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Fiduciaries (executors, trustees, guardians) hold and manage funds on behalf of others (heirs, beneficiaries, etc). So it's important to be able to audit a fiduciary's transactions, to ensure he hasn't mismanaged or stolen any funds.

With bank and brokerage accounts, this can be pieced together from account statements. How can a bitcoin wallet be similarly audited?

Simplified Example: Upon death, the executor takes possession of the deceased's hardware wallet. Over the course the probate process, executor spends to pay creditors, taxes, etc.

At the end of probate, executor proposes to distribute the remaining bitcoin/utxos equally to the heirs, as per the will.

Had this been bank/brokerage accounts, the Executor would use statements to create a paper trail of all the dollars he collected, what he spent, and thus the remaining balance for the heirs.

  1. But how can the heirs confirm what was the "opening balance" of the wallet? The executor could show a list of addresses and utxos when he took possession of the wallet, but how could anyone verify that it's a complete list? Would sharing the wallet xpub address be sufficient to show heirs (and protect the executor)?

  2. If there's a satisfactory answer to this, the rest (auditing executors's spending, remaining balance, etc.) seems like basic on-chain tracking, assuming he spends on-chain and not lightning. Am I wrong?

Thank you

EDITED: Added possibility of xpub address

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Traditionally there is no definitive way to determine which addresses belong to which wallets, so you can't know the opening balance for sure. However..

In the case that the wallet is a hierarchical deterministic wallet and the seed data is revealed, you can generate all the keys associated with that wallet and scan the blockchain for all UTXOs associated with any of those keys.

However, whether or not there exist other keys on the wallet that are not associated with the HD seed phrase is still unknown. (depends if the particular wallet functionality allows both HD and non-HD on one wallet, I guess)

The best recourse here would be to use data analysis tricks to try and link addresses through change transactions, etc. But if the fraudulent executor is clever they can easily cover their tracks.

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  • What if the Executor shared the wallet xpub address with the heirs (or the court, as needed), essentially offering a watch-only version of the wallet to anyone with the right to audit his executor role? Feb 5, 2023 at 11:28

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