E339 Why Sharing Your Seed Phrase is a Bad Bitcoin Inheritance Plan

In this episode, we will talk about self-custodied bitcoiners (not those who have their coin on an exchange or with a third party). Some bitcoiners share their seed phrase with their spouse or adult children. Or perhaps they share their cloned wallet with those trusted individuals.

 

It’s temptingly easy, essentially frictionless to share your seed phrase. But, as we’ll discuss, it can be insecure for reasons you may not think of. Sharing your seed phrase can be dangerously inflexible and not future-proof.

Relationships change

One reason that this plan is not flexible is because relationships change. Married couples can become divorced or widowed. You may have a falling-out with a loved one. Your relationship with your child may be good now, but the relationship could become strained or even estranged. If this happens, you may not want them knowing your seed phrase. That’s like giving the keys to the kingdom to someone you don’t trust anymore.

They’ll won’t keep it secure

Say you give your seed phrase to your spouse or adult son. No matter how wonderful they are, your loved one may not realize how important it is to keep your seed phrase safe. It’s not that they have bad intentions, they may just have bad operational security. Imagine if they tape your seed phrase to the refrigerator so they don’t forget! Besides exposing it, they may lose your seed phrase altogether.

Don’t think that you’ll be successful in training or teaching your trusted loved one. Remember, self-custody is like a completely foreign language to them. When you first started with bitcoin, how many months or years did it take for you to understand how it all works? Your spouse or son might not want to learn about bitcoin, so they might take a photograph of the seed phrase or put it on a password manager app.

 

What about giving them a clone hardware wallet instead? All they need to do is remember the PIN to open it. This still isn’t a great idea for the same reasons we just discussed. Keeping the hardware wallet up to date is a job. There may be updates every couple of months, and your spouse or son needs to remember to manage those updates.

 

Besides, there is the risk of hardware failure. If your loved one doesn’t have the seed phrase and the hardware wallet is the only way to access your bitcoin, you’re looking at catastrophic loss. Even more robust external hard drives fail. Such technology could be outdated and difficult to open after many years.

You can't take back a secret

Once you’ve shared the seed, you can’t take it back. Think back to grade school: you tell someone your deepest secret and then realize that kid is a blabbermouth! You can’t undo what’s been done. Same with sharing your seed phrase. What if your relationship with that trusted person changes? You’ll need to create a new wallet and transfer your funds, otherwise your “secret” is with an untrustworthy person.

 

We see this with our non-bitcoin clients. They make a treasure map or write a letter of instruction telling their trusted person where everything is located. Once you create that treasure map or letter, you have to keep it up to date constantly. Life changes could occur making it inapplicable. Similarly, if you don’t trust that person anymore, you need to move everything and make new maps and letters.

Now you know why it is not secure to share your seed phrase. Hopefully this helps you to make the best bitcoin inheritance plan for your situation.

 

I am working on my bitcoin book, and I hope to get it out there soon! In the meantime, check out my book, “How to Hire an Executor”, available on Amazon. If you are a bitcoiner, you may want to consider hiring a professional executor to navigate this complex component of your estate.

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