You've invested significantly in #bitcoin, creating a considerable stack with enormous potential. But have you ever pondered:
"If something were to happen to me today, would my Bitcoin assets pass safely and understandably to my chosen beneficiaries?"
Understanding the Challenge
Contrary to popular belief that the total number of bitcoins will eventually reach 21 million, certain studies suggest that the number of bitcoins truly available in circulation will never exceed 14 million. The reason for this startling revelation? Lost coins. It's estimated that approximately 4% of bitcoins are lost annually.
Bitcoins can become irretrievable due to several unfortunate events: a user might accidentally discard a device storing bitcoins, lose vital keys, or even pass away without leaving necessary arrangements for the transfer of keys. Close to 28% of all bitcoins have reportedly been lost irrevocably, reducing the current available supply to about 13.9 million coins.
The actual market capitalisation of Bitcoin, typically determined by multiplying the total supply by the price, is considerably lower due to the substantial number of irretrievably lost coins. By factoring in this missing supply, the actual market capitalisation is notably less than reported figures. However, the uncertainty regarding the exact available supply makes an accurate determination challenging.
In the light of this context, it becomes clear that Bitcoin's digital and decentralised nature, coupled with the possibilities of losing access, significantly complicates the safe transition of these assets to the next generation. A solution necessitates not just traditional estate planning approaches but innovative strategies that match Bitcoin's unique characteristics.
Estate Planning for Bitcoin: A Must
As with other assets, Bitcoin estate planning is crucial. No doubt, you want your wealth to transition to your chosen beneficiaries securely and without complication. But Bitcoin's inherently complex nature and its dependency on private keys for access necessitate novel estate planning approaches.
Ensuring Beneficiary Preparedness
However, ensuring safe passage of your Bitcoin is only half the battle. The recipients must also possess a comprehensive understanding of this digital asset. Remember, Bitcoin is not just a static asset; it's a dynamic ecosystem. Having a robust understanding of its mechanics, potential, and risks is essential to fully benefiting from the inheritance.
Educating beneficiaries about safekeeping practices, the importance of private keys, wallet operations, and the nature of the Bitcoin market are vital. It might also be beneficial to introduce them to trusted Bitcoin advisors who can guide them through their Bitcoin journey, ensuring they can leverage the inherited assets effectively.
Incorporating Multi-Sig and Collaborative Custody
Thankfully, the Bitcoin ecosystem offers solutions to these scenarios. Implementing a multi-signature (multi-sig) Bitcoin wallet can be a practical strategy. In this setup, multiple keys are needed to transact Bitcoin, similar to a shared safety deposit box. Combined with collaborative custody, it ensures a safe and smooth transition of your Bitcoin assets.
In a collaborative custody model, a trusted third party keeps one of the keys. This setup not only safeguards you from personal key loss but also ensures your beneficiaries can access your Bitcoin wealth if something happens to you.
Navigating Bitcoin investment and its implications for your estate planning can be complex, requiring a solid understanding of the technology and a considerate approach to security and inheritance planning. It's crucial to ensure that the wealth you've built won't be forever locked away in the event of your absence.
Your Bitcoin represents not only your investment skill but also a legacy for future generations. Consequently, ponder once again: "If something were to happen to me today, how confident am I that my Bitcoin will safely and understandably pass to my chosen beneficiaries?"
Remember, the challenge isn't only about amassing wealth in Bitcoin; it's also about ensuring its passage to those who matter most to you and guaranteeing their preparedness to manage and grow this unique asset.
To become a client and learn more about The Bitcoin Adviser, contact us today.