Crypto Wealth Planning and Asset Protection in 20238 December 2022
Blockchain & Cryptocurrency, Wills, Probate and Inheritance, Private Clients
According to a September 2022 survey by HANetf, approximately 75% of major wealth management firms across Europe expect to embrace cryptocurrencies over the next 12 months. With crypto demands hitting all-time highs, practising safe and thorough wealth planning around cryptocurrencies is increasingly essential. As with any asset of considerable value, cryptocurrency investment requires asset management and wealth planning.
When securing the future of tangible assets, you can rely on more traditional tools and methods, such as wills. These methods can be agreed upon and prepared by your lawyers; they may detail your property, shares, etc. and contain various clauses and conditions.
Given the autonomous and intangible nature of the crypto world, however, traditional methods are often insufficient for adequately protecting and managing tokens. Therefore, when operating under such conditions with a heightened risk for fraud, there is an increased need for safe token management.
Crypto Asset Management Practices and Wealth Planning
Storing Crypto Assets
Since crypto assets are intangible, there are various ways to store them. For instance, crypto owners can hold crypto assets in an account on a cryptocurrency exchange web platform or application. They can also store assets in different types of wallets, including web-based or mobile wallets (known as ‘hot wallets’) or hardware-based wallets like computers (referred to as ‘cold wallets’).
Crypto wallets are an irreplaceable tool for trading cryptocurrencies. Investors may rely on these to securely store crypto as well as protect and validate transaction information.
Accessing Crypto Assets
To access crypto assets or transfer them, an owner typically needs the public address (to receive funds) and the private key (to spend funds). One of the biggest dangers in crypto assets security is the individual user losing their private key or having it stolen, as either of these situations would prevent them from accessing their funds.
In addition to the public address and private key, the seed phrase (a series of words generated by a crypto wallet) is one of the most critical pieces of information that crypto owners must keep safe because it provides access to all coins within an owner’s wallet.
Even if an owner never intentionally shares their seed phrase or private key, someone might find it if not properly stored. That is why some investors choose to split their assets and then store each of their holdings in different locations.
A “two-factor authentication” is recommended when possible. It requires entering a one-time-use code in addition to the primary password to gain account access. This code is usually sent to a user’s mobile phone via SMS or generated in dedicated mobile apps, such as Google Authenticator.
Crypto Asset Management Platforms
Crypto exchanges refer to a platform on which you can buy and sell cryptocurrencies; these platforms hold an owner’s key.
Emerging crypto asset management platforms are becoming increasingly important, and they aim to simplify the process by helping users consolidate their holdings while simultaneously providing improved portfolio management tools.
However, investors should be cautious regarding the appearance of virtual advertisements (e.g., Google Ads), which lead to malicious websites whose sole purpose is to steal information via phishing. Therefore, before inputting any information into a crypto asset management platform, it is imperative that crypto owners double and even triple check the website.
It is good practice to identify the applicable regulation to crypto assets in one’s country of residence, as countries vary in terms of provisions. Many countries lack regulation surrounding platforms that operate and provide crypto asset management services, for example.
Protecting Crypto Assets in Bulgaria
Bulgarian law permits a centralised check at the Bulgarian National Bank of all cards, bank accounts and safety boxes held in the name of a deceased. This law enables citizens to share information regarding wealth arrangements with trusted individuals. While this practice is generally considered a standard check, you may wish to inform your trusted individuals about how and where your crypto assets are stored to ensure this is not missed.
You may need to choose a trusted person or persons to share any details in advance. Without detailed information about your assets and passwords, your heirs may be deprived of access to the funds.
It is recommended to write instructions on how trusted individuals can access your crypto assets. These instructions should include information on where the currency is stored, as well as information surrounding the private keys, seed phrases, and other relevant instructions about how you operate your funds.
You may consider locking information on crypto assets and respective pins in different safety boxes. This practice also serves as a solution if you keep a significant amount of crypto on hardware.
For more information on crypto wealth planning, please contact us at [email protected]. Learn more about our assistance with wills, probate and inheritance here.