Protect Your Bitcoin Wallet After You Die

Original Post Date: May 13, 2013 on thegenesisblock.com (now Tradeblock.com)

Estate planning is an essential consideration for everyone that has assets to pass onto their beneficiaries. Since bitcoin functions as a store of value, it is important to treat bitcoin similar to any other asset.

One of the goals of a bitcoin wallet owner is to secure his/her wallet so others cannot gain unwanted access to it. This security also prevents your loved ones and beneficiaries to gain access to your bitcoins in the event of your death unless you have planned for it. For this reason, it is very important to consider the options you have to plan for this situation. In this article, we’ll show you five different ways to solve this problem.

Create a copy of your bitcoin wallet file

Creating copies of a wallet file can allow for multiple people to have access to the same funds. This is the quickest and easiest method to pass your bitcoins on; however, it is also the least secure.

Advantages:

  • The entirety of your wallet is inherited by your beneficiary; not just specific addresses.
  • It is easy and quick to do.

Risks:

  • Whoever has a copy of your wallet file needs to be just as vigilant maintaining security of the file as the original owner. If access to your wallet file is gained by an untrusted 3rd party, all of the wallet’s funds can be stolen.
  • The beneficiary has access to your wallet at all times, so a great level of trust is needed between the original owner and the beneficiary.
  • Depending on the bitcoin client being used, the beneficiary will only have access to the addresses that were available when the wallet was copied.

M-of-N Transactions

Within the bitcoin protocol, there is the ability to send transactions where multiple signatures are required. M-of-N transactions are transactions where N parties are eligible to sign the transaction, but only M signatures are required to validate a transaction. One specific application of this is used in dispute mediation, where 3 parties are involved: the sender, the receiver, and the mediator. If the sender and the receiver agree to the transaction, the funds are sent to the receiver. If the sender or the receiver are not satisfied, they can see the dispute mediator and the mediator can sign off with whichever party it chooses based off the circumstances.

For estate planning purposes, you can send a transaction to your beneficiary that requires 2 of 3 parties to sign. The parties involved can be you, your beneficiary, and a 3rd party (e.g. a company that specializes in wills). If you pass away, your beneficiary and the 3rd party can sign and the bitcoins will transfer to your beneficiary. If you are still alive, your beneficiary signing it without the 3rd party will leave the transaction in an invalid state.

Advantages:

  • After your death, a will service company and your will executor make the decision to execute this order only after you die. (proof via death certificate, etc.)
  • The transaction type already exists in the bitcoin protocol, so it is easy to implement immediately. There is nothing stopping you from creating this transaction yourself.
  • M-of-N allows for more than just 3 parties. You can have as many parties’ signatures as you want.
  • Wallet security – The receiver of this transaction does not have access to the bitcoin wallet; only this transaction.

Risks:

  • The bitcoins would need to be “frozen” in this address.This method requires a sending address and receiving address to be written into the transaction. In order for this bitcoin transaction to be able to be validated in the future, the sending address can’t be used.
  • The parties involved need to secure their keys. If these keys are lost or compromised, the transaction may not be able to be validated in the future

Dead Man’s Switch

Expanding on the M-of-N solution, one of the parties in this type of transaction could be a computer server that verifies if a user-provided expression is true. This type of computer server is known as an oracle. The oracle has its own unique key and has the ability to sign a bitcoin transaction. The oracle can evaluate whether a person is dead or alive by checking death certificate databases. If it finds a death certificate for the person it is looking for, it will sign a transaction transferring the bitcoins to the beneficiary.

Not these oracles.

Not these oracles.

 

A very simplistic oracle example is a dead man’s switch. This program will email you at a specific interval asking if you are alive. If you are, you respond by clicking a link in the email. If not, the program will wait and email you again. If you don’t respond after a number of tries, the oracle will activate the switch and sign the transaction to transfer the bitcoins.

Advantages:

  • Wallet security – The receiver of this transaction does not have access to the bitcoin wallet; only this transaction.
  • The beneficiary simply has to broadcast the transaction. You don’t need any other parties to sign the transaction since it already has been signed when you created it.
  • The transaction type already exist in the bitcoin protocol, so it is easy to implement immediately. there is nothing stopping you from creating this transaction yourself.

Risk:

  • This method requires a sending address and receiving address to be written into the transaction. In order for this bitcoin transaction to be able to be validated in the future, the sending address can’t be used. This effectively means that these bitcoins would need to be “frozen” in this address.
  • If the granddaughter loses the transaction and cannot broadcast it, the bitcoins will never be transferred. The security of the transaction is of utmost importance.

Lock time transactions

A lock time transaction can be submitted to the network but won’t be accepted until the time specified on the transaction is valid. Think of this as post-dating your checks with a future date.

If a grandmother wants to leave an inheritance to her granddaughter, she can create a lock time transaction with a lock time of 1 year from the current date. The grandmother could broadcast the transaction right away but the nodes of the bitcoin system may decide to drop transactions that are locked to a date so far in the future. For this reason, the grandmother should sign the lock time transaction with her private key and provide the transaction to her granddaughter to broadcast to the bitcoin network when it is valid. If the grandmother is still alive when the transaction lock time is valid, the grandmother can cancel the validity of the transaction by transferring the bitcoins from one bitcoin address to another. Since the original lock time transaction is defined by specific input address/es and output addresses/es and a specific amount of bitcoins, changing the status of the input addresses/es will invalidate the transaction. At this point, the grandmother can create a new lock time transaction for 1 year from today. This cycle can be repeated until the grandmother passes away and the granddaughter broadcasts the valid lock time transaction to the bitcoin network and the bitcoins are transferred.

Advantages:

  • Bitcoin wallet security – The receiver of this transaction does not have access to the bitcoin wallet; only this transaction.
  • The beneficiary simply has to broadcast the transaction. You don’t need any other parties to sign the transaction since it already has been signed when you created it.
  • The transaction type already exist in the bitcoin protocol, so it is easy to implement immediately. there is nothing stopping you from creating this transaction yourself.

Risk:

  • This method requires a sending address and receiving address to be written into the transaction. In order for this bitcoin transaction to be able to be validated in the future, the sending address can’t be used. This effectively means that these bitcoins would need to be “frozen” in this address.
  • If the granddaughter loses the transaction and cannot broadcast it, the bitcoins will never be transferred. The security of the transaction is of utmost importance.

Shamir’s Secret Sharing

This is a form of secret sharing popular in the cryptography community. For the technical details, please see a white paper on it.

It is possible to divide a wallet file into N pieces so that to obtain the keys, all N pieces must be brought together. The individual can give out these pieces to people they trust (spouse, children, grandchildren, etc.) and upon the individual’s death, the pieces can be brought together to form the wallet. Once fully constructed, the wallet file can be used to transfer the bitcoins from the original owner to the beneficiary.

Divide your wallet into many pieces and then create a series of books and movies about it

Divide your wallet into many pieces and then create a series of books and movies about it

Needing all N pieces to form the wallet creates risk that one person could lose his/her piece, which means the wallet could never be rebuilt. Shamir’s Secret Sharing solves this all-or-nothing risk. Using Shamir’s Secret Secret, you can identify a certain threshold M that, if reached, will allow the wallet to be rebuilt. As an example, let’s say a wallet is broken into 11 pieces; the threshold may be set at 6, so that any 6 pieces brought together can build the wallet.

Advantages:

  • The beneficiaries will have access to the entire wallet; not just specific addresses.
  • By itself, each piece does not have the ability to gain access to the bitcoin wallet.
  • These secret pieces could be hidden and provide a fun adventure for your beneficiaries when you die.
Let’s search for bitcoin treasure!

Let’s search for bitcoin treasure!

Risk:

  • Depending on the bitcoin client being used, the beneficiary will only have access to the addresses that were available when the wallet was copied.
  • If enough of the parties provided secret pieces wish to access the funds prematurely, they can collude together and create the wallet and disburse the funds.
  • As of today, there are no companies that specialize in estate planning, so it is up to the individual. These options are not mutually exclusive; you can use one of them or multiple options at once. With 1 BTC valued at $100-150, you may wish to start thinking about this topic.

Bitcoin merchants: Paying rent and finding a date

Original Post Date: Apr 17, 2013 on thegenesisblock.com (now Tradeblock.com)

Bitcoin as a currency increases in utility as it becomes widely accepted and easy to use. As more and more people realize the inherent advantages of this modern currency, the number of merchants is growing every day. During the last week two major companies added bitcoin payments.

Paying your rent

Alvic Property Management, a property management company based in New York City, has begun accepting bitcoins as payment for rent and maintenance at their properties. Alvic specializes in cooperative, condo and multi-family properties in the New York real estate market.

Property Management Companies, or landlords, have been slow to accept new payment methods in my experience. When they do accept payment methods other than check or money order, typically they pass the costs of the alternate payment method onto the tenant. As an example, if you pay with a credit card, sometimes you will need to pay a 3% fee.

If only you could do something about the price of your rent

If only you could do something about the price of your rent

In their press release, there was a very important quote that strikes a chord with one of the major selling points of Bitcoin. Michael Lacsa, head of client relations, states that Alvic is “…always looking for ways to increase income while cutting expenses…” and “…Bitcoin provides this opportunity.” That quote right there is the one of the major drivers for why Bitcoin can succeed. Bitcoin lowers the transaction costs of transferring money from one party to another. The consumer wins. The merchant wins. As time goes on and more companies begin accepting bitcoins, expect to see this quote or a variation of it used when explaining their reason for entering into the Bitcoin payment system.

Finding a date

Not only will you be able to pay rent with bitcoin, but you will also be able to find a date with bitcoin. OkCupid, a popular online dating service, is now accepting bitcoins as payment from its premium users.

OKCupid’s CEO Sam Yagan appears to be a big Bitcoin supporter, going as far to say that “these digital currencies are going to be the future.” He explained that only a few people  asked him to accept bitcoins as payment at OKCupid; however, he believes this is only the beginning and he wants to be one of the early adopters from the merchant marketplace.

pbj_proposal.gif

This OK Cupid example shows that even a small amount of people requesting for bitcoin to be accepted as payment can have a huge impact. If you own bitcoins or believe in its future, please reach out to businesses you regularly transact with and ask them if they accept bitcoins. If they have not heard about it or are confused by what Bitcoin is, become an advocate for Bitcoin. Check out our Bitcoin 101 courses; these courses do not require you to know anything about Bitcoin going into them. These courses will help you explain to someone with no or limited knowledge of Bitcoin the basics of Bitcoin in laymen terms.

Tutorial: How to pay with bitcoins online?

Original Post Date: Apr 24, 2013 on thegenesisblock.com (now Tradeblock.com)

A frequent question people have about bitcoin is ‘what can I spend them on?’ There are many merchants that accept bitcoins, and this number is increasing every day. Since Bitcoin was first adopted by the tech community, spending bitcoins on electronic equipment seems like a good place to start. I needed a new computer monitor and I thought this would be a perfect opportunity to document my transaction and share it with you.

I decided to search through Bitcoinstore.com, an online retailer that only accepts bitcoins as payment.  Bitcoinstore.com functions similarly to other online retailers (Newegg.com, Amazon.com, etc.); you can select from different categories, search for a specific product, filter based on price, etc. All prices are listed in USD and BTC; the price in bitcoins is calculated in real-time from the current USD-equivalent market price.

Again, using Bitcoinstore.com is similar to every other online retailer. I click the “Add to Cart” Button

Click on the “Checkout” button on the Shopping Cart tile. This will begin the checkout process. You have the option to create an account or you can checkout as a guest. As you can tell, a pattern is emerging here. Commerce via Bitcoin, in most cases, will be exactly like what we are all accustomed to.

Alright, now we arrive at the point where a Bitcoin transaction differs from a typical online transaction. For Bitcoinstore,com, there is only one payment option – bitcoins. The user selects “bitcoins” and is presented with the following instructions.

You are instructed to send X.XXXX bitcoins to a specific bitcoin address. This address is unique to your order. This allows the merchant to verify exactly when a payment is initiated. With these instructions, there are actually 3 different options you can take to send bitcoins depending on what kind of wallet you’re using. For information about wallets and bitcoin storage, check out our Bitcoin 101 course on Bitcoin Storage.  Option 1 – Wallet is stored within a software client on your computer – For this option, simply send X.XXXX bitcoins to the bitcoin address listed. Option 2 – Wallet is stored on a mobile app on your phone – For this option, you can scan the QR code and send the proper amount of bitcoins. Option 3 – If you have an account with BitPay, you can click on the “Click to Pay” button and follow the instructions Once the transaction is sent out to the bitcoin network, Bitcoinstore.com will recognize it and automatically finalize the order.   

You are instructed to send X.XXXX bitcoins to a specific bitcoin address. This address is unique to your order. This allows the merchant to verify exactly when a payment is initiated. With these instructions, there are actually 3 different options you can take to send bitcoins depending on what kind of wallet you’re using. For information about wallets and bitcoin storage, check out our Bitcoin 101 course on Bitcoin Storage.

Option 1 – Wallet is stored within a software client on your computer – For this option, simply send X.XXXX bitcoins to the bitcoin address listed.
Option 2 – Wallet is stored on a mobile app on your phone – For this option, you can scan the QR code and send the proper amount of bitcoins.
Option 3 – If you have an account with BitPay, you can click on the “Click to Pay” button and follow the instructions
Once the transaction is sent out to the bitcoin network, Bitcoinstore.com will recognize it and automatically finalize the order.

 

It’s as easy as that. Spending bitcoins with an online merchant is can be just as easy as buying anything else online. The real difference comes at the end when you go to the pay the bill. Instead of inputting your credit card number or logging into paypal, you simply go to your wallet to send the funds.

Good luck with your purchases, and feel free to share your experiences using bitcoin stores.

History of Bitcoin

Original Post Date: Apr 7, 2013 on thegenesisblock.com (now Tradeblock.com)

The origin of Bitcoin is shrouded in mystery. We know the concept of Bitcoin was first released to the world in October 2008 via a white paper and that this white paper was written by Satoshi Nakamoto. However, no one knows who Satoshi Nakamoto is. He could be one person or a group of people. There have been investigations trying to find Nakamoto, but there have been no confirmations yet.

A few months later, on January 3, 2009, the Bitcoin system explained in Satoshi’s white paper came to life. The first Bitcoins in existence were released to the world in the first block, the Genesis Block (it’s where our blog’s name comes from as well). A block is a file that has a recording of all recent Bitcoin transactions. Each block is appended to the previous history of blocks. All of these blocks together form what is called the blockchain. Think of the blockchain as a ledger of every Bitcoin transaction to ever happen. Bitcoin Block Explorer provides real-time information about the current transactions on Bitcoin and allows you to explore the entire Blockchain.

In our current world, nearly all currencies (US Dollar, Euro, Yen, etc.) are controlled by a central bank. In these currencies – called fiat currencies – the government controls when and how many units of money to release to the overall money supply. Bitcoin is designed around the idea that the money supply does not need to be decided by these central banks and governments.

With Bitcoin, there is an algorithm that defines how much currency will be created and the rate of creation. For the first 4 years of its existence, 50 new Bitcoins were created roughly every 10 minutes. After 4 years, that rate will be halved (1st 4 years = 50 coins/10 minutes, 2nd 4 years = 25 coins/10 minutes, 3rd 4 years = 12.5 coins/10 minutes, and so on). This decaying rate of Bitcoin creation yields a maximum of 21,000,000 Bitcoins.

As interest in Bitcoin has spread, more and more inventions revolving about Bitcoin have been imagined and created. One of the most important creations was an online Bitcoin exchange (Mt Gox , Bitfloor ) where you can exchange established world currencies (US Dollar, Euro, Yen, etc.) for Bitcoins and vice versa. Think of this as a currency exchange booth at the airport that you use when you travel overseas. In Bitcoin’s case, the exchange is online and it is used to exchange well-known currencies (USD, Euro, Yen, etc.) into Bitcoins or to trade your Bitcoins in for USD, Euro, Yen, etc.

The number of retailers that accept Bitcoins has been growing steadily; the most notable of these retailers, as of the writing of this post, is WordPress and Reddit. As Bitcoin grows in popularity, more and more retailers will accept Bitcoins.

The Bitcoin protocol is well established, so the rules for Bitcoin creation and payment transactions will not change much, however, there is much opportunity for development outside of this protocol. The developments by third-party Bitcoin businesses is where the majority of the innovation will come from. As of this writing, there are many companies creating new and innovative ways to use and exchange Bitcoins, such as Bitcoin wallets on your cell phones and Bitcoin ATMs (where you can can deposit USD, Euro, Yen, etc. into the machine and your wallet is credited with Bitcoins and also withdraw Bitcoins from your wallet and exchange them for the local currency). These innovations are only scratching the surface of the potential of Bitcoin.

Bitcoin is still in its very early stages of existence and no one knows what the future will hold. We, here at The Genesis Block, will be updating our audience with Bitcoin’s history as it is happening in real-time. It is a very exciting time for Bitcoin and we hope to enjoy the ride with you.

Bitcoin Involvement

Back in 2012-2013, I was heavily involved in the Bitcoin community. Along with two of my friends, we started a Bitcoin blog called The Genesis Block. I wrote under the pseudonym Wayne Parker, which was a combination of Bruce Wayne and Peter Parker. This blog ultimately spun off into a real start-up called Trade Block; however, I didn't follow the others on this path.

While my work is still featured on their blog, I wanted to take this opportunity to share the links and ultimately, I will re-publish my blog posts on this site for posterity purposes.

History of Bitcoin
Apr 07, 2013

Bitcoin merchants: Paying rent and finding a date
Apr 17, 2013

Tutorial: How to pay with bitcoins online?
Apr 24, 2013

Protect Your Bitcoin Wallet After You Die
May 13, 2013