Protecting Digital Assets: Passwords, Crypto, and More

Digital assets include online accounts, passwords, digital identities, cryptocurrency, NFTs, cloud storage, and any data that has financial or personal value. Over the last 15 years working with clients, I’ve seen two patterns repeat: (1) simple, low-cost controls stop most attacks, and (2) the highest losses come from unclear custody and poor recovery planning. This guide gives clear, actionable steps you can apply today and links to deeper resources.

Sources and authorities I reference include the U.S. Cybersecurity & Infrastructure Security Agency (CISA), the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), the IRS on crypto guidance, and NIST password guidance. These are included below for further reading. This is educational information, not individualized legal, tax, or investment advice—consult a professional for your situation.

Why protecting digital assets matters

• Financial loss: Unauthorized access can drain bank and crypto accounts.
• Identity theft: Stolen credentials lead to loan fraud, tax identity theft, and credit damage (FTC).
• Irrecoverable crypto loss: Losing a private key or recovery phrase often means permanent loss of funds (IRS & CFPB guidance highlight custody risks).
• Business continuity and estate issues: Without clear instructions, heirs can’t access accounts or recover assets—plan for a digital executor.

For help planning access and inheritance of online accounts, see our guide on Digital Executors and managing online accounts in an estate: “Digital Executor: Managing Online Accounts and Passwords in an Estate”.

Quick checklist (do these now)

1. Use a reputable password manager and move all unique passwords into it.
2. Enable two‑factor authentication (2FA) on email, financial, and exchange accounts—prefer authenticator apps or hardware keys, not SMS.
3. Back up recovery phrases or private keys offline in at least two secure locations (paper/steel + safe deposit box or home safe).
4. Inventory your digital accounts and document access steps for a trusted, named digital executor.
5. Keep software, wallets, and devices up to date and run reputable security software on PCs.

Passwords and password managers: practical rules

• Favor long passphrases over short complex passwords: aim for 12–16+ characters or a memorable phrase—length beats complexity for human-memorizable secrets (NIST SP 800-63B guidance).
• Use a password manager (examples I’ve used with clients include 1Password and Bitwarden). A good manager lets you create truly unique passwords for every site and fill them securely.
• Master password: Make it long and memorable. Enable the manager’s built-in 2FA and local encryption features.
• Avoid password reuse. Reused passwords are the most common cause of multi-account compromise.
• Recovery options: Remove or secure account recovery methods that are weaker than your password (security questions, SMS recovery). Prefer backup codes stored in your manager or printed and stored securely.

Resources: NIST SP 800‑63B (password guidance) and guidance from CISA on account hardening.

Two‑factor and multi‑factor authentication (2FA/MFA)

• Use an authenticator app (Google Authenticator, Authy, Microsoft Authenticator, or a hardware security key) or FIDO2/U2F hardware tokens (YubiKey) for strong second factors.
• Avoid SMS for 2FA when possible—SMS can be intercepted or SIM swapped (CISA & NIST discourage SMS as a sole second factor).
• Backup your 2FA method: export and securely store backup codes or use an authenticator app that syncs to an encrypted cloud backup if you trust its security model.

Cryptocurrency custody: custodial vs non‑custodial choices

• Custodial platforms (exchanges, custodial wallets): The provider holds private keys and provides convenience but creates counterparty risk and potential loss if the provider is hacked or insolvent. The IRS and CFPB note that custodial exposure has different legal and tax implications than owning private keys.
• Non‑custodial wallets (you control private keys): Provides control and privacy but also responsibility—lose the key, lose the assets. Best practices for non‑custodial custody:
• Use hardware wallets (e.g., Ledger, Trezor) for significant balances and confirm firmware authenticity before initial setup.
• Use multisig (multiple keys required to move funds) for business accounts or high‑value holdings; it reduces single‑point failures.
• Protect seed phrases: write them on non‑corroding steel (Cryptosteel or similar), and store copies in physically separate, secure locations (e.g., home safe + safe deposit box). Consider Shamir Backup for supported wallets if you need split recovery.

Never enter your seed phrase into a website or share it with anyone claiming to be support. Scammers impersonate exchanges and wallet providers to trick users into revealing secrets.

For technical tax implications and reporting obligations related to crypto transactions, see our glossary piece “How Cryptocurrency Transactions Are Reported on Tax Forms.”

Hardware wallets, backups, and recovery

• Hardware wallets securely store private keys offline. Always buy from manufacturers directly to avoid tampered devices. Check device authenticity and firmware.
• Backups: Keep at least two independent backups of the recovery phrase in different physical locations. Consider a third for disaster recovery.
• Test recovery before moving large sums. Set up a wallet from your backup in a controlled test to confirm you can recover funds.
• Consider legal arrangements: For estate planning, you can place instructions or encrypted backup copies with your attorney or in a trust, but avoid storing raw seed phrases in wills or unencrypted documents.

Threats and scam recognition

• Phishing and smishing: Never click links in unsolicited emails or texts about account problems. Verify domain names and contact providers directly. (FTC & CISA lists common red flags.)
• Social engineering: Attackers impersonate support, family, or emergency situations. Pause and verify identity through known channels before acting.
• Fake apps and browser extensions: Only install wallet and banking apps from official stores and confirm publisher identity.

See our article “Protecting Yourself from Imposter Scams Online” for common red flags and response steps.

Estate planning and digital executor considerations

• Inventory: Create a secure inventory of accounts, providers, and the steps needed to access them. Do not store plaintext passwords or seed phrases in unsecured documents.
• Digital executor: Name a trusted person and provide them with a legally appropriate way to access accounts—see “Digital Executor: Managing Online Accounts and Passwords in an Estate.”
• Trusts: For high-value crypto holdings, a revocable trust with structured custody or multi‑sig arrangements can help heirs access assets without exposing keys publicly—consult an attorney experienced in digital assets.

Policies for businesses and families

• Least privilege: Grant the minimum access needed to users and revoke old accounts.
• Regular audits: Quarterly reviews of account access, signed-in devices, and active 2FA methods.
• Incident plan: Prepare a step‑by‑step response plan for suspected compromise (change passwords, lock accounts, notify institutions, and follow recovery steps).

Common mistakes I see in practice

• Relying on a single device or person for key custody.
• Storing seed phrases or passwords in email or cloud storage without strong encryption.
• Waiting to create a recovery plan—planning after a loss is too late.

Practical timeline for implementing stronger protections (30/60/90 days)

• 30 days: Move passwords into a manager, enable 2FA on critical accounts, and make a simple inventory.
• 60 days: Buy and configure a hardware wallet for any meaningful crypto holdings; set up backups and test recovery.
• 90 days: Formalize a digital executor plan and consult an estate attorney for high-value digital assets.

What to do if you’re compromised

1. Immediately change passwords for affected accounts using a different device.
2. Revoke active sessions and reset 2FA where possible.
3. Contact your bank, exchange, and card issuers; file a report with the FTC (identitytheft.gov).
4. If crypto was stolen, report to the exchange and local law enforcement—fund recovery is often difficult but reporting helps investigations.
5. Consider a credit freeze and monitor credit reports.

FAQs (short)

• How long should a password be? Aim for 12–16+ characters or a long passphrase; length offers better protection than forced complexity alone (NIST).
• Is SMS 2FA safe? It’s better than nothing but vulnerable to SIM swaps; prefer authenticator apps or hardware tokens.
• Should I keep crypto on exchanges? For small or trading balances, exchanges are convenient; for long‑term holdings, self‑custody with hardware wallets is safer.

Resources and official guidance

• CISA: Cybersecurity resources and account hardening guides (cisa.gov).
• FTC: Identity theft and recovery steps (identitytheft.gov).
• IRS: Virtual currency guidance and tax FAQs (irs.gov/cryptocurrency).
• CFPB: Consumer guidance on digital account safety (consumerfinance.gov).
• NIST SP 800‑63B: Digital identity guidelines for authentication and password best practices.

Closing and professional disclaimer

Protecting digital assets is a mix of technology, procedure, and legal planning. In my practice, clients who apply layered defenses—strong passphrases stored in a manager, hardware wallets for significant crypto holdings, clear recovery procedures, and named digital executors—avoid the biggest losses. This article is educational and not a substitute for tailored legal, tax, or investment advice. Consult a qualified professional to adapt these recommendations to your situation.

Internal links

• Digital executor and estate access: “Digital Executor: Managing Online Accounts and Passwords in an Estate” (https://finhelp.io/glossary/digital-executor-managing-online-accounts-and-passwords-in-an-estate/)
• Crypto custody and protection strategies: “Protecting Digital Wealth: Strategies for Crypto and NFT Assets” (https://finhelp.io/glossary/protecting-digital-wealth-strategies-for-crypto-and-nft-assets/)