The basics you should know to keep your coins safe.
Crypto currency is all the rage and continues to make some physician coin investors small fortunes even as prices swing widely and scams emerge. These are some basic defensive measures to keep your digital wallet safe.
One common bundle of myths about cryptocurrency is, “My coin is creditor proof because it’s secret and no can find it and only I have the key”. Here’s why that’s false and why you shouldn’t hold crypto currency, (or for that matter, any significant amount of non-qualified investment, savings, or other assets) in your own name:
Crypto assets held in your own name are subject to all your personal and professional liabilities, just like all your other liquid assets. As such, holding your coin through a properly structured legal entity that is legally distinct from your unrelated risks is best practice. Some commonly used holding structures include LLCs, Limited Partnerships, and irrevocable trust structures. Long term investors can also consider making their crypto holdings an “exempt’ asset by investing in them through qualified, and legally protected retirement plans including self-directed IRAs.
Your estate plan should include your valuable digital assets including your crypto holdings. At a minimum, it should allow the trustee of your estate to identify, take control of, and manage those assets. Some of the basics your crypto estate plan should include are:
You may have seen horror stories about wallets ranging from thousands to millions of dollars in value being lost when a password is lost or physical device is lost, stolen or destroyed. If you are using a physical device, it should be stored in a water and fire-resistant document safe to protect it from basic, recurring risks like flood, fire, hurricane or burglary.
Make sure you understand the security differences in the basic ways you can hold coin. As a recent Tech Radar report explains,
“Despite being a digital currency, there are four different forms of storage for your Bitcoin to choose from: mobile wallets, desktop wallets, web-based wallets, and physical hardware that acts as a wallet”.
The report also advises that Bitcoin.org itself advises that you maintain two separate wallets, one with limited funds for trading and daily access referred to as a “hot” wallet and a secure, physical, offline “hot wallet” that’s stored in a safe and holds the bulk of your coin. The digital nature of purely online wallets means they are always vulnerable to online hacking and malware, so spreading your risk between several holding methods, including keeping the bulk of your holdings offline on a hardware device, is highly recommended.