11/28/22
I’d like you to consider a question we only seem to entertain in the throws of a bull market: what if we’re right? There is a very real chance that the wealth we will have acquired in a few dozen years from this whole internet of money thing will be life changing not just for you but for whomever you bequeath your assets to. With that in mind, I’d like to talk about crypto post-mortem. How are you managing potentially inter-generational wealth? Specifically, do you have an answer to a very important question: “Can they get the money?”
This is a separate question from “is the money secure?”. I wrote recently about how to safeguard your assets in a self-sovereign way. If you haven’t read that yet, I recommend starting with this post instead. Otherwise, cast your eye into the future with me. Spoiler alert: you are going to die; presumably. How prepared are your beneficiaries without you there to guide them? Are the instructions in your will sufficient? Do you have a Will executor on retainer with whom you have reviewed your instructions? Do you have someone who will be able to make sense of your transaction history and find the money? Will they know how to spin down a validator to withdraw your ETH, bridge funds from every alt-L1 you aped into last year, deleverage whatever degen position you have in Gearbox, GMX, or Dydx, redeem your ePyvCurveLUSD-27DEC21 so they can sell it, or pay back the loan you took on your favorite animal or part of speech NFT? For most people the answer is no. If even half of that made sense to you, you’re a web3 veteran. Don’t expect that expertise from your descendants.
By now I have had the opportunity to meet a good number of spouses and children of people in this space. When my wife and I ask them if they understand how to get the money, I’ve yet to receive a confident yes. Without exception every response has been either a nervous no or at best that they know someone in the community they could ask. This is a troubling pattern. These are the answers we get from people deep enough in this space they would bring their wives or children to a blockchain event where we could meet them and ask. The average situation must be worse.
What can you do now to help safeguard inter-generational wealth while you’re still in a position to act?
Minimum Viable Expertise
- Have a system to track your assets. Honestly, this also helps you as an investor. If a catastrophic event happens and you win a Darwin award tomorrow, where is the money? Before I started tracking assets I remember using Zapper for the first time and finding a Uniswap LP I’d forgotten about. It was like finding a few hundred dollars in the couch. But, Zapper/Zerion might not track everything or they might not be there forever. Some people used Blockfolio until FTX imploded recently and took it down. I audit my bad decisions on a monthly basis as a form of personal reckoning. Most of this is just a transcription of Zapper that takes 20 minutes. A few positions require me to check some website or other and get a number Zapper is missing. You don’t have to do this for everything but I at least track the location of my ETH and stablecoins which is the bulk of it. It also gives me warm-fuzzies to watch the interest roll in and helps with tax planning.
- Store the system in an accessible location. This doesn’t just mean share a file with someone; they will need to understand the software being used. You should account for the lowest common denominator of your inheritors. I personally have a Google sheet that is shared with my wife. A share url for this file is included alongside my private keys.
- Review the result at least once. My wife calls this the ‘teach a man to fish’ scenario. It’s also the only part of this that requires active participation by someone who might be receiving life-changing wealth from you. It seems like a fair ask but if they absolutely cannot be bothered or are illiterate then a video walkthrough can be stored alongside the file or you can meet with your Will executor instead.
- Have a lifeline. Get a community member to agree to be a touch point for questions. Exactly one out of 85000 subscribers on /r/ethfinance has asked me to fill this role. In the event there is no one willing to help you I advise being less of a grouch. Underneath a thick layer of scammers there is a core of good people in crypto. Engage with the community and be a good enough person to that community that people there are willing to help you. If that sounds intimidating maybe attend the next Hodlercon. Just saying, we were an amazing group of people who are likely to be in web3 for the rest of our lives.
A few other things depend on how you are transferring control of assets. I describe a system for securing/reassembling a private key in my Weakest Link post so I won’t rehash it here. However, there are valid reasons why you might not want to take this route.
- While your family is grieving your loss you might find it cruel to send them on a pilgrimage to collect engraved steel plates like they’re assembling Dragonballs. This isn’t some fun geocache exercise where they get to look at pretty waterfalls, collect POAPs, and receive heartfelt love messages like P.S. I Love You. Every step of reassembling key fragments is nerve wracking. Even having successfully recovered the fragments the process can be error prone, e.g. “what is a derivation path?”, and having them all in one place for decryption is outright dangerous.
- Giving someone your private key is basically giving someone access to both your assets and your identity. You may prefer to be dead without someone playing Weekend at Bernie’s with your online identity.
That said, I offer two alternatives to handing off assets that don’t involve reassembling a private key.
Social Recovery
This always involves some form of multi-sig. Unlike a Gnosis safe, an argent wallet has a single privileged controller address which can execute transactions on its own. However, there is a set of recovery addresses that can work together to change the controller address. While simple, this approach is not without its downsides:
- If the recovery addresses are accessible to people you are adding a layer of trust.
- This will prevent you from interacting with certain Defi protocols like Alchemix that prohibit contract interaction.
- The multi-sig address, not the controller address, is still effectively your identity and this hasn’t addressed that concern.
Dead Man’s Switch
There are two protocols I’m aware of building a dead man’s switch solution: Will3 and Sarcophagus. Instead of passing control of the address you grant ERC-20 approval to a contract that a keeper maintains. You then occasionally execute a “proof of life” transaction. This could work in different ways but the simplest is just whether any transaction has occurred on your address in the allotted proof of life window. A more likely solution is that the proof of life transaction is specific to their system and also pays them. The dead man’s switch kicks in after some time of inactivity and when it does the approved assets are migrated from your account and distributed according to a policy you specify.
Now this may sound insane at first but the token approval can be granted to an audited smart contract with all the rules required to do this safely. At minimum you can verify that the keeper can’t just rug you while you’re alive, actively using the address, and paying them.
The main advantage here is this solution is the simplest for your loved ones. Behind this system is a company. That company can reach out to your loved ones after the assets are recovered and provide all the knowledge and assistance they need (for a price) even if they have never used an Ethereum wallet before in their life. Of course, it’s not a perfect solution either:
- There is maintenance work and gas in keeping all your approvals up to date.
- You are adding a layer of trust that the keeper follows through when the proof of life window expires.
- The keeper takes fees.
- There are assets which can’t be approved this way such as native ETH, validator withdraws, deposits to certain protocols like Alchemix that don’t return an LP token, or things like veCRV which eventually require an unstake call before it can be moved.
- You can rug yourself by not signing the proof of life transaction in time.
On the first point there is some hope on the horizon with a new Uniswap widget called Permit2. I’ve also written a little about another angle on the same problem that uses policy based access control and multi-sigs. On the second point, the biggest missing component is some form of on-chain notary of fiduciary equivalent for digital asset estate managers. This is a great opportunity for regulation actually. Since keepers are people, regulation can enforce that they behave in honest ways. As someone entering that system I’d like to know the jurisdiction of the keeper and my legal resource if the keeper should fail. I also think there should be some formal legal process for seamlessly transferring the legal duty of the keeper from one entity to another. Lastly, I’d like to see an on-chain death certificate that could be used in addition to a time-based proof of life system. There are obviously challenges to privacy with that idea but zero-knowledge proofs can probably solve those challenges.
Perleflamme also pointed out an alternative proof-of-life system to me that doesn’t require the keeper (for good and ill) but otherwise has all the same drawbacks I list out above.
The Tax Man Cometh
In this world nothing can be said to be certain, except death and taxes.
Benjamin Franklin
I think we’ve covered the death part sufficiently. Let’s say optimistically that your funds have been possessed at this point. While I’m not going to do a full treatment of estate planning strategies you could apply to crypto here (that may be another post later if I find enough interesting things to say) I will at least point out briefly that the pain doesn’t stop with just transferring the assets. Before the first tear hits the ground you can expect the tax man will come knocking to offer their condolences steal some of your money. If you do nothing to legally transfer the assets to something like a Crummey Trust then the tax man will need an inventory of your assets at the time of death. This is one of the immediately useful points of the tracking system I suggested above. Beyond that, this is a topic that you can and probably should spend several hours with an estate planner the next time you look at your portfolio and feel that burning itch in your chest that makes you screenshot that Zerion or Zapper page.
What I Do
Most of the suggestions above are actually self-serving and just good hygiene in general. It’s solid advice that probably should be your next step after you go self-sovereign with your assets. In our house my wife knows how to recover my private key and interpret my asset tracking sheet. Failing that, for example if we both die from the same event, our Will executor has notes and a few points of contact I trust from the community. All of the complexity for us lies in reassembling the private key. I consider that process as bulletproof as I can make it. The main takeaway I leave you with is to do a little advance work now while you can. It can make the difference of a lifetime for whomever you want to take care of.