for the living, it poses a black hole risk for dead people.
“Is there life after death?” is one of the most profound questions ever asked, and it is also unanswered. We can’t answer that question, but we can try to explain what happens to your digital assets if you die.
The Technical Barrier: The Problem of Private Keys
Private keys are the ultimate proof of ownership in DeFi, and they are used to secure digital assets. There is no mechanism for recovering forgotten keys in the decentralized world. This means that if a user does not share their private keys with their next of kin before dying, the assets would be lost on the blockchain forever. They do not disappear in the literal sense, as they still exist at the address. They just cannot be accessed again. There are millions of Bitcoin tokens that have been lost due to lost private keys. Crypto users can create a mechanism that provides their heirs with the location of their private keys in case of their death.
Centralized Exchanges vs. Self-Custody
If your assets are kept on a centralized exchange like Binance or Coinbase, there is a similar mechanism for dealing with dead users. Next of kin can usually gain access to the dead user’s account by providing a death certificate and proof of inheritance.
However, if your assets are stored in a private wallet, the only one who can ensure your heir gets your assets if you die is you.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
