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At their very core, digital assets are digital representations of almost every kind of tangible or intangible assets and their associated value. Furthermore, they permit issuing and transfer of ownership without the requirement for paper documents. Digital assets may include cryptocurrency, NFTs, images, data, equities, real estate, commodities, even cash in the form or CBDC and stablecoins, and many more.
According to economist, Philipp Sandner: “Digital assets have been dubbed the future of capital markets due to the diversity and usability of investable assets which will radically and significantly increase in the coming years.”
Types of digital assets include (although are not exclusive to): websites, photography, audio-visual media, logos, illustrations, presentations, spreadsheets, digital paintings, word documents, animations, electronic mails, and a variety of alternative digital formats and their individual metadata. The amount of various forms of digital assets is exponentially increasing thanks to the rising number of devices that are conduits for digital media, and particularly the expansion of the digital space - for example, smartphones. Due to explosive growth of software applications in the 2000s, vast diversity of user touch points and the rise of blockchain-based assets, the digital assets universe is growing.
What happens to digital assets if the owner dies? (and you don’t have the password):
There are many instances of digital assets being lost forever, the moment the owner dies and does not leave a clue of a password behind for accessibility. Digital assets management is a core issue to consider since management of digital assets does not only involve how well you hold and store your assets when you are alive, it also covers whether or not your assets will be accessible when you die. In 2019, it was reported that when the CEO of QuadrigaCX, Gerald Cotton, died, this resulted in the company’s customers' cryptocurrency assets being unobtainable since no one else had access to the password of the company's cold wallet. Resultant from this was that customers of Quadriga lost entire life savings.
How can a dead man’s digital asset be recovered?:
The new generation of digital assets, which includes non-fungible tokens, cryptocurrency, tokens, tokenised assets, security tokens and central bank digital currencies (except the Chinese CBDC), are all based on blockchain technology which may pose great danger if the password to access a digital wallet is lost. It is advisable for those who own digital assets to set up a ‘dead man’s switch’ so that assets can be accessed in case of emergency. If you don't possess cryptocurrency yourself, chances are you are related to someone who does. About 16% of American adults say they have used cryptocurrencies and it seems that the % of people owning some form of digital assets is set to increase. Cryptocurrencies are no longer new but remain exciting, and many people certainly do not wish to miss out on what could be the next big investment trend - such as Web3, NFTs and decentralised autonomous organisations (DAOs). But new crypto investors do not necessarily think about what might happen to their digital assets in the event of an untimely death. This is bad news for many since currently there is no established way to ensure the passcode is passed on to the next relative. Without a plan, owners of digital assets can die and leave their heirs with no way in which to recover or obtain access to their assets.
Cryptocurrencies are typically stored on a blockchain, this being a digital ledger formed by a network of computers around the world to record transactions (including the exchange of cryptocurrencies). People usually make these transactions using public and private keys. The public key acts like a bank account number and acts as an address that you can use to send cryptocurrency to others. The private key functions as a password and consists of unique, extremely long strings of characters to unlock your cryptocurrency. However, unlike other types of passwords, private cryptographic keys cannot be recovered once they are lost or forgotten. This means that without these keys, people who have the right to inherit the cryptocurrency from their relatives will not be able to obtain it.
Can lost or stolen cryptocurrencies and digital assets be recovered?
Cryptocurrencies have long been a target for cybercriminals, whether it's directly hacking your wallets or attacking exchanges. If your digital assets weren't hacked from a wallet, but you have been scammed, check out the Cryptocurrency Scam Guide. Once your digital assets are stolen, it is very unlikely that you will get them back. In theory, it is possible to track your stolen digital assets by monitoring the appropriate blockchain - however, in practice this is difficult due to both the anonymous nature of the currency/assets and the fact that thieves are very likely to use a cryptocurrency exchange to instantly exchange your assets for cash. However, digital assets leave a trail and you may be able to trace the identity of the criminal. According to comparitech, “the biggest cryptocurrency hack so far happened in 2018 and the amount stolen was estimated to be around $532 million.” Note that securing your digital assets is advisable, which is easier than losing them and then trying to recover them i.e. prevention is better than cure. Companies, such as Safe Haven and Casa, fundamentally permit human beings to fasten their crypto keys inside numerous layers of other private keys that could then be made available to numerous human beings. Whilst this technology is meant to make crypto inheritance easier, it may additionally result in a few complex procedures. There are also cases of having your digital assets stored on exchanges such as Binance, Coinbase and eToro which, when the owner dies, the assets may be claimed if the beneficiary can tender a proof of ownership.
Tracing and recovering stolen or lost digital assets presents a chain of challenges and, following the quality asset recovery rule, in this context it might not yield fruitful results. However, inventive and capable use of existing legal tools and remedies (obtainable underneath each economic condition and non-insolvency law) may produce a pathway to realising recoveries for creditors and victims. Digital assets investors should take the necessary step to make their token accessible to their relatives in case of untimely and unexpected death. As we see more people using digital assets, whether that be using digital currencies or investing in digital mutual funds, the issue of how they are stored and ultimately passed on to beneficiaries will become increasingly important for more and more people.