As your crypto investments could grow to a significant percentage of your total investments, sometimes even overnight, experts advise you make a plan for your crypto in the event you pass away.
Crypto accounts aren't like traditional investment accounts. They can be more vulnerable to security issues, and you generally can't name a beneficiary.
For example, if you store your crypto on a physical device at home and someone happens to know your key – a password of sorts that grants access to a crypto wallet – your crypto could easily be stolen.
So it's important to understand how to safely store your crypto and communicate your wishes with your loved ones, just like you would with any other valuable asset.
Know how your crypto is stored
You trade and store crypto in wallets, but not the leather kind. Crypto wallets can either be digital and managed on an app or website, or physical like a flash drive. The kind you choose depends on what you intend to do with your crypto.
Hot Wallets: These are used for trading and purchasing crypto. The upside is they're typically free and convenient, but the downside is they're less secure because they're always connected to the internet.
Cold Wallets: These are used to store crypto for a longer period of time. Think of it like putting your crypto in a freezer.
The hot wallet is like a current account - with money moving in and out - while the cold wallet is more like a savings account, where you park money for a longer time. You can have both at the same time.
Whoever holds the keys – that is, who maintains custody over a password of randomly generated numbers and letters – has access to your crypto. It could be you, a third-party crypto exchange or a hybrid of both.
When it keeps to keeping crypto with you, don't store more than you're willing to lose on a third-party exchange as a long-term solution, experts recommend. As you don't control the keys, they could freeze your funds or get attacked. This is why experts recommends a ‘self-custody’ or ‘hybrid’ wallet option as the value of your crypto grows.
However, when it comes to storing crypto through the hybrid option, it is nothing but a cryptocurrency storage and management system that is a combination of a software wallet (stored on your own computer) and a web wallet (stored on a third-party server).
Keep your crypto secure, yet accessible
A cold wallet can be a small physical storage device that's easy to misplace. Your cold wallet requires a PIN code for access, plus you set up a recovery phrase as a backup in case you lose your key.
According to crypto experts, a safe at home or a safety deposit box at a bank is a must, but don't store your cold wallet in the same place as the note containing your key, PIN and recovery phrase.
Above all, design a storage method that makes sense. Experts also advise that one not make some complicated system that you can't remember. There have been times people write down their keys and cut the paper into three pieces, hiding each piece in a separate location. While it sounds like a good idea, it’s never recommended. If you lose one of those three, it's gone forever. You've tripled your risk.
Make a detailed plan for loved ones
Name a beneficiary in your will and add a document to your will or investment inheritance plan that lists your crypto assets and any passwords, PINs, keys and instructions to find your cold wallet. If you have an account at a cryptocurrency exchange, your beneficiary can contact customer support to notify them of your death.
According to a crypto exchange platforms, there is a process in place to guide next of kin, including one-on-one assistance from an analyst. Some require a death certificate and power of attorney to initiate a transfer out of a deceased person's account.
Platforms worldwide are looking to to simplify this process in the future and working to add account beneficiaries functionality to our platform.
Update your plan and your wallet
Ensure that your assets will go to the right people by keeping your will updated, especially after a life change like marriage or divorce. Provide up-to-date instructions so beneficiaries can access your assets.
Cold wallets need maintenance, too, in the form of periodic firmware updates. This can help lessen the burden on your loved ones and hopefully prevent legal battles as they settle your wealth after your death.
Crypto has the potential to be a very explosive thing because the value can be so huge so quickly,'' experts further explain. When you think about five, 10 years from now, we're potentially talking about a whole lot of money.
