Asset Protection

Digital Wealth Defense: 3 Essential Cryptocurrency Protection Strategies

October 5, 2023
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8 min read

Cryptocurrencies are no longer buzzwords or unprofitable fads. Instead, crypto tokens are legitimate means to wealth and business growth for a variety of high-net-worth individuals and investors. Indeed, Cryptocurrency investment is disproportionally made up of high earners, especially those who make hundreds of thousands of dollars annually.

If you have cryptocurrency for your personal investments or for your business, you need to know how to protect it. Partially by nature of being a completely digital currency, crypto tokens are uniquely vulnerable to a wide range of different cyber threats. With that in mind, let’s break down the three essential cryptocurrency protection strategies you can adopt right now.

Use Cold Wallets for Your Crypto Tokens

Cold wallets sound high-tech, but they’re actually quite simple: they are simply digital crypto wallets that are disconnected from the Internet. Think of them as akin to external hard drives, which can be plugged into a computer or unplugged when you don’t want any remote access to them.

Crypto cold wallets use the same encryption protocols and security methods as other wallets, sometimes called “hot wallets” (i.e., wallets connected to the Internet 24/7). You still need your crypto wallet key and other personal information to access the contents within. 

The core difference is that cold wallets can’t be connected to remotely under any circumstances. They can only connect to a computer or other device via a hard connection, like a USB wire.

Why It Matters

Cold wallets matter for one big reason: they make it practically impossible for digital attackers to steal your crypto tokens by accessing your crypto wallet.

If all of your crypto tokens are "held" offline via a cold wallet, it doesn't really matter if a would-be attacker has access to your encryption key or your wallet information. They won't be able to access the wallet unless they physically get their hands on it.

Removing your crypto tokens from potential theft is one of the best ways to protect your crypto portfolio, especially in the long term. It may be wise to get in the habit of using cold and hot wallets together.

Say you want to do some crypto trading in the near future. Rather than having all of your crypto tokens available, have only 10% on a hot wallet and the other 90% on a cold wallet. After all, it's unlikely you'll trade with the entirety of your current crypto portfolio, no matter how good a deal looks to be!

Diversify Your Crypto Assets

Everyone who has ever invested in the stock market knows the value of investment diversification. The same is true when it comes to crypto investments.

At their core, crypto tokens are investments, as you purchase different cryptocurrencies in the hope that they increase in value over time. Just like you wouldn’t put all of your financial investment cash into a single market asset, like one stock or ETF, you should never put all of your cryptocurrency investment funds into a single crypto token (not even Bitcoin).

Instead, it’s much wiser to diversify your crypto assets, especially if you want to ensure the health and long-term financial viability of your crypto portfolio for years into the future.

Why It Matters

Diversifying your crypto assets is highly important for protecting your portfolio in the event of a market upset.

Say that, through a combination of factors, Bitcoin’s value starts to plummet. If all of your crypto tokens are Bitcoins, that means the value of your portfolio will also plummet simultaneously. In contrast, if you have crypto investments across a variety of different tokens and smart blockchain networks, you don’t have to worry nearly as much if one coin’s value starts to fall or fluctuate.

This is perhaps the best way to protect your portfolio over the decades to come. Cryptocurrency is still in its infancy, and it’s likely there will be lots of market upsets in the short to mid-term future. Having lots of different investments will insulate your wealth and allow you to adapt smartly and wisely to changing financial situations.

Hire a Specialty Crypto Services Vendor

There are specialists for financial protection, wealth management, and wealth growth in the fiat currency or traditional market sector. But there are also specialized crypto services vendors who do some of the same things.

For instance, many specialty crypto services vendors can provide anti-money laundering (AML) or know your customer (KYC) services and checks. They can also provide compliance, administrative, and investment functions, essentially acting as investment officers or managers for your crypto portfolio.

As a high-net-worth executive or other individual, it may pay (in both security and profit) to hire a specialty crypto services vendor at the earliest opportunity.

Why It Matters

You’ve become an expert in your industry or market niche. But unless you exclusively trade in crypto tokens, odds are you aren’t an expert when it comes to crypto prices, market motions, and due diligence.

A crypto services vendor can do all of that for you and more. Think about it. As a high-net-worth individual, you spend your time doing things other than managing your money and watching numbers go up and down. Instead, you hire financial advisors and wealth managers to do the lion's share of the work for you.

You can do the exact same thing with your valuable crypto portfolio. As an example, a crypto services vendor can monitor your portfolio and make sure that money laundering doesn’t impact your finances. 

Know your customer checks can also do due diligence and background research on future trading partners: an especially important benefit if you plan to make a large purchase with crypto tokens sometime in the near future.

Third-party, specialized digital asset custodians can also help you meet any custody regulatory requirements, which may become more important as you accumulate more crypto wealth. They can provide accounting and audits of your assets so you don’t break any rules and so your crypto portfolio is as legally ironclad as possible.

Bottom line: the crypto services vendor can make sure that your portfolio is as healthy as possible and free up valuable time and energy for you to pursue other investments, build a business, or consider where your next transactions should take place.

All of these strategies combined can do wonders to protect your cryptocurrency from dedicated attackers and from general market forces. If you adopt all of them together, your portfolio will remain resilient and valuable even as others collapse over time.

The Same Principles Apply to Asset Defense

Safeguarding your crypto tokens is crucial. But the same is true for safeguarding any physical assets or traditional fiat currencies you want to keep protected for years to come. Fortunately, you can adopt many of the above strategies when it comes to other asset defense efforts.

As an example, using a cold wallet for your crypto tokens can be likened to storing liquid capital, real estate, and other vulnerable property in an asset protection trust, preferably in an offshore jurisdiction. That way, those assets will not be accessible by your legal opponents, nor will your legal enemies be able to demand that you pay bills or creditor claims with them.

Of course, defending fiat currencies and other physical assets is a completely different beast compared to crypto protection. That’s why you should get in touch with the experts at Dominion. Our knowledgeable representatives and legal advisors can help you formulate the best asset protection strategy for your needs, so contact us today.


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