For some, the BitCoin is a new and unique form of Internet currency; worthy of a few articles and musings, but not serious enough to transfer any real, hard-earned money. For others, BitCoins are the proverbial ‘wave of the future’ that may redefine the way in which currency is managed in the future. Regardless of where you stand on the subject of BitCoins, there is an aspect to the BitCoin architecture that should be reviewed and considered when setting up a trust.
The fundamental strength of the BitCoin architecture is the BlockChain. In the BitCoin world, each transaction has an output (account sending BitCoins) and an input (someone receiving BitCoins), and has a unique identity for each of those three elements. These three elements are recorded on a public ledger in groups of several transactions, called a Block. These blocks are linked together by the output of one block becoming the input of the next block in the series; hence, the ‘block chain’. Without getting too technical on the fundamentals of the BlockChain, the notable pieces for this context are 1) an output account (aka sender wallet), 2) an input account (receiver wallet), and 3) a public ledger.
For those not familiar with a trust, the loose definition is that a trust is an agreement between two groups, the trustor and the trustee, to hold property in trust for the benefit of a third party, the beneficiary. The agreement defines the trust and lists the instructions for the trustee to follow, along with listing the trust beneficiaries.
Although there are a number of different ways to fund a trust, a typical example will include a bank or securities account, listing the trust as the account owner. The trustee is named as an account representative with account management privileges. The trust agreement will then direct the trustee to make monthly withdrawals from the trust account to the beneficiary.
In the cryptocurrency world, a BitCoin Trust can be achieved as follows: a trust wallet is created and keys generated (the keys are the unique identifier to that particular wallet). There is a private key (known only by the trustee) and a public key (the key used to uniquely identify that wallet on the BlockChain). Similarly, the beneficiary wallet is created and defined within the trust agreement as well. Instead of listing the beneficiary and trustee’s names and street addresses in the trust agreement, the trust agreement would need to reference the keys of these individual wallets. The benefit of the wallet definition is that it never changes! Unlike street addresses and names, where people move, get married, divorced, etc. the wallet unique identifier never changes.
Typically, a trust is funded by depositing the designated chunk of money into the trust account. Here, the trust is funded by transferring the designated BitCoins into the trust wallet. The trustee has management control over the trust wallet, and will be required to transfer the instructed number of BitCoins from the trust wallet into the beneficiary wallet at the first of each month.
Where this becomes powerful is the ability to provide a continual audit over the monthly payments by simply reviewing the public ledger. By searching for the beneficiaries key in the BlockChain ledger (there are a number of BlockChain explorer websites that allow you to do this), one can easily see the payments that have been transferred from the trust wallet into the beneficiary wallet. This means that a caregiver or third-party doesn’t have to hire representation or jump through a bunch of legal hoops in order to validate whether or not a beneficiary has received their payments.
This is a very general example in how the BitCoin BlockChain can be used to fund and manage a trust. Cryptocurrencies are not necessarily new, but the introduction of BitCoins has solidified their existence. I haven’t received any requests to write trusts including BitCoins as of yet, however, questions are now being raised. As the interest increases, so too will the first trust agreements.