E326 Why Not a Deadman’s Switch for Bitcoin Inheritance

E326 Why Not a Deadman’s Switch for Bitcoin Inheritance?

A deadman’s switch is a seemingly elegant and trustless solution for bitcoin inheritance. But if you think it through, it currently has too many problems to work securely.

A deadman’s switch is a protocol or mechanism where, if the creator misses a periodic check-in (ex. push a button every 3 months, reply to a monthly email, etc.), it’s assumed the creator has died and will trigger an event.

Types of bitcoin dead man switches

Types of bitcoin dead man switches

With the first type of deadman’s, upon failure to press the button, a pre-loaded transaction executes. Imagine that you set up your E*Trade account to sell a certain number of shares for a certain amount. Similarly, everything is “loaded up” in your bitcoin deadman’s switch, and the pre-loaded transaction automatically executes if the check-in is missed. What happens if you miss the check-in not because you are dead, but because you forgot? It all depends how you set up your plan. So it would be wise to have multiple check-ins required before the event is triggered.

With another type of bitcoin deadman’s switch, upon failure to press the button, a secret gets delivered. The secret may be your seed phrase or pass phrase, and gets delivered by email, telegram, or phone call or sms text. to your heir or executor.

Problems with a deadman’s switch that executes a bitcoin transaction

Problems with a deadman switch that executes a bitcoin transaction

First, this creates a beneficiary problem. Even in non-bitcoin scenarios, people name beneficiaries on their accounts in order to bypass probate and distribute the account directly to the beneficiary without any supervision.

The problem with naming beneficiaries on your life insurance, IRA, etc. is that people often forget who their beneficiaries are and they forget to update their beneficiary designations. Maybe they named an ex-girlfriend or a since-disowned relative.

Bitcoin is also ever-changing and could be worth way more or less at the time of your death. You won’t know for sure how much your beneficiary will receive from this pre-loaded transaction. That’s a hard thing to try to keep up to date.

If you forget about this pre-loaded transaction and it’s not up to date, it probably conflicts with the rest of your estate plan. Say your plan was for Alice, Bob, and Charlie to each get a third of your wealth. You figure that your stocks are worth about 1/3, your bitcoin is about 1/3, and your house is about 1/3. It seems clever enough to leave one of those to each of the beneficiaries, right? What happens if the assets fluctuate wildly in value in the remaining years until your death? Now your heirs won’t receive equal shares of your wealth like you intended.

Another problem is that your bitcoin is stuck in the UTXO, which is a problem for creating pre-loaded transactions. You can’t move the UTXO without setting up a new deadman’s switch. It’s like having a bank account that can only have a beneficiary designation as long as you never withdraw or deposit into that account. You can never move the account to another bank. This only makes sense for the portion of your bitcoin that you plan to keep in deep cold storage. It’s like a treasure chest that you bury.

The last problem with this plan is that the transaction must execute to an heir’s wallet. What if your heir doesn’t have a bitcoin wallet? Even if you set up a wallet for them, will they know how to use it? Do they know how to secure their seed phrase? You can set up a custody wallet on an exchange like Coinbase, Kraken, or Gemini. But most bitcoiners with self-custody don’t want their bitcoin going into a third-party wallet for their heirs.

Problems with a deadman switch that delivers a bitcoin secret

Problems with a deadman switch that delivers a bitcoin secret

This plan has horrible operational security. You must write the secret (seed phrase, pass phrase, PIN) on a hot (online) computer. You must be able to trust the service’s servers, encryption, etc. And remember that the secret will be delivered via email, telegram, phone call, or sms text. This plan does everything you’re told not to do with self-custody operational security.

You could instead use a multisig or shard your seed and give pieces to different people. But if you use those solutions, then you don’t even need a deadman’s switch. Why add another layer of complexity to a complex situation?

A deadman’s switch seems attractive, because you don’t have to trust anyone. But if you walk mentally through the scenario, you can see that using a deadman’s switch isn’t a great solution. Probate is a complicated process and adding bitcoin to the mix brings a whole new level of complexity. To learn more, check out my book, “How Probate Works,” available on Amazon.

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