Cybersecurity and Digital Asset Protection: How to protect digital wealth?
In an increasingly digital world, the importance of cybersecurity has never been more critical. As digital currencies and intellectual property (IP) become integral components of personal and business wealth, ensuring their protection is essential for a comprehensive asset protection strategy. In this article, we will explore the urgent need for safeguarding cryptocurrencies and how the Bridge Trust® can be tailored to include these digital assets, providing robust protection and peace of mind.
The Rise of Digital Assets
The advent of blockchain technology and the proliferation of cryptocurrencies have revolutionized the financial landscape. Cryptocurrencies, like Bitcoin and Ethereum, offer decentralized forms of ownership, allowing individuals to conduct transactions without intermediaries. Similarly, intellectual property assets, such as patents, trademarks, and copyrights, have become increasingly valuable as digital innovations pave the way for new business models.
However, with the rise of these digital assets comes a corresponding increase in vulnerabilities. Cyber threats, hacking, fraud, and the risk of loss due to negligence or mismanagement. Just look at Sam Bankman-Fried of FTX, Do Kwon or Terraform Labs, Alex Mashinsky of Celsius, Ben Delo of MitMEX and others. All this poses significant challenges that can jeopardize the value of these assets. Therefore, a proactive approach to digital asset protection is vital.
The Importance of Protecting Cryptocurrencies
Cryptocurrencies are particularly vulnerable to various cybersecurity threats, including:
1. Hacking and Theft: Digital wallets and exchanges are prime targets for hackers looking to steal cryptocurrencies. Once stolen, these assets can be challenging, if not impossible, to recover.
2. Phishing Attacks: Cybercriminals often deploy phishing tactics to deceive individuals into revealing private keys or login credentials to their digital wallets, leading to the loss of assets.
3. Lack of Regulation: The decentralized nature of cryptocurrencies means that regulatory frameworks are still developing. This lack of oversight can expose owners to risks without the usual consumer protections.
4. Market Volatility: The volatile nature of cryptocurrencies makes it essential to secure them as part of a broader investment strategy, enabling individuals to mitigate losses during market downturns.
A Common Misunderstanding Among Investors
Many cryptocurrency investors mistakenly believe that because cryptocurrencies offer anonymity and decentralization, additional steps to protect these assets are unnecessary. It may seem easy to transfer any amount of crypto to various wallets that only you can access, and due to the anonymity granted by blockchain technology, there is often little public knowledge regarding wallet ownership. Furthermore, it appears courts cannot gain access to these wallets through legal action.
However, this perspective overlooks a critical point: The only way for you to protect crypto with just a wallet is to be willing to lie under oath.
When purchasing cryptocurrency, there’s typically a recorded transaction, as exchanges like Coinbase and Gemini maintain logs of trades, which they ultimately report to government authorities. While the early years of cryptocurrency may have felt like the wild west, the reality is that regulatory scrutiny is intensifying. Transparency and accountability in cryptocurrency transactions will become increasingly established, indicating that tracking how much cryptocurrency you have purchased, when you acquired it, and at what price will be easier than many anticipate.
Even if you mined your crypto years ago and believe no one knows you have it, you could still face significant legal exposure if challenged in court. For instance, during a debtor’s exam, you might be asked, “Do you have any digital currency, cryptocurrency, NFTs, or any other digital asset in any form or in any location, wallet, staking service, or any other storage or investment location anywhere in the world?”
The answer must be yes! Following this, creditors will pursue detailed inquiries about the quantity of your digital currency, its location, and who holds the keys and passwords. If you are the keyholder, that information could easily lead a creditor to petition the court to order you to transfer your currency to satisfy a judgment.
Tempting as it may seem to omit information or understate your holdings, doing so risks criminal charges of perjury—a serious offense that can lead to imprisonment.
The Need for a Comprehensive Asset Protection Plan
This dilemma underscores the value of having a solid asset protection plan in place. By incorporating cryptocurrencies into your asset protection structure, you can avoid the pitfalls of having to hide your digital assets or provide misleading information under oath.
Moving to Puerto Rico: A Misguided Strategy for Crypto Investors
Many cryptocurrency investors are drawn to Puerto Rico for its tax incentives, particularly Act 22 (now part of Act 60), which offers significant tax benefits for new residents. While such incentives may provide some relief on capital gains taxes, it is crucial to understand that moving to Puerto Rico does not serve as a robust form of asset protection.
Firstly, U.S. federal court judgments are enforceable in Puerto Rico. This means that if you were to face a lawsuit on the mainland and lose, a creditor could still pursue legal actions to enforce that judgment in Puerto Rico, potentially putting your assets at risk.
Moreover, many cryptocurrency investors harbor a deep mistrust of banks and governmental institutions, operating under the illusion that cryptocurrencies are fundamentally protected from such risks. This belief can lead to complacency regarding the importance of safeguarding their digital currencies. The reality is that merely relocating does not insulate your assets; protecting your cryptocurrencies requires a thorough approach.
This is where the Bridge Trust® becomes an essential tool in your asset protection arsenal. Unlike an isolated move, the Bridge Trust can offer comprehensive protection against creditors and legal claims, ensuring your digital assets remain secure, regardless of your jurisdiction. By structuring your assets within a trust, you safeguard them from the potential liabilities associated with being a crypto investor while ensuring greater compliance with evolving regulations.
The Bridge Trust®: Protecting Digital Assets
A Bridge Trust® is a powerful asset protection tool that can effectively safeguard not only traditional assets but also digital currencies and intellectual property. By establishing an irrevocable trust structure, individuals can protect their digital assets from potential creditors, lawsuits, and other vulnerabilities.
How the Bridge Trust® Works
Here’s how the Bridge Trust® can be tailored to include and protect cryptocurrencies and intellectual property:
1. Irrevocable Structure: Once assets are transferred into the Bridge Trust®, they are no longer owned by the individual, which removes them from the reach of creditors and legal claims. This is particularly beneficial in protecting digital assets from the risks presented by lawsuits or bankruptcy.
2. Transferring Digital Wallets and Exchanges: To ensure that cryptocurrencies are owned by the Trust, it is crucial to transfer ownership of wallets and exchanges into the trust. If, in the future, there is a need to protect these assets further and transfer control of the trust fully to an offshore trustee, a new wallet can be established. At that point, the cryptocurrencies can be moved to this new wallet, which may feature a whitelist-only transfer option, allowing transfers only back to pre-approved wallets. This strategy significantly enhances security by limiting whom the assets can be transferred to.
3. Asset Segregation: The trust can hold various assets, including digital wallets containing cryptocurrencies and rights to digital intellectual property. This segregation ensures that these assets are distinctly separated from personal holdings, enhancing protection.
4. Control and Management Provisions: Although the assets are owned by the trust, the original owner can maintain significant control over the management of those assets through designated trusts or trustees. This may include stipulating how the assets are to be used, invested, or distributed.
5. Digital and IP Component: The Bridge Trust® can specifically account for the unique attributes of digital assets. For example, the trust can outline specific protocols for managing cryptocurrency wallets, utilizing secure vault technology, or implementing multi-signature requirements to enhance security. Regarding intellectual property, the trust can detail usage rights, royalties, and licensing agreements.
Hypothetical Examples
To illustrate how the Bridge Trust® could protect digital assets, let’s look at a couple of hypothetical scenarios:
Example 1: Safeguarding Cryptocurrency Holdings
Imagine Julia, a savvy investor who has accumulated $500,000 in various cryptocurrencies. Recognizing the volatility of the market and the risk of cybersecurity threats, Julia decides to establish a Bridge Trust®.
By transferring her cryptocurrency holdings into the Bridge Trust®, she effectively shields these assets from potential lawsuits resulting from her business ventures. After creating the trust, Julia transfers ownership of her digital wallets and cryptocurrency exchanges into the trust. The trust documents stipulate that if ever needed in the future, a new wallet will be created to further enhance security by whitelisting only her approved wallets for transfers.
In the event that Julia faces a lawsuit related to her business, her cryptocurrency assets housed within the Bridge Trust® remain protected, ensuring her investments are secure and intact.
Example 2: Protecting Intellectual Property
Now consider Mike, an entrepreneur who has developed a revolutionary app that addresses health and wellness. The app’s unique algorithm, trademarks, and copyrights constitute valuable intellectual property worth millions.
To protect these assets, Mike creates a Bridge Trust® that specifically addresses these digital properties. As the app earns royalties from downloads and subscriptions, the income flows into the trust, providing Mike with ongoing financial security.
Should a competitor attempt to infringe on Mike’s intellectual property or if an unforeseen legal challenge arises, his app and its associated royalties remain protected within the trust, shielding him from potential litigation.
Conclusion
As digital currencies and intellectual property continue to gain prominence, the importance of cybersecurity and effective asset protection becomes increasingly clear. The Bridge Trust® serves as a versatile solution that can be tailored to include a wide range of digital assets, offering comprehensive protection against potential threats.
By establishing a Bridge Trust® to safeguard cryptocurrencies and intellectual property, individuals can enjoy peace of mind knowing their digital assets are secure, well-managed, and less susceptible to the vulnerabilities that come with the evolving digital landscape. Furthermore, having a solid asset protection strategy means you can disclose your cryptocurrency holdings honestly, without fear of them being accessible through legal action.
The bottom line is that protecting cryptocurrency is similar to securing any other asset, and it should be done correctly from the outset. While it may seem easy to transfer crypto away from a court’s reach, it is imperative to have the appropriate legal framework in place to avoid risking far worse than losing your investments—namely, potential jail time.
Investing in effective asset protection solutions today not only protects your assets but also ensures that you remain compliant and free from the risks associated with potential legal challenges tomorrow. With a robust asset protection plan in place, you can confidently secure your wealth in an increasingly complex financial environment.
If you’re ready to take your asset protection strategy to the next level, call for a FREE consultation and speak with an asset protection lawyer at (888) 773-9399.
By: Brian T. Bradley, Esq.
