Jimmy Song recently published a great article about what the Taproot upgrade could be for Bitcoin estate planning (video here). Taproot is the recent upgrade to the Bitcoin protocol, and we’ll do our best to outline Jimmy’s article in layman’s and through the lens of an experienced executor.
What are scriptspends?
Taproot has added programmable spend instructions called scriptspends. As Jimmy writes, “Taproot essentially allows you to have as many alternative conditions for unlocking your Bitcoins as you want, making the addition of recovery options to be easy.”
In past blogs, we’ve discussed other solutions like an emailed dead man’s switch and sharding your phrase into several pieces. This upgrade potentially does away with all of that while using more elegant solutions.
Cryptocurrency tools keep evolving for the better, and we can’t wait to see ideas get developed.
Potential recovery options with Taproot
With Taproot, you can “recover your UTXOs with a 2-of-5 multisig of 5 friends that don’t know each other.”
I am not sure how this is different from existing multisig solutions. Perhaps Taproot just makes it easier to implement a multisig? If you can enlighten me, please send me an email or comment.
2. 1-year time lock
This seems to be a type of “unclaimed funds” mechanism, where after a year of inactivity, access switches to a key held by a third party. As long as you access this Bitcoin once a year to show that it is an active account, nothing happens. But inactivity after 1 year authorizes the scriptspend to automatically give a third-party a key to access. Perhaps this should be a default setting for new wallets.
Just like searching for unclaimed bank accounts after someone has died, this recovery option gives someone a way to recover, rather than being lost forever.
3. Degrading multisig
Jimmy writes that you can ”recover using a gracefully degrading multisig of 3 of your family members where 3-of-3 is for immediate recovery, 2-of-3 after 6 months and 1-of-3 after a year.”
For example, after 6 months of inactivity you would need 3 keys to spend. But after an another 6 months, sort of assuming you don’t have access to 3 keys, your multisig requirement would reduce to just 2 keys. And eventually to just 1 key. Again, in the name of avoiding catestrophic loss.
This is all to make up for the fact that Bitcoin is not like a regular bank. If you lose your password, there is no password recovery. You need multiple contingency plans, otherwise, it’s gone. You’re probably more likely to lose your password than to be hacked!
With scriptsprend, these options seem to be only limited by imagination of programmer. That’s very encouraging.
Private recovery options
Jimmy notes that “you only have to reveal the recovery method when you spend using it, so your friends don’t even have to know that they’re part of your backup plan! You just have to present them with what needs to be signed.”
So, if you name 3 people as your multisig members, they don’t have to know that they are back-up signors to a transaction. Similarly, you don’t have to tell someone that they are your executor; they can discover that upon reading your will.
The problem with this approach is that it assumes everyone knows how to (or is familiar with) use private keys. I’m not so sure this is realistic; we’re just not at that point in time yet. Maybe you have enough tech-saavy signors in your group to meet a quorum. Perhaps you can use Unchained or Casa as a back-up. Or maybe even a Bitcoin-savvy professional executor?
In this stage of development, it’s probably not smart to rely on 3 family members with digital signatures. You’ll need one or more people/companies who are familiar with the technical requirements.
If you want to learn more about how a professional executor can help , check out my book, “How to Hire an Executor,” available on Amazon. I don’t have a Bitcoin chapter yet, but you’ll get a sense of how choosing a professional can make things easier, especially for something complicated like an estate that includes Bitcoin.
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