The importance of backing up your Crypto

The Ease of Losing Cryptocurrency: A Cautionary Tale

The robust security of cryptocurrencies comes with a significant drawback: if users lose their recovery keys, their assets become virtually irretrievable. These recovery keys, which are text-based, are generated upon the creation of a cryptocurrency wallet. They are then given to the wallet owner for safekeeping. Possession of these keys grants full access to the wallet, making them highly sensitive.

The challenge for wallet owners lies in securely and durably backing up these recovery keys. The chosen storage method must be resilient against environmental disasters such as fires and floods, as well as human threats like theft. Thus, while cryptocurrencies offer strong security, they also demand careful management of recovery keys.

In 2018, Gerald Cotten, the owner of QuadrigaCX, tragically passed away in a plane crash. He left behind crypto assets worth $250 million USD, which were irretrievable due to the absence of a backup recovery system. Similarly, Matthew Moody, an early Bitcoin miner, died in a plane crash in 2013. His family was unable to access his Bitcoin assets after his death. Another wealthy American businessma, Matthew Mellon, reportedly had $193 million in Ripple, a type of cryptocurrency. After his death, his lawyers struggled to recover his private keys. They had to request the company that owns Ripple to gradually unlock his coins. The cooperation to recover lost coins, like we see in Mellon's case, can never be expected and in most cases it's impossible.

It's estimated that over 100 billion USD worth of Bitcoin has been lost. The majority of these losses occur when the wallet owner fails to back up their recovery keys, and the device housing the wallet is subsequently lost or destroyed In some cases the owner may have stored a backup, but it wasn't done sufficiently and the backup is useless at the time it's needed. Lifelong backup solutions should not only secure the digital assets but also provide a mechanism for digital inheritance. This ensures that the assets aren’t lost forever if the owner unexpectedly passes away.

Ways to backup Cryptocurrency

Safe Deposit Box

Safety deposit boxes have long been a popular choice for crypto owners seeking secure backup storage. These boxes are relatively safe, as they are located outside the owner’s home, reducing the risk of data loss due to environment events like house fires and floods. Additionally, they serve as a point of contact for will executors during inheritance proceedings. Notably, Hal Finney, an early Bitcoin pioneer, publicly disclosed that he stored his family’s Bitcoin inheritance in a safety deposit box.

Nevertheless, safety deposit boxes are losing popularity in comparison to newer alternatives. This decline is attributed to several inherent issues associated with safety deposit boxes.

• Environmental Risks: Safety deposit boxes are still susceptible to environmental events like fires and floods at their location, which can potentially destroy the backup stored inside.
• Physical Access Challenges: Physically accessing safety deposit boxes can become difficult. Especially during natural disasters or large societal events, the 2020-2022 lockdowns being an example.
• Updating Information: The information stored in the box needs to be updated if the digital assets ever change (e.g., if you acquire new crypto assets or change a password). This requires the owner to physically access the box and replace old backup copies with new ones.
• Theft and Insider Threats: Safety deposit boxes are not immune to theft. Hundreds of cases are reported annually of items in safe boxes vanishing without any trace. Even in cases where the thieves were caught, like the 2015 Hatton Garden burglary, only a third of the stolen items were ever recovered.
• Insurance and Responsibility: Relaxed regulations mean that the contents of safety deposit boxes are uninsured, and the safe provider can deflect responsibility. There have been instances where someone’s box was resold after it was mistaken for another customer's box who had stopped paying. The owner, whose assets have been lost, has been left battling for compensation in court for years.
• Company Changes: Changes to the company that owns the safety deposit box can impact the security, availability, or location of stored assets.
• Inheritance Considerations: The box may get repossessed after payments have stopped. If the inheritance process isn't done quickly enough, the backups may get lost without recompense.

The issues inherent with safe deposit boxes have become so widespread that, in 2019, the New York Times released an article about the topic.

Storage at home and hardware wallets

For users who are unwilling to entrust a third party to hold their digital assets or wish to avoid storage fees, storing a backup of their recovery data at home remains the most common choice.

Users often store their assets on a device or hardware wallet, keeping the recovery data somewhere in their home. Some opt for a physical paper copy backup, while others choose more durable options like a Crypto seed bank in metal. However, it’s important to note that while storing wallets on a device or hardware wallet is normal, the methods of storing backup data for inheritance at home are not recommended.

Environmental events, theft, and accidents can jeopardize the integrity of the home stored backups. Furthermore, if the asset owner passes away unexpectedly, the backups they've stored at home may not be as helpful for their beneficiaries as they'd hope they are. When planning an inheritance, it’s crucial not only to have a mechanism that informs beneficiaries of what is available to be inherited but also to ensure a seamless recovery process for recipients who may not be tech savvy. Unfortunately, in some past cases, owners have had backups stored at home, but they were overlooked or discarded by individuals who didn’t fully grasp their significance.

Storing backups at home using a DIY solution is the least secure approach and often leads to complications when beneficiaries attempt to locate and recover the backup.

Cloud storage and other cryptocurrency inheritance solutions

In recent times, various cryptocurrency backup and inheritance solutions have emerged. These solutions are typically designed by and for the cryptocurrency community. Some even come with their own digital tokens that users can purchase to access the service. While these options may appeal to those seeking a digital DIY solution to inheritance, it’s important to note that they operate independently of a traditional Will, relying solely on a separate app.

While some of these apps are straightforward for cryptocurrency enthusiasts, they can prove complex for individuals who aren’t tech-savvy. If beneficiaries don’t follow the correct procedures, there’s a risk that the assets cannot be recovered.

How Cryptie helps you protect your assets

Whether you’re seeking straightforward and secure backup storage or a comprehensive inheritance solution for your assets, Cryptie can assist you.

With Cryptie Backup, you gain access to an exceptionally secure asset storage system. Our customised storage solution ensures robust protection for your assets. Even in the unlikely event of a breach at Cryptie, your assets remain safe. Furthermore, assets stored with Cryptie Backup are completely inaccessible to Cryptie or any other entity. This solution is ideal for users or businesses seeking asset safeguarding without the need for specific inheritance setup.

For customers seeking an inheritance solution, we offer Cryptie Inheritance. This service provides users with our unique inheritance technology, which seamlessly integrates into Will documents. The security features are similar to those of Cryptie Backup: a breach at Cryptie will not expose asset data, Cryptie cannot access your asset data, and the data is redundantly stored to prevent loss. The key difference is that this storage solution also includes inheritance functions.

If you have any questions or would like to inquire about a specific service, please don’t hesitate to contact us via our contact form.