We know this is a morbid subject, but it’s important to plan for all eventualities when investing in cryptocurrencies.
If you have any amount of cryptocurrency, chances are you’ve given some thought to its security. After all, what’s the use of investing your money in assets if other people can easily steal it?
But there’s another aspect of cryptographic security that’s just as important and often overlooked by novice and experienced users alike: what happens to your crypto after you die?
This may seem like an obvious consideration, but according to Glass node data from late 2020, it is estimated that more than 10% of the circulating supply of Bitcoin is lost forever. Of course, it’s impossible to know exactly how these coins got lost, but we can assume that at least some of them are the result of people not taking the right actions after their death.
The security trade-off and importance of selecting the right person
Before we discuss the steps you must take to adequately protect your assets, it is important to first understand the significant security tradeoff that comes with letting one or more other people know where and how to access your cryptocurrency-based assets.
Choosing the right person to give your crypto assets to is a lot more complex than it seems. It’s not just about trust, it’s also about how technologically savvy that particular person or group of people is.
For example, A has five bitcoins (BTC) that he wants to leave to his wife B if he dies. However, B has no idea how to use a hardware wallet or exchange. This means finding or hiring someone to help you access the funds, which can pose a significant security risk, or trying to learn how to use these platforms and devices. Again, this poses a security risk considering how easy it is to send crypto to the wrong address, break devices, or withdraw assets with the wrong token standards.
What steps all crypto users should take
Once you have decided who you will choose as the beneficiary of your crypto funds, the next step is to outline the process for locating and claiming those funds.
Location of your funds
The first piece of information to include in your instructions is where to find your assets. This includes the physical location of any hardware wallets you own, as well as the active wallets where you have crypto stored.
If your assets are in multiple locations, For example, in decentralized finance (Defi) liquidity pools, centralized exchanges, and non-fungible token (NFT) markets, it might be a good idea to consolidate them into crypto wallets that support multiple types of assets. MetaMask is an example of a service that allows you to store both fungible and non-fungible tokens in a single, easily accessible wallet.
Passwords, private keys and backup codes
Second, you must carefully list all the passwords, private keys, and seed phrases for crypto wallets, email accounts, and exchange accounts that are required to access your funds.
If you have two-factor authentication (2FA) enabled, you will also need to provide the location and password of the device on which the app is stored, or a list of unique 2FA security codes.
You may want to include steps on how you want your beneficiary to deal with or liquidate your assets. This could include instructions on which exchange is best to use or a quick guide on how to set up your own wallet and transfer the funds.
How to copy down your sensitive cryptographic information
Making copies of your private cryptographic information does not mean writing your opening phrases on a sticky note and sticking it on the fridge or emailing the information.
This information must be copied on paper and duplicated multiple times. Ideally, each copy should be stored in different locations to eliminate single sources of error. For example, if you only keep a paper copy on a bedside table and the house burns down, your beneficiary would never be able to access the funds; This may sound a bit far-fetched, but it can happen.