What is blockchain?
Blockchain is a comprehensive, up-to-date, digital ledger system that can record financial transactions and changes of ownership of physical assets. Every blockchain record is encrypted and time-stamped.
What makes blockchain so useful is the immutability, transparency, and decentralisation of it. Immutability essentially means that, once something is stored on blockchain, it cannot be changed or deleted.
What are cryptoassets?
Cryptoassets, like cryptocurrency and NFTs, are a form of digital wealth. They are commonly stored on blockchain.
Cryptoassets rely on blockchain wallets (ie applications that allow users to undertake transactions) to allow users to manage them (eg to sell them to someone else). Blockchain wallets store the public and private keys associated with an account on a blockchain. A public key is a code that allows users to receive cryptoassets into their account. A private key is a personal code (similar to a password) that enables users to authorise transactions and prove ownership of a cryptoasset. As a result, blockchain wallets allow users to authorise transactions, while also acting as a record of the user’s cryptoassets.
What is a smart contract?
Smart contracts are a form of software programme embedded onto blockchains, which can receive and send assets and information. Smart contracts are often automated or self-executing. The Law Commission has referred to smart contracts as ‘legally binding contracts in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program‘. Such computer programs include those run on blockchains, which can execute legal contracts automatically.
How could blockchain make lives easier for families?
Lots of people talk about the financial sector’s uses of blockchain and smart contracts, discussion of which has been dominating the media. However, blockchain has the potential for other useful applications. Estate planning and electronic wills are some of them.
The short answer is that wills can technically be written onto a blockchain. Electronic wills on a blockchain, also known as ‘cryptowills’, are already being created (whether or not these are valid legal documents is another question - we’ll cover that below).
These cryptowills could be highly beneficial. People are accumulating a lot of digital wealth these days, which can be lost forever after the key holder (ie the person with the private key) dies. This is due to the secure nature of the blockchain, which makes it inaccessible to anyone except the key holder. If the key holder dies without sharing their private key, their assets on the blockchain cannot be retrieved. One solution to this would be to write your will onto the blockchain, so that the will may be automatically executed as a smart contract. The testator (ie the person making a will) could list their assets and private key in their will to ensure that this information will be accessible to the beneficiaries (ie those inheriting under the will) and nobody else. This would make a cryptowill much safer and more secure than a traditional paper will, which could get lost or tampered with. Safe Haven, for example, gives users the opportunity to secure digital assets so that someone’s cryptoassets can be passed down to their beneficiaries safely and securely.
This technology could eliminate lengthy court battles arguing over digital inheritances.
Are there problems with this?
Smart contracts and blockchain are relatively new concepts and the further development of these will challenge some established legal rules and these rules’ interpretation.
Another key issue is enforceability. It’s debatable whether a cryptowill complies with section 9 of the Wills Act 1837. This section requires wills to be in writing and signed by the testator in the presence of 2 witnesses. But will an electronic signature suffice for a cryptowill? How will witnesses attest the testator’s signature?
Further issues arise with inheritance tax (IHT) and challenging a cryptowill. The UK has a 40% inheritance tax rate, but how would HMRC receive this? What would HMRC be willing to accept as a form of tax payment?
These questions have yet to be answered as the law in many countries worldwide (including the UK) still does not accept a will on a blockchain as a legitimate legal document. However, as this technology develops and becomes more and more tested, it may not be long before we see wills on blockchain become mainstream. In fact, the Law Commission is currently in the process of consulting on reforming wills laws to allow electronic wills.
How can I protect my cryptoassets currently?
Like all other assets, cryptoassets can be left in a will - that’s the easy part. The hard part is ensuring that cryptoassets can be accessed and transferred to the intended beneficiary. This is because the testator’s private key is needed to access the cryptoassets.
Much like passwords, private keys should be kept secure and private. As a result, details of a private key should not be left in a will. Because wills become public records once probate is granted, anyone who understands cryptoassets could easily read and use the testor’s private will to gain access to their cryptoassets before any beneficiaries are able to do so.
To ensure that cryptoassets are passed to the correct beneficiaries, without jeopardising the cryptoassets’ safety and security, consider:
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purchasing and storing your cryptoassets at a cryptocurrency bank and having the bank manage all keys on your behalf. The bank will act as a custodian. You can leave the details of the bank and of your bank account in your will for your beneficiaries
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storing your cryptoassets in a non-custodial multisignature wallet (ie you act as your own bank) and registering for a cryptocurrency inheritance solution. If you lose access to your wallet (including if you die), these services allow for multiple independent parties to come together to retrieve the cryptoassets on your behalf. You will generally be provided with a beneficiary card that sets out who your beneficiaries should turn to in order to access your cryptoassets
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storing your private key on a hardware wallet (typically an external, physical device like a USB or Bluetooth device), and store the hardware wallet somewhere safe (eg in a safe or vault) and provide instructions on how this hardware wallet can be accessed. This will enable your beneficiaries to access your cryptoassets when needed
You can make your will using our Last will and testament template. If you require a will that deals with complex digital assets, like cryptocurrency, consider using our Will writing service to create a well-tailored will. Ask a lawyer if you have any questions or concerns about digital assets and/or wills.
