Mankiw Study | How Virtual Currencies Inherit: Legal Classification and Practical Dilemmas

Introduction In today’s world where digital assets are increasingly widespread, the inheritance of virtual currencies is gradually becoming an unavoidable legal and practical issue. When life comes to an end, what happens to the wealth stored on the blockchain? Are they protected by law, and what challenges might arise during inheritance? This article will explore the legal characterization and practical challenges of virtual currency inheritance from a lawyer’s perspective, combining legal provisions and typical cases. Starting with a milestone ruling by the Madras High Court In October 2025, the Madras High Court in India issued a landmark decision, ruling that cryptocurrencies meet the legal definition of “property,” capable of being owned, transferred, and held in trust. The case stemmed from the freezing of 3,532 XRP tokens belonging to an investor on the WazirX exchange, and the court ultimately confirmed that these assets should be protected as property. This ruling not only provided judicial reassurance for India’s digital asset market but also marked the gradual formation of a global legal understanding of “virtual property.” In other words—virtual currencies have shifted from being considered “digital gaming tokens” to recognized “property.” In recent years, the legal view that “cryptocurrency is intangible property” has gained prominence, outlining the evolution of legal recognition of digital assets worldwide and providing a legal basis for the inheritance of virtual currencies. Legal Attributes of Virtual Currencies The “property attribute” of virtual currencies is widely accepted by the global judiciary. Although the technical foundation of virtual currencies is data, their possessability, transferability, and economic value clearly demonstrate core property characteristics. Because of this attribute, there have been numerous civil and criminal cases worldwide involving the ownership, infringement, and fraud related to virtual currencies, prompting legal practice to respond to this new form of property. This convergence in judicial recognition paves the way for virtual currencies to be included in inheritance law. When virtual currencies are recognized as property, they naturally fall within the scope of inheritance regulation. Under China’s legal framework, Article 127 of the Civil Code innovatively states: “Where laws provide for the protection of data and virtual property on the internet, such provisions shall apply.” This provides a legal basis for the protection of virtual property. Additionally, Article 1122 of the Civil Code adopts a broad legislative approach in defining inheritance, describing it as “the lawful personal property left by a natural person upon death.” This breaks through the limitations of the previous “Inheritance Law,” which used a listing approach, greatly expanding the scope of inheritance to include new types of property such as online virtual assets and digital currencies, making them eligible objects of inheritance. On the regulatory level, documents such as the “Notice on Preventing Bitcoin Risks” and the “Announcement on Preventing Risks of Virtual Currency Trading and Speculation” emphasize risk prevention but also categorize cryptocurrencies like Bitcoin as “specific virtual commodities.” From a legal perspective, this characterization of “virtual commodities” implicitly acknowledges their property attributes, providing a logical basis for including virtual currencies within the inheritance system. Practical Difficulties in Virtual Currency Inheritance Theoretically, inheritance poses no problem; practically, the issues lie in the details. Mainstream cryptocurrencies like Bitcoin and Ethereum have substantial market capitalization, meaning many investment portfolios contain considerable virtual wealth, which inevitably involves wealth transfer. Although judicial practices and broad legal provisions worldwide have opened space for virtual currency inheritance, actual implementation still faces multiple challenges.

1. Proof Difficulties: How to prove unseen assets? Due to the decentralized and anonymous nature of blockchain, virtual currency ownership proof faces certain obstacles. Bank accounts have transaction records, real estate is registered, but proof of ownership for virtual currencies resides in technical data: private keys, recovery phrases, exchange accounts… These are not traditional legal certificates. Heirs need to provide electronic data evidence related to the deceased and virtual currencies, rather than conventional ownership certificates. However, are these sufficient to prove ownership, disposal intent, and inheritance eligibility? Moreover, most users do not retain relevant proof during their lifetime, causing many digital assets to ultimately vanish into the vast data of the blockchain.
2. Inheritance Mechanism: Can it operate smoothly? The location where virtual currencies are stored directly affects the difficulty and process of inheritance. On exchanges (such as Binance, Coinbase): heirs can contact customer support, submit proof of death, wills, identification, etc., and after internal review, assets can be transferred. However, legal systems vary across countries, and this process can be time-consuming, with risks of platform policy changes or bankruptcy. Whether the platform can transfer assets remains uncertain. Alternatively, heirs may need to know login passwords and complete various verifications to transfer assets. For wallets, heirs must know the private key or recovery phrase; losing this string of letters and numbers is like losing the only key to a safe.
3. Technical Barriers: The dilemma of private keys and security The core challenge of inheriting virtual currencies lies in their technical nature. In the crypto world, the private key is equivalent to ownership. Without it, any will is just empty talk. If the deceased did not properly inform heirs of the private key or recovery phrase, the assets could be permanently lost. In 2018, the founder of the Canadian exchange QuadrigaCX, Gerald Cotten, suddenly passed away, and as he was the sole holder of the cold wallet’s private key, user funds totaling $147 million in cryptocurrencies became unrecoverable. This case exposed the vulnerability of centralized storage mechanisms in inheritance issues. Additionally, Chainalysis reports indicate that about 20% of Bitcoin is forever dormant due to lost private keys or the death of holders. This represents a costly form of “digital silence.” Even if heirs possess the private key, they must have certain technical skills. A single typo or a careless click on a phishing link could cause assets to vanish forever. The inheritance of digital assets has never been so dependent on “technical barriers.”
4. Valuation and Division: Legal challenges from volatility Cryptocurrency prices fluctuate wildly: the estate today could halve in value tomorrow or double. Legally, which valuation point should be used? How to distribute fairly? For wallets containing multiple tokens, division is almost a “technical project.” In most cases, liquidating assets before division is more practical, but this raises new issues: how to realize assets in compliance with regulations? Legal Reminder: Asset Planning for Cryptocurrency Holders As lawyers, our advice is—don’t leave digital inheritance to fate. Cryptocurrency holders should fully recognize the property nature of virtual currencies and the trend of legal recognition and protection. Given the particularity and complexity of virtual currency inheritance, holders should:
5. Clarify the existence and quantity of virtual assets The invisibility of virtual assets is the first obstacle to inheritance. If heirs are unaware of the assets, all inheritance planning is meaningless. It is recommended that cryptocurrency owners record key information such as: asset types (e.g., Bitcoin, Ethereum, other tokens)), storage locations (e.g., centralized exchanges, cold wallets, self-custody hot wallets), public key addresses, and even private keys or recovery phrases (preferably printed or handwritten on paper, not stored on computers or other electronic devices). For exchange accounts, record platform name, registered email/phone number, and password.
6. Securely and encryptedly store private keys, recovery phrases, and other critical data Hardware wallets are currently among the safest storage options. They isolate private keys in offline environments, greatly reducing the risk of cyberattacks. Private keys and recovery phrases are absolute control credentials for assets; their security directly correlates with asset security. Loss results in permanent loss; leakage results in theft. Backups (such as USB drives or paper records) should be stored in multiple secure locations, like safes.
7. Develop digital asset inheritance plans or trusts Transferring wallet ownership into a trust can incorporate virtual currencies into a trust structure, with designated trustees managing the assets professionally. Setting up a wallet requiring 2-of-3 private keys to operate—where the keys are held by the deceased, the heir, and a lawyer or other trustee—allows for a decentralized, secure, and legally supervised transfer process once inheritance begins.
8. Pay attention to platform policies and regulatory changes If assets are on third-party exchanges, the stability and compliance of the platform are crucial. Policy changes or regulatory actions could freeze or even revoke access. It is important to understand and monitor platform rules and relevant regulations to prepare for potential risks and changes. In the crypto world, the real risk is often not theft but being forgotten. Only through proactive planning can digital wealth continue to preserve its value and serve as a reliable inheritance. Original authors: Lawyer Qian Xu, Lawyer Xinyi Li