How Does Cryptocurrency Inherit? Legal Classification and Practical Challenges

Original Authors: Xu Qian and Li Xinyi

Introduction

As digital assets become increasingly popular, the inheritance of virtual currencies is gradually emerging as an unavoidable legal and practical issue. When life comes to an end, what happens to the wealth stored on the blockchain? Are these assets protected by law, and what challenges might arise during inheritance?

This article explores the legal nature and practical challenges of inheriting virtual currencies from a lawyer’s perspective, combining legal regulations and typical cases.

A Milestone Case from the Madras High Court

In October 2025, the Madras High Court in India issued a landmark ruling, recognizing that cryptocurrencies qualify as “property” under the law, capable of being owned, transferred, and held in trust. The case involved an investor’s 3,532 XRP tokens being frozen on the WazirX exchange. The court ultimately confirmed that these assets should be protected as property. This decision not only reassured India’s digital asset market legally but also signaled a growing recognition worldwide that “virtual assets” are indeed property.

In recent years, the legal view that “cryptocurrencies are intangible property” has gained traction globally, reflecting an evolving understanding of digital assets’ legal status and providing a foundation for inheritance issues involving virtual currencies.

Legal Attributes of Virtual Currency

The property nature of virtual currencies is widely accepted by judicial systems around the world. Although virtual currencies are based on data technology, their possessability, transferability, and economic value clearly demonstrate core property characteristics. This attribute has led to numerous civil and criminal cases involving virtual currency ownership, infringement, and fraud, prompting legal systems to respond to this new form of property.

This convergence in judicial recognition paves the way for virtual currencies to be included within inheritance law. Once recognized as property, virtual currencies naturally fall within the scope of inheritance regulation.

In China’s legal framework, Article 127 of the Civil Code states: “Where the law provides for the protection of data and virtual property on the internet, such provisions shall apply.” This provides a legal basis for protecting virtual assets.

Additionally, Article 1122 of the Civil Code defines inheritance broadly as “the lawful property left by a natural person upon death,” moving away from the previous list-based approach in the Inheritance Law. This expansion allows for the inclusion of new types of property such as online virtual assets and digital currencies within the scope of inheritance.

On the regulatory front, documents like the “Notice on Preventing Bitcoin Risks” and the “Announcement on Preventing Risks of Virtual Currency Trading and Speculation” emphasize risk control but also classify cryptocurrencies like Bitcoin as “specific virtual commodities.” From a legal standpoint, this classification implicitly acknowledges their property attributes, providing a logical basis for including virtual currencies in inheritance systems.

Practical Challenges in Inheriting Virtual Currency

Theoretically, inheritance is straightforward; practically, it’s all about the details.

Mainstream cryptocurrencies like Bitcoin and Ethereum have enormous market values, often forming significant parts of investors’ portfolios, which naturally involve wealth transfer. Despite legal and judicial frameworks providing some space for inheritance, several practical obstacles remain.

1. Proof of Ownership: How to Prove Invisible Assets?

Due to blockchain’s decentralized and anonymous nature, establishing ownership of virtual assets is challenging. Unlike bank accounts with transaction records or property registered in official registries, proof of virtual currency ownership relies on technical evidence: private keys, seed phrases, exchange accounts, etc. These are not traditional legal certificates.

Heirs need to provide electronic data evidence related to the deceased’s virtual assets, but whether such evidence suffices to prove ownership, intent, and inheritance eligibility is uncertain. Moreover, many users do not leave clear records, causing some digital wealth to vanish into the vast data of the blockchain.

2. Inheritance Mechanism: Can It Be Carried Out Smoothly?

The location where virtual currency is stored determines the inheritance process.

• On exchanges (e.g., Binance, Coinbase): heirs can contact customer service, submit death certificates, wills, ID proofs, and after platform review, request transfer of assets. However, legal recognition and procedures vary by country, and the process may be lengthy, with risks of platform policy changes or insolvency. It’s unclear whether platforms can transfer assets directly.

• In wallets: heirs must know the private key or seed phrase. Losing these is akin to losing the only key to a safe deposit box.

3. Technical Barriers: Private Keys and Security Dilemmas

The core challenge lies in the technical nature of virtual currencies.

In the crypto world, the private key equals ownership. Without it, any will or legal document is meaningless. If the deceased did not share the private key or seed phrase with heirs, assets could be permanently lost. The 2018 case of QuadrigaCX, where the founder’s death left $147 million in crypto inaccessible because he was the sole holder of the private keys, exemplifies this vulnerability.

Even if heirs obtain the private key, they must possess sufficient technical skills. A single typo or falling for phishing scams can result in total loss. Digital inheritance thus depends heavily on “technical literacy.”

4. Valuation and Division: Price Fluctuations Pose Legal Difficulties

Cryptocurrency prices are highly volatile: today’s estate could halve in value tomorrow or double. Legally, which valuation point should be used? How to fairly divide assets? For wallets holding multiple tokens, division is a “technical challenge.” Usually, liquidating assets before division is more practical, but this raises new issues about compliance and legality of the liquidation process.

Lawyer’s Tips: Asset Planning for Virtual Currency Holders

As legal professionals, our advice is—don’t leave digital inheritance to chance.

Recognizing the property nature of virtual currencies and the trend toward legal protection, holders should:

1. Clarify the existence and quantity of virtual assets

Because virtual assets are often hidden, heirs may be unaware of their existence. It’s recommended that owners record key information: asset types (Bitcoin, Ethereum, tokens), storage locations (centralized exchanges, cold wallets, self-managed hot wallets), public addresses, and even private keys or seed phrases (preferably printed or handwritten, not stored electronically). For exchange accounts, record platform names, registered email/phone, passwords, etc.

2. Securely and encryptedly store private keys and seed phrases

Hardware wallets are currently among the safest storage options, isolating private keys offline and reducing hacking risks. Since private keys/seed phrases are absolute proof of ownership, their security is paramount. Loss equals total loss; leakage equals theft. Backups should be stored in multiple secure locations, such as safes.

3. Establish inheritance plans or trusts for digital assets

Transferring wallet ownership into a trust can facilitate professional management. Setting up a multi-signature wallet (e.g., 2-of-3 keys) with keys held by the deceased, heirs, and trusted advisors ensures secure and supervised transfer. After death, the remaining keys can be used collaboratively to transfer assets, combining security with legal oversight.

4. Stay informed about platform policies and regulatory changes

If assets are on third-party exchanges, platform stability and compliance are critical. Policy changes or regulatory actions might freeze or revoke access. Owners should understand platform rules and monitor regulatory developments to mitigate risks.

In the crypto world, the greatest risk isn’t theft but being forgotten. Proper planning ensures that digital wealth can continue to serve as a lasting legacy.