What to expect in this article:
- What are digital assets
- Digital Asset definition
- Digital Asset Investor
- Digital Asset holding
- Digital Asset Estate Planning: Protecting and passing your Digital asset wealth
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An asset is something of value owned by an individual or a company. Digital asset then refers to an asset in digital form that is owned by an individual or a company.
Using this generic definition, all forms of digital creation can be regarded as a digital asset, like a YouTube video, a picture, an electronic design, a game, code, so on and so forth.
Any asset, that is something of value, in digital form can be a digital asset.
Digital Asset definition: digital assets in the context of Blockchain and cryptocurrencies
Blockchain has bred a new asset class called cryptocurrencies. The king of all cryptos is obviously Bitcoin. Outside of Bitcoin, there are over 5500 cryptocurrencies in the market and growing.
We are witnessing a plethora of assets that are being brought to life through blockchain technology, including:
Bitcoin: Considered as Gold 2.0 and the basis on which Web 3.0 is being built. Most popular and most expensive of all cryptocurrencies in the market
Utility Tokens: Native cryptocurrencies that are used on the different blockchain networks that are utilized in providing the services on that blockchain. Most cryptocurrencies in the market fall into the category of utility tokens, however, SEC is looking to categorize them all as ‘security tokens’
Stablecoins: cryptocurrencies that are backed by fiat currency or gold or other physical assets to back up the value of the stablecoins. These are used as hedge against the crazy volatility of the cryptocurrency market
Security Tokens: The concept of tokenizing any asset, tangible and intangible, into tradeable tokens is revolutionizing the way capital has been raised historically. For instance, a company in need of additional capital could offer up the equity in a machine that produces $50,000 in revenue a month for $1,000,000 at $10,000 in each token. These 100 tokens will then be entitled to receive $500 each. The token holders can either receive the $500 a month or sell their tokens to others who are interested at any price they like. This concept could be applied to any asset including machinery, real estate, patents, contracts, invoice discounts, etc., The potential to tokenize is just mind boggling
Crypto Collectibles: For those of you who have been in the crypto space during the crypto kitties debacle that choked the Ethereum network, you will remember that these cutesie digital things sold for thousands of dollars.
NFTs: Non-Fungible Tokens are tokens that cannot be replicated or replaced. For instance, if I give you $100 as a loan – there is no need for you to return the same $100 bill when you repay the loan. However, if I give you a $100 bill signed by Abraham Lincoln – I expect that same bill when you return it. The generic $100 bill in our example is the equivalent of a fungible token (you can replace/interchange) and the bill signed by Honest Abe is the example equivalent of a non-fungible token.
DeFi Platforms: A lot of Decentralized Finance platforms (and protocols) are swarming the blockchain and crypto space that are looking to bring the traditional financial services like lending and borrowing to the blockchain.
Each day a new type of crypto asset comes into the market. All the various types of existing and emerging crypto assets fall into a broad basket of ‘digital assets’ in the context of blockchain and cryptocurrency space.
Digital asset investor
Most individuals who invested in bitcoin and other cryptocurrencies only 5 years ago were considered as nerds or criminals or anarchists or all of the above. However, the rhetoric has now changed.
With companies like Fidelity, NASDAQ, paving ways for traditional investors to enter the digital assets place, the digital asset investor now includes innovators and early adopters. The digital asset investor will soon include early majority (mostly millennials) and later many mainstream investors that will form the late majority.
By the time laggards make their way to the digital assets, they would have already become mainstream.
The potential to move from innovators to early adopters to all the way to majority class, there is a vast room for digital assets space to grow.
At the minimum, if they hit the gold market cap – that would itself put the digital assets space at 6 Trillion dollars. However, many industry experts claim that digital assets will probably surpass the stock market value in the future as the stock market itself will be mobilized on blockchain.
This will put the digital asset investor value at over 80 Trillion dollars.
The key differences between traditional digital assets and digital assets on the blockchain:
Digital assets have existed before blockchain and bitcoin. For instance, eBooks, articles, copyright material, pictures, videos, and many more that only existed in digital world were all considered digital assets. However, with the evolution of blockchain, it becomes important to understand the difference between traditional digital assets and digital assets on the blockchain.
|Traditional Digital Asset||Digital asset on the Blockchain|
|Hackable and not easy to trace||Arguably non-hackable|
|Lack of privacy||Highly secure and can be made private|
|Difficult to claim ownership||Easy to establish ownership|
|Difficult to monetize ownership||Easy to monitor and monetize ownership|
Digital Asset Estate Planning: Protecting and passing your Digital asset wealth
The issue of safeguarding and passing the crypto wealth to your loved ones in case something happens to you has been a topic that has been gaining considerable momentum. Rightfully so.
We have all heard about the stories of people who passed away suddenly taking crypto wealth with them because they did not have any Digital Asset Estate Planning in place.
For instance, Michael Moody’s dad could have benefited from having access to his son’s crypto wealth, however, there is no way to facilitate this when the crypto is left without a legal heir.
Existing Digital Asset Estate planning options
- Exchanges like Coinbase/Custodial services
If you are among those who trusts Coinbase with their crypto wealth, you are in luck.
Coinbase makes it easy to transfer your crypto wealth to your loved ones. Simply follow the steps laid out by Coinbase here to pass on the crypto wealth.
Few exchanges also have similar protocols in helping transfer the cryptos held on the exchange to your legal heirs.
Some of these exchanges offer custodial services through third party custody providers like BitGo.
“This is how this works. You write a few e-mails and choose the recipients. These emails are stored privately until they’re sent. Your switch will email you every so often, asking you to show that you are fine by clicking a link. If something were to… happen… to you, your switch would then send the emails you wrote to the recipients you specified. Sort of an “electronic will”, one could say.”
While this solution is a very simple one, it may not be the best option for passing your crypto wealth. or one, you want to send the details of your wealth to someone you trust with your life. Two, what happens you are stuck somewhere or get so busy that you don’t check emails and you accidentally trigger an email with sensitive information to your crypto wealth?
The company itself advises users to not use it for non-casual purposes such as passing your crypto wealth, “That having been said, this service is meant for casual use by the average person. Please don’t use the service if you need strong guarantees of privacy, e.g. if you are a whistleblower or any similar life-and-death situation. It is NOT meant to safeguard against high-value messages,” the site warns.
- Old school notebook & locker
You could write down your passwords, private key information in a notebook and secure them in a safe or bank locker and include these as part of your will.
Obviously, there is danger that your heirs may not know how to access the crypto wealth or someone else could get the information from the notebook. This method should only be used by those who have ways to secure the notebook with private keys and passwords with their cash and gold.
- Hardware wallets
There are a lot of hardware wallets that you can use to secure your crypto wealth. You want to ensure that someone in your family knows how to access the wallet.
Existing Digital Asset Estate planning projects
Where there is a problem there are bound to be solutions. Crypto inheritance is a big problem for the industry and there are projects that tackle this problem:
- TrustVerse: TrustVerse offers Digital Wealth Management Solution through its DApp called Pluto a “blockchain platform innovated to provide stability to users and their beneficiaries with proper inheritance services.” TrustVerse helps with the crypto inheritance “in case of a sudden death of the predecessor, the beneficiary(s) will need to submit the individual’s certificate of death to withdraw his/her digital assets. In the case of multiple beneficiaries, the approval of the death certificate’s validity by all the beneficiaries is necessary.”
- SafeHaven: Safehaven provides many services that aim to help crypto onramp to the mainstream. Among these services is their inheritance solution. SafeHaven site states that it is “building financial, asset management and inheritance solutions on the blockchain
- Casa: Casa offers solutions that can work with your existing estate lawyer and your loved ones to make sure you pass on the wealth when it’s time and without failure.
What if these companies shutdown?
- Crypto is a relatively new space. One company providing the crypto inheritance service called DigiPulse is already out of business and its website is on sale. You have to consider what type of team, sustenance model and history is behind the Digital Wealth Management Solution that you choose.
Helpful tips for Digital Asset Estate planning
In addition to the above listed solutions in the market, consider these tips and as always, consult a professional for specific advice.
- Will: Make sure you reference the existence of your crypto wealth in your will
- Power of Attorney: Designate someone you trust with power of attorney that covers your crypto wealth
- Have joint deposit boxes: consider having joint deposit boxes with your loved one and securing your private keys in the safety
- Have redundancy but avoid too much duplicacy: Do not store all your crypto assets in a single hardware wallet, or single exchange, or single location. Spread it. Have at least 1 back up for each holding (for instance, if your hardware wallet is destroyed or lost, have a backup to recover these assets through private keys)
No one can foresee the future and it is always better to be prepared for your own sake and for the sake of your loved ones.
Thank you for reading and sharing this article. Stay safe and healthy!
Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.
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