Panel on digital assets and cryptocurrencies with Brad Deflin at the Annual Total Wealth Symposium in Hollywood, FL 2017. With Brad Deflin, President and Founder of Total Digital Security.
Panel transcript:
Alright, let's go ahead and start with our asset protection panel to my left, Ted Bauman. Bob Bauman, Mark Nessman, Josh Bennett, Brad Deflin. Welcome gentlemen, we're going to open it up to the audience like we did yesterday. So hopefully you all have some questions, but I did have one or two questions myself to get us started. The one thing I did not hear about today when talking about asset protection and privacy was Bitcoin. So, does anybody want to tackle Bitcoin?
Sure, I'll give it a bash. Yeah, I mean, I think the obviously they are a couple of different ways to enter the question of Bitcoin one is as an investment in the other is as a you know, an aspect of a personal privacy strategy personally. I subscribe to the view that Bitcoin is an unsustainable bubble as an asset simply because I don't see what the fundamental is. Show me the fundamental show me what it is that
That that supports it. So, I'm leery of it. And as we saw the other day with the Chinese government taking action against a Bitcoin exchanges, it's hugely dependent on you know things that we can't control. So I'm nervous of it as an asset and the second thing is that I think as several people have said poll mentally and also I think Jeff you have seen pointed out what's really important is the blockchain technology that underlies it and where's Money Getting be made with that?
That's the interesting issue for me. Now when it comes to the question of privacy and the role of Bitcoin as a means of exchange, you know, that is anonymous that remains true. The problem is that you can't always find people who are willing to accept Bitcoin people you might want to do business with but there's another aspect that I think is worth noting that it's becoming more and more important is that Bitcoin transactions are irreversible unless you have a willing.
Partner to return the money and if somebody gets a hold of your Bitcoin wallet, that's it. There's nothing that anybody can do ever to get your money back because you know, it's designed to do that designed to be like that. And so all I would say on the Privacy side of things is that yes, it's nice in theory to have a currency that nobody controls and that you could potentially use to pay for things but it comes with another group of risks that people are just starting to understand.
So, it's there's a there people are running away from one kind of risk and they're running towards another one and I think we need to be aware that of that because I think there hasn't been much attention paid to that part of it.
Anybody else on bitcoin? All right, Josh question for you did Bitcoin a digital asset how does estate planning change in the world of digital assets John? That's a great question. I've been practicing Estate Planning and asset protection planning for over 30 years and as an estate planner, the rise of digital assets is really complicated the practice. I believe it was Eric Schmidt of Google who said that if you were able to
Can 2010 if you were able to assemble all of human knowledge and be able to replicate that from the beginning of time to 2003 it would equal approximately two days of digital output vis-à-vis emails logs photos, right? So you just have enormous challenges as an estate planner to make sure that you not only conform with federal law, but also that
You comply with state law. There's been some recent laws which tried to provide uniformity but various service providers have managed to kill a lot of the laws which would provide more uniformity on a state level with intensive lobbying, but we just have to make sure that our estate plans incorporate authorizations, right because most of the laws out there are meant to
Curb, or to prevent intrusion and to make sure that the user has privacy, right? So when that person dies, you have to have the right vehicle for the personal representative or the executor to have authorization to be able to keep the blog open or if the business has a web business you want to make sure that the executor is able to run the website. So, you need authorization you need to make sure.
Sure that the terms of the TOs provisions on the email or all the on the online service are entered into a such and such a way maybe to have the trustee of a revocable trust or of a domestic asset protection trust or some type of entity serve as the person who signs on the user agreements to provide for continuity upon death. You want to make sure that you
Have your passwords written down properly and all authorizations are in place. And also, the executor is role needs to be upon death to do what needs to be necessary so that he can gain access to these digital assets to prevent identity theft and cyber fraud. So, it's a very unique challenge, but it's something that really needs to be addressed in any
Any estate planners standard template documents? Okay. I have one last question that will turn it over to the audience for anybody your thoughts on government seizure of your digital assets any thoughts.
Mark government would have a really hard time seizing Bitcoin unless it's in an exchange so a coin-based type situation. I think it would be possible for the government to grab onto that fairly expeditiously on the other hand if you have Bitcoin on your phone, or you know, one of these one of these Bitcoin wallets is going to be a lot harder for them to even know about it much less much less grab onto it. So, from that standpoint if you avoid the exchange
I would think that you'd be safer. Although this really isn't an area that I have a great deal to familiar tea with the go-to guy that we rely on at the Norseman group for this is a man named Paul Rosenberg who you may know as a founder of crypto hippie also is one of the early researchers and involved in digital and cryptocurrencies. And so, this is what I just told you is from Paul and we actually just did a
Bernard a66 part webinar with Paul for our clients and learned a tremendous amount about Bitcoin, but boy, I'm still far from an expert just it's a baby just two things tough to follow up on that. I think the question is more generally about seizure of digital assets, you know, beyond Bitcoin encryption is your friend, right even even the best government agencies cannot decrypt the right kind of encryption and you know, really it comes down to digital.
It's being properly secured, you know, because you look at it this way having an encrypted asset stored on a Cloud Server, for example, you know private documents that sort of thing. It's like having somebody break into your house, but then beyond able to get into the safe in the house, right because the safe is like the encryption. So if you think of the cloud as being like your house, that's easy to break into what's really hard. What's impossible actually is to get into that.
Encryption safe, so if you don't use encryption or don't know about it find out and start using it. So I think that's the key thing. Okay, I'll do want to turn it over to the audience. I think we had a question up here in the corner, man.
Can you name two trustworthy websites on how to open up a Bitcoin wallet now that you scared the heck out of me?
You know, I know I'm not going to recommend any I'm afraid because I wouldn't recommend anything unless I either done business with them or actually done due diligence and I haven't but the point is that you know, the Bitcoin wallet facility is something that's ubiquitous. I mean the it goes with pretty much any ways to get there even offline what they call what's the word I forget the ones where they're disconnected from the web entirely, you know.
Been those of the most secure it's basically where you set up a wallet that is kept on like a USB stick or something and kept in a safe, but I wouldn't be prepared to recommend one at this stage. I mean, I think it's yeah that's like recommending a bank and they're all dangerous. Do you currently own a Bitcoin wallet right now? Excuse me. Do you own a Bitcoin wallet right. Now, do you have I do not own Bitcoin. And as I said earlier, I'm a bear on bitcoin. I don't I don't see it as a
A good investment in the long-term. I already see websites that accept Bitcoin payments besides I'm working for 23 years. So I already see it happening. Sure. I'll take a stab at this. There's a company called coinbase and coinbase is actually a Bitcoin exchange. Its I'm not necessarily recommending coinbase, but I will say I mean, I had an against very easy to open an account at coinbase. I just I put $30 into Bitcoin. You know it on coinbase. It's
You do takes about 15 minutes to set up set up a holding there and they have a basically a built-in wallet that you then use if you want to buy and sell Bitcoin again, this is not I'm not endorsing it. But I mean, it's I can tell you from my own experience is very easy to do at coinbase.
After a person dies, if a family member who knows the password carries out financial transaction online. Is it legal?
Is your question about somebody stealing your password, you know somebody dies and let's see the person that person's family. They know the password of the account. So if they carry out financial transaction by ourselves and thing is it considered legal. So somebody dies they have they give their child a password to their digital assets. They okay. What's the legal ramifications? Yeah, you know there's
Several acts which have addressed this the primary one is the uniform Federal access to digital assets act which provides executor 's and personal Representatives access to be able to find out the information right? There's been case law and point to and it's been an uphill battle for the executor to gain access, but you just want to make sure that you on an ongoing basis you
You check with the client to make sure that all passwords are current right in case they've changed the passwords prior to the decedent dying. And you also want to make sure that you have the appropriate authorization under the terms of service of the online provider that you're working with two that you meet the terms of service so that you can have access and you want to make sure that you have the proper authorization in your will or your revocable trust not only
In accordance with the service provider but also state law because each state law governs authorizations differently.
Okay, Laurie. You had a question over here with our recent damage to Dominica by the Hurricanes. You see that impacting the second passport options Financial passport, you know head Dominique. It's for those of you who don't know Dom Niko's was basically obliterated by Hurricane Maria last Monday actually have not heard any reports from Dominica at all. Other than an address from the Prime Minister all the Israel so I can just say pray for Dominique. I don't know what's going to happen there. I think though that you know, they are going to need to rebuild and part of that rebuilding process. I think would be this citizenship by investment programs. So but right now it's just too early to tell me literally the government buildings the building where that program was administered out of doesn't exist anymore. So they have to completely rebuild everything.
This question is for Brad. I have an insurance agency and I just wanted to know I use my own domain for my email through GoDaddy. I wanted to know how safe that was for me. Sure. Thank you. Good question. So privatizing is creating your own domain. Like I have deaf blind dotnet. My kids is email or on Devlin dotnet and that's one factor of kind of getting off the grid if you will, what's more
Orton though is where that domain and where that email hosting takes place who is the host some of the more retail operators that are aggregators big aggregators of this information? I would say like GoDaddy or honey pots for hackers. It's kind of like if you want to catch fish you go to the stream where there are the most fish. So staying away from some of those may be more popular retail oriented domains is a better idea.
So ultimately who is hosting the servers and the system for your website and your email is crucial. I would also add that one of the foremost components to cybersecurity is geography right if the law of the land has warrantless activity searches and seizures any science can't keep you away from that and the Constitution's for certain countries are still very almost crazy about individual rights to privacy and those
It's are actually protected countries like Switzerland countries like Finland some of the Scandinavian countries. So when you think about wallets when you think about hosting when you really want to go to the extreme for security, you really have to look at geography.
Not not really. Well, I guess it yes. It is an asset protection question as I made as I said in my talk this morning, I don't know but the likelihood is high and you know, as I said this morning that the trick is to take steps to protect yourself before it happens because afterwards is too late. I referred some research black. Someone is monitoring. There are a lot of financial parameters. They have it they monitor their
I don't know if you are. I forgot their name of that website and they're the very best financial experts. They have a lot of parameters that they put into their system. It will everyday it updates when is relation is going to come.
Well, if if there is such an organization that is able to protect crashes with great accuracy. I'm sure they are very heavily subscribed. I personally don't look I mean I'm being a little facetious but bottom line is there are lots of different models not so different ways to try to predict the behavior of markets, but it is it's like trying to predict the behavior of other people, you know, it's very difficult to predict and I just think
Have to look at it from a probability perspective which means and there are very good models. I think the already that can predict the likelihood of a correction not necessarily a crash, but I correct. I like to add a comment to that the Washington Post reported yesterday that a least self-important leader who has written about these things in the past predicts that on Saturday that is tomorrow. There will be
Be a constellation appearing over Jerusalem, which is written in the Old Testament The Book of Revelation and this will begin the end of the world. So I thought that might be at answered your question. Well after that this question seems pointless. No actually, this is a question for Brad Brad. You remained pretty quiet on the whole topic of cryptocurrencies.
And and coinbase was mentioned and I was reading about people who had issues with coinbase. And of course the worst thing that can happen if you own cryptocurrencies is your wallet gets hacked because it's on so I was just wondering what's your views on cryptocurrencies and security? Sure. Thank you. First of all on an investment standpoint. I don't have much of an opinion. I am sort of a historian when it comes to
Testing and it sure looks like a bubble right all over again Corrections and crashes will happen. It's just a matter of time and how long that is, but I think it's important to sort of understand and Ted eluted this to this a little bit about the blockchain aspect of cryptocurrencies because that really is the bigger issue. And first I'm going to digress a second. There are so many actors getting into this game and it's a get-rich-quick scams and there's so much speculation and I mean
I have teenagers that are coming up to me telling me they're buying Bitcoin. Right? I mean that's got to be some sort of a signal that you've really got to be careful. Now, how do you manage that? If you're not speculating how do you manage it as an asset class? So you can use it because websites my website is going to start taking Bitcoin shortly as well. It is going to be a method of currency. I think these are things that still need to play out. I would not be willing to put out a brand because it's just too new and it's not transparent enough.
And we're going to have to learn from other people's mistakes. I think before there's a lot of confidence but but from an understanding point, I just want to add and this sometimes helps a lot of people we said the internet democratizes everything it touches, right it democratized knowledge and information when you think about a Google search or just the internet it democratizes publishing its democratizes everything it touches cryptocurrencies are the democratization of trust. We used to need a central Authority a Clearinghouse of
Reserve Bank Caesar, right do unto Caesar as the trust component for an exchange to bring buyers and sellers together where they knew the exchange would clear that would be a ledger to record that and if anybody had to go back and substantiate the transaction there was this central place that was the Bastion of trust for those exchanges encryption Block Chain and cryptocurrencies application of blockchain democratizes. Trust you
Do not need an institution. You do not need a Federal Reserve Bank or some other Clearinghouse to make that transaction. That's the way that we've got to learn from. What's Happening and is also I think an added validation to make encryption your friend it there's no Silver Bullet, but if there is one it's encryption. We have to learn how to use encryption and encryption Tools in our everyday mainstream lives. When one quick follow-up on that just referring to the specific issues around exchanges.
Well, it's that sort of thing. I'm not as glued up on this as I probably should be by now, but my understanding is that there are different ways of doing this and one of the ways that you can do. This is have you or your wallet key stored on their servers and then you use a simpler password to have that key unlock the wallet and that's much more dangerous than having your own key and implementing it directly with the word. I was looking for earlier earlier with the Deep Freeze where you take your wallet is literally physically off.
Annette and so only when you plug it in and then enter your code, so, you know, basically if you if you use a wallet on an exchange you are automatically increasing the risk to yourself vis-à-vis what Bitcoin could actually do for you? So it's just something to bear in mind.
Do you foresee any government scrutiny or big tax hits for someone who's planning to become an expat maybe being an EX pack with bringing younger children to another country and using their self directed Ira money to start investing in a business in that country.
Could you repeat that? So, can you repeat the question again about the children and a self-directed IRA? Yeah. I just want to I guess get your opinion if we would get any government scrutiny or unexpected big tax hits. If one we expat with our young kids and then to if we start we decide to start using our self directed Ira money to invest in a business in that country.
All right. So you have a family you expat you give up your US citizenship and passport assume what you mean by expatriation you're living in another country with your kids. The state department will not will not allow anyone under the age of 18 generally to expatriates. There are some exceptions. I've seen it done at age 16 17. It's kind of unusual General. You have to be an adult in order to give up your citizenship because the state
Urban has basically saying that if you do not have if you can't understand the implication that decision and the safe the safe harbor for that basically is age 18. So let's assume the kids were over 18. So now you and your adult children are living in another country, but you still have your IRAs. Well, that's an issue right there because if you have a net worth over two million dollars when you expatriate your IRA instantly dissolves and become and becomes taxable, so
Assuming you don't have a net worth over two million dollars and you're using your self-directed IRA to make investments. In other countries. It would be treated the same as any other IRA and and I don't know of any particular scrutiny that the IRS has taken of people who've expatriated or allowed to keep their IRA and then subsequently making non-traditional Investments with it Josh. Are you aware of anything wrong that one now? I'm not aware of any particular.
Really? I mean a lot of its going to depend on the IRA custodian to how exotic the asset is, right because a lot of the IRA custodians that we work with have guidelines as well on what type of asset class the plan can invest in when it comes to foreign or other exotic tassets. So that's something you probably would want to bring up with the IRA custodian to see if it's a permissible class of investment. Just one other thing on that point. I'm not sure if you're referring.
Going to investment in your own business or which would be disallowed under a naira. So if you were that would not be possible whether you expect rate or not. You'd have to it have to be an arm's length investment in something that you're not involved in that but that would be the case regardless and if it was a business you would be generating then this unrelated business tax one come at these compressed tax rates. That's another factor to be and be wary of
Email things like that. Is that worth investigating? Hey, I think it's great. As long as the site hasn't been hacked. Right that's always a big fear. But you know the banks and financial institutions under Federal Acts are required a lot of times to make sure that they try to fight cyber cyber crime and you know, we always advise clients to make sure that your information is virtual information is safe and use encrypted so
And try to stay as many steps ahead of the bad guys as you possibly can to protect the digital information. So we're on I think it's I think it's a very very good thing to do or look into like Equifax. I'll stick my neck out and say that I keep my personal information in an encrypted form on a on a Swiss server. And and I feel that that's the right thing to do works for me and I like you say, I looked into it very carefully before I did it, but that's that's what I do.
I do that as well in our Investment Group does as well. So all my personal emails on the Swiss server all our Investment Group emails also on a Swiss server.
I'm under the impression that cryptocurrency is already implemented by several banking institutions. In other countries you care to predict when the US will do that.
So the question is about cryptocurrencies being accepted and used by financial institutions around the world when we will see that in the u.s. There's a lot of innovation in the space coming out of US based Banks. If you look at city if you look at JP Morgan, if you look at any of the brands while on some level it's very disruptive to their business model. They also know they have to get in front of it. They don't want to be the Eastman Kodak of a bank if you will, right and so the banking industry for the next 10 years.
Ours is going to go through tremendous change. I can't really give you a timetable. I'm not quite that familiar with it, but my guess is it's going to happen probably sooner than many expect.
I have a question Bob brought it up. Can we talk about the implications of the Equifax breach anybody want to talk about Equifax?
Well, I'll start the ball rolling. I I think it's a tremendous opportunity for us because it it basically means that the social security number as a unique identifier and you know authorization tool is over. Okay, and there's no possible way that we can continue to assume that that number can play that role and that means that all of these organizations that have been accumulating data capital.
Almost without our consent for all these years to run a very profitable business models. I eat that the credit bureaus now have to figure out a new business model if they haven't realized that they have to do that yet. They're going to realize it pretty soon because you know, ultimately now if that many social security numbers are out in the wild, then it's effectively no different from a street address in terms of you know, as it's not secure. It's not Anonymous. It's not something that you can you know, keep secret. So what are they going to do?
We don't know what they're going to do. But but now that something has to happen. There's actually a website you can upload a photo of an individual and it will return a social security number for that individual. I'm not going to tell you but I think the implications for like today and tomorrow are profound this information is being curated and sorted and sifted and the attacks in the coming months. We're going to see a ramp mark my words it Ash.
Sharp increase in activity also hackers know what you're thinking about. One of my partner's is in the room and she will tell you Christmas Day New Year's Eve New Year's Day. Those are our busiest days. They know your eye is off the ball. They know you're moving fast. They may know you had a drink or was the day after a drink and they're waiting for those opportunities and my senses with all this information and all the sophisticated engineering of that information that we're going to see some real sharp upticks in the coming months.
Okay, we have time for one or two more questions any other questions out here.
Thank you. This is for Brad three years ago on the advice of a friend who?
Got what a he told me from Clark how or the talk radio talk show host and writes a newsletter. He had his identity stolen and so he froze his credit with all three major credit bureaus. I went on to that site and found that there's a fourth obscure credit bureau. I think it's Novus you probably I know you know that what it is.
but I think Ted mentioned this to in one of his newsletters getting a sight to remember all your passwords, but the problem is that sites going to be storing their password in the clouds to so one question is, how do you
And I was I think one of the hundred forty three million they got their social security stolen Medicare I'm told is going to change the numbers that they use instead of your Social Security number have a different number number one had a you what's the process to go through Switzerland website or email to make it safe and is Gmail and Yahoo mail, and these type of mail servers not safe to use.
They are not okay.
When you sign up for a Gmail account, you have legally signed over your authority over all of your information the body of an email the attachments all your address book and very importantly what's called metadata. That's one word metadata a word for the future. If you look it up in the dictionary, it says information about information in every email envelope. If you will is an enormous amount of of information about you where you were who you're talking to where you're going.
All of that now belongs to Google or AOL or MSN the photos your personal photos you signed over all of that. And so the privatization approaches. I think one of the most fundamental things you can do on the credit freeze. We do recommend a credit freeze. I've been doing it for a lot of people over the last week or so. I'll tell you, you know, the shows you just how upside down the world is right. Now that the credit agencies are finding this incoming traffic and opportunity to sell you.
Something else and they're not making it easy to freeze your account. They are trying to make it easy for you to upgrade to some premium service, right that is probably flawed in itself. And how do you get that premium service by telling them, you know the name of your first born and the color of your first car and all these other things it really so drill in though. Freeze those get your PIN make it a long complicated pin and try to when you freeze your account not lock it. Okay, freeze it then even the credit.
Cannot look at that file without your authorization. So that's a move. Now. You had a bunch of questions in there. And I'm not sure if I answered them all that's one of them and Ted mentioned. I first if you could talk about a secure server, what's the step to do that and secondly - Lane, I think you mentioned in your newsletter, but I years ago, there was a there was a site called alligator that got hacked and they stored all your passwords on their site.
So thank you for that really important. I advocate password managers. I know Ted does well, I know Ted uses Dashlane I use LastPass again due diligence. Which ones do you want to use? LastPass has been hacked at least twice in the last 12 months or 18 months, but there was no damage because what's unique to - LastPass and - Lane is that the encryption keys are on your device not in their Cloud. So while your passwords are there they are.
Are encrypted and nobody's going to get into them without the keys. Which again are back on your device. Everybody's been predicting sort of passwords going away for a lot of years. We're going to be with passwords for a while. We'll have other Alternatives. Maybe it'll get easier someday, but for now, you've got to have a password manager. Okay. Timer says we are out of time. So I want to thank everybody for the questions and I want to thank the panel gentlemen. Thank you very much.