Summary: A devastating blow to the cryptocurrency exchange serves as an unfortunate but timely reminder about the importance of careful estate planning. A person who has invested in bitcoin needs to develop a means of passing the account information to their heirs and/or estate executor. Without this information, no one else can recover any funds from the account.
A devastating blow to the cryptocurrency exchange serves as an unfortunate but timely reminder about the importance of careful estate planning. In December 2018, Gerald Cotten, the CEO of the cryptocurrency startup QuadrigaCX, died suddenly of Crohn’s disease. He was only 30 years old. Cotten stored most of QuadrigaCX’s cyptocurrency holdings in cold wallets on an encrypted laptop. (Cold wallets are digital wallets that store valuables offline so as to prevent security hacks). Although this is a standard security practice, when Cotton died, he took with him the passwords to access both his laptop and the cold wallets. He was the only person known to have access to that secure information. As a result, the cryptocurrency exchange lost at least $137M of customer assets, plus additional funds that were automatically transferred into the cold wallets following Cotten’s death.
But the problems continued to get worse. Jennifer Robertson, Cotten’s widow, hired I.T. experts to decrypt the laptop. Courts in British Columbia, where QuadrigaCX is based, also appointed auditors to investigate the cryptocurrency accounts. The auditors recently reported that Cotten moved QuadrigaCX’s bitcoin into six cold wallets, but those wallets were empty in April 2018 – eight months prior to Cotten’s death. In other words, the auditors have yet to find where the millions of dollars have gone. More than 115,000 QuadrigaCX customers cannot access their money, and it is unclear whether they ever will.
Cotten’s death and the missing QuadrigaCX funds exemplify one of cryptocurrency’s largest issues. While these exchanges are designed to be secure, the transactions rely mostly on human gatekeepers. Cryptocurrency is often anonymous and does not carry beneficiary designations, so if a person dies without letting their heirs or estate agent know about the account and how to access it, those funds could be gone forever. A person who has invested in bitcoin needs to develop a means of passing the account information to their heirs and/or estate executor. They need a plan in place in case of unexpected events. He or she should document the type of cryptocurrency, where they purchased it, how much they purchased, where the cryptocurrency is stored, and how to access the account (both the storage device and private username/password). Without this information, no one else can recover any funds from the account. It is also a good idea to update any Power of Attorney documents to allow the person’s agent to access all financial affairs, including digital assets and cryptocurrency accounts.
For more information about bitcoin and cryptocurrency, you can read our blog Estate Planning for Cryptocurrency. If you have additional questions or would like to set up an estate planning consultation, contact Siedentopf Law via our website at EstateLawAtlanta.com or by calling (404) 736 – 6066.
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