Seeking Clarity on Digital Asset Recovery Procedures in Critical Scenarios

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Hi Tokenized,

Today, I am navigating a sensitive, yet incredibly vital discussion: ensuring our digital assets remain accessible to our loved ones in various unforeseen circumstances, including incapacitation or demise.

In conventional banking, a relatively straightforward process exists. Upon a customer’s passing, their beneficiaries or next of kin can, through legal processes, gain access to their financial assets, given the appropriate documentation.

Contrastingly, with cryptocurrencies and non-custodial wallets, especially in your secure and decentralized framework, the recovery processes are understandably different. Users possess the pivotal recovery details, such as seed phrases and private keys, which are imperative to access funds securely.

Your website mentions:

“If a user’s keys are lost, the issuer of a contract can freeze, unfreeze, and confiscate tokens to allow users to get their assets back.”

This statement prompts the following inquiries:

  1. Details on Contract Issuer Interventions: Could you provide clarity on the mechanisms through which an issuer of a contract can facilitate the recovery of assets? What are the specifics of the process of freezing, unfreezing, and confiscating tokens?

  2. Scenarios of Death or Incapacitation: In circumstances where a user has passed away or is incapacitated, how can the issuer of a contract be approached, and what documentation or verification is required to facilitate asset recovery?

  3. Differing Asset Treatments: Does the recovery process vary between different types of tokens or cryptocurrencies (e.g., BSV) held in the wallet?

  4. Secure Storage and Transmission Guidance: Given that no device, including your platform servers, has visibility into user’s private keys, what are your recommendations for secure storage and potential transmission of recovery details to trusted individuals?

  5. Legal and Alternative Recourse: If the user is unable to provide recovery information due to various reasons, what legal or alternative options are available for family members or beneficiaries to access the assets?

  6. Comparative Practices: How do Tokenized’s policies and procedures stand compared to other prevalent practices within the cryptocurrency industry, particularly concerning asset recovery?

Thank you for considering these questions and I look forward to your valuable feedback.

Regards,
RJ

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Hello RJ,

Thanks for the great questions. My responses are below.

1. Details on Contract Issuer Interventions: Could you provide clarity on the mechanisms through which an issuer of a contract can facilitate the recovery of assets? What are the specifics of the process of freezing, unfreezing, and confiscating tokens?

JB: Depending on how the contract is configured, either a contract administrator (acting on behalf of the issuing entity) and/or the delegated authority oracle(s) (declared in the specific contract) can issue an enforcement action to freeze, unfreeze, and confiscate tokens to effect a recovery of assets and reassign them to a new wallet. These actions are at the discretion of the issuer and can allow for any type of recovery, including loss of keys/password, death, court order, etc. Tokenized will be able to assist customers, and next of kin/family members/beneficiaries, with finding which contracts/assets an account holds, whether they have the keys/password or not, but of course this would require significant due dilligence checks.

2. Scenarios of Death or Incapacitation: In circumstances where a user has passed away or is incapacitated, how can the issuer of a contract be approached, and what documentation or verification is required to facilitate asset recovery?

JB: The issuer can simply be emailed/called/messaged, and if the contract has been issued on our platform, we can assist with connecting you to the relevant issuers. The following requirements would likely apply: a death certificate, documents to complete a kyc due diligence check, and the appropriate paperwork that shows they are entitled to the assets. It is the same process as a bank. The on-chain contracts/instruments are simply digital commercial records, all relvent laws and processes still apply.

3. Differing Asset Treatments: Does the recovery process vary between different types of tokens or cryptocurrencies (e.g., BSV) held in the wallet?

JB: Currently, the recovery process is practically different for BSV and other DLT-native assets, however, the code and process is in nearly in place for miners to perform a freeze/confiscation processes in the same way as an issuer of a tokenized insturment, which will also follow all relevant laws and processes. The miners will all need to comply with law as well. This is where things are going, but in the short term, we highly recommend protecting yourself by having paper copies of the wallet recovery phrase stored in a lockbox/safe deposit box in a bank vault or similar, and access instructions alongside/in a will with a lawyer or with trusted family members.

4. Secure Storage and Transmission Guidance: Given that no device, including your platform servers, has visibility into user’s private keys, what are your recommendations for secure storage and potential transmission of recovery details to trusted individuals?

JB: We recommend using a bank lockbox(es) with paper copies of the recovery phrase (and passwords/backup codes for important digital services like password managers) that are stored in a sealed envelope, and using a password manager with backup codes written down and stored somewhere secure as well.

5. Legal and Alternative Recourse: If the user is unable to provide recovery information due to various reasons, what legal or alternative options are available for family members or beneficiaries to access the assets?

JB: In unusual cases, this would have to be decided in a court, and a court order would be required to reocover/move assets.

6. Comparative Practices: How do Tokenized’s policies and procedures stand compared to other prevalent practices within the cryptocurrency industry, particularly concerning asset recovery?

JB: We provide mechanisms to allow issuers to comply in an accountable and easy-to-use way. Ultimately, any asset, digital or not, on any technology can and will comply with the relevent laws. It really comes down to the friction and the practicalities. This is where I believe our solution shines. We have carefully thought through all of the details relating to these real world edge cases and provide a system that is very secure and robust, while still being flexible enough to accomodate legal requirements in a practical and accountable manner without creating a very complicated mess with hybrid on-chain and off-chain records.

I hope that answers your questions in a satisfactory manner. If not, I would be happy to expand upon any point.

Kind regards,

James