Measures to Protect Your Cryptocurrency Wallet

Barrett StricklandUpdated at: Dec 17th, 2019

How to protect your cryptocurrency wallet

With bitcoin and other cryptocurrency prices surging, online wallets are now a prime target for hackers around the world. We’ve helped a handful of our clients who have had their personal wallets hacked, and there have also been some major cryptocurrency exchanges hacked as well.

Some notorious exchange hacks include Mt. Gox, BitFloor, Poloniex, Bitstamp, Bitfinex, and most recently, Binance, with losses totaling millions of dollars at historical BTC/USD exchange rates. 

Security of your digital assets depends on the underlying wallet infrastructure

Cryptocurrency wallets have the same vulnerabilities as any online account. Even though transactions on blockchain are transparent and trackable, insecure wallets on exchanges and individual online wallets are only as safe as the underlying infrastructure.

While you cannot control the security practices of the exchanges you are using, it is a good idea to research their best practices. Additionally, your individual wallets are at risk unless you take proper security measures, like properly using offline wallets.

You should be diligent on securing any emails associated with your accounts; passwords are easier to hack than most people realize. A best practice is to use two-factor authentication on all of your email accounts to help prevent unauthorized access. As always, be leery of email scams and any unknown links.

If your cryptocurrency is stolen, you may be able to claim losses

In case of hacked wallets, your lost cryptocurrency is reported for tax purposes as either a worthless security or a casualty loss, which your CPA can determine on a case-by-case basis depending on the tax year of the loss. If you have insurance, you may also be able to recover losses on a case-by-case basis depending on your policy.

TokenTax has developed software which allows you to track your lost cryptocurrency with a “Stolen” indicator. The losses are then converted to USD equivalent amounts and aggregated to be reported on your tax forms by your CPA or an in-house TokenTax accountant.

To stay up to date on the latest, follow TokenTax on Twitter @tokentax.

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