How to Secure Your Crypto for the Unexpected
Cryptocurrency is entering the mainstream. It’s estimated that roughly 36% of people in the Malaysia own crypto, and around 4% globally. The percentage of ownership is rising steadily, increasing 23% in 2021. As more people begin to own crypto as part of their asset portfolio, there will be an increasing need for guidance on how to secure, store, and eventually pass on these valuable assets. Since crypto is decentralized, there is no main central authority to manage and help access a deceased user’s accounts. Thus, it is up to each individual to protect their assets and manage their own system for inheritance.
Without proper planning, crypto accounts are pretty much inaccessible. There have been multiple accounts of owners passing away, taking access to billions of dollars of crypto with them. In fact, around 20% of all Bitcoin is said to be lost, stranded in wallets due to loss of keys, passwords, or death. The numbers only bolster the point: everyone should have a plan for their cryptocurrency.
Notes on Security
One of the most important tenets of crypto security is to never share your seed phrases or passwords. It’s also recommended to not note them down on any electronically-accessible device. Even storing your keys in a password management system like 1Password or LastPass should be avoided, according to crypto security experts.
This doesn’t seem to leave much option for users. However, there are a few ways to protect your digital assets for the unexpected. In this article, we’ll cover some of the basic options and practices you can follow to make sure your crypto is passed on securely.
Types of Wallets
There are three main types of crypto wallets, and each one requires a slightly different method of management.
- Centralized Crypto Exchanges – these platforms allow users to buy, sell, and trade cryptocurrency through their platform. A popular example would be something like Coinbase. These kinds of wallets allow you to log in with a username or password, and often some sort of 2FA (like a text message or authentication code).
- Hot Wallets – these wallets are connected to the internet and allow you to buy and sell cryptocurrencies, as well as interact with decentralized applications (dapps).
- Cold Wallets – these wallets, also called hardware wallets, are not connected to the internet. There is often a piece of hardware (a physical item) associated with this wallet.
How to Manage Your Accounts
The fate of your cryptocurrencies after your death depends on various factors, including how you have stored them, the legal framework in your jurisdiction, and the provisions you have made for their management in your estate plan.
Self-storage: If you have stored your cryptocurrencies in a personal wallet or on an exchange without any instructions or sharing of access information, it may become inaccessible to others after your death. Cryptocurrency wallets are typically secured with private keys, which are required to access and manage the funds. If you have not shared these keys or documented them in a way that can be accessed by your loved ones or designated beneficiaries, it may be challenging or impossible for them to retrieve the funds.
Shared access: One way to ensure the management of your cryptocurrencies after your death is by sharing access with a trusted individual. This person could be a family member, friend, or professional such as a lawyer or estate planner. By providing them with the necessary access information, such as private keys or login credentials, they can carry out your instructions regarding the distribution or transfer of your cryptocurrencies. It is crucial to choose someone reliable and inform them about your wishes and the necessary steps they need to take.
Legal processes: In some cases, the disposition of your cryptocurrencies may be subject to probate or other legal processes. If you have a will or an estate plan that explicitly includes provisions for your digital assets, such as cryptocurrencies, it can help guide the distribution or transfer of those assets after your death. By specifying your intentions and naming beneficiaries or heirs, you can provide clarity on how your cryptocurrencies should be managed. However, it’s important to note that the legal treatment of cryptocurrencies can vary across jurisdictions, and laws may still be catching up with the rapidly evolving crypto landscape.
To ensure that your wishes regarding your cryptocurrencies are properly documented and accounted for in your estate plan, it is advisable to consult with a legal professional who specializes in estate planning and digital assets. They can help you navigate the complexities of the legal system, ensure that your plan is compliant with relevant laws, and provide guidance on safeguarding your access information and private keys during your lifetime.
Overall, it is crucial to take proactive steps to address the management of your cryptocurrencies after your death. By incorporating your digital assets into your estate plan, you can help protect their value and ensure that they are handled according to your wishes, providing peace of mind for you and your loved ones.
