How To Keep Your Cryptocurrency Secure

Cryptocurrency is taking the world of personal finance by storm.

Bitcoin, and the hundreds of alternatives that came after it, have captured the imaginations of millions, who believe that these digital coins offer a superior alternative to fiat currency.

It's difficult to argue against the fact that cryptocurrency provides a better hedge against inflation, better rates for overseas transfer, and a faster speed of transfer.

However, there are still some question marks surrounding the security of digital wallets.

There are many instances of people losing access to their cryptocurrency by not being careful enough with their digital wallets.

Below, we highlight some key steps to ensure you don't lose access to your cryptocurrency.

Taking care of your login details

If you choose digital wallet linked to an online cryptocurrency exchange (or a 'hot wallet'), you will be given a digital key and a password in order to log in.

If you lose these, you'll be given the opportunity to log in with a 16 word password.

Lose this and you'll be locked out of your of your wallet forever, and lose access to all of your cryptocurrency. 

If someone else gets access to your digital wallet credentials, logs in, and steals your funds, there is no way to retrieve them.

It's also highly unlikely that you'll ever see your funds in the case of a cyber-criminal hacking into your choice of cryptocurrency exchange and stealing your funds this way. This is what happened several times to Mt Gox.

Essentially, you need to choose your exchange wisely and keep your login details safe, but not so safe that you lose them yourself.

Cold wallets

If you don't want to trust the security of your cryptocurrency in the hands of a cryptocurrency exchange, you have the option to transfer your funds to an offline wallet. These are also known as 'cold wallets'.

Your main choices of 'cold wallets' are hardware wallets, which work similarly to a USB stick, or a paper wallet, which is two QR codes printed on to a piece of paper. The downside to cold wallets is that if they're lost or stolen, so are your funds.

Once again, there are no protections in place to help you retrieve your funds if this happens.

How to bequeath your funds after you die

Bequeathing your cryptocurrency to others after your death isn’t as simple as it is for other assets.

After all, your heirs need to get hold of your private key, which you probably don’t want anyone to see before your death. You could choose to include a private key in a ‘closed will’. No-one has to view this type of will before your death, so it’s probably your most secure traditional option. 

A multi-signature wallet, where two out of three private keys need to activated in order to transfer funds, could be another option. You could give one key to an heir and another to a notary. Provided both of these live longer than you, this would help your heir get hold of your funds after your death.

An after-death email service could also work, although it’s recommended you set one up with your own hosting to increase security.

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