‘The Disappearing Bitcoin No One Knew About’—Preparing for the Era of Vanishing Assets

The Bitcoin secretly left by my father was nowhere to be found. Unbeknownst to his family, by the time they realized, it had become an 'asset that had disappeared'—never to be recovered. In today's age of widespread digital assets, a new risk of properties vanishing without anyone's knowledge has emerged.

Especially in the case of cryptocurrencies, which lack a central administrator, their freedom entails risks of becoming permanently inaccessible due to owner mistakes or unforeseen circumstances. According to analysis by Chainalysis, about 20% of the total existing Bitcoin, which is approximately 3.7 million BTC, has not moved for at least five years and is presumed effectively lost. This figure far surpasses the annual total of cryptocurrency theft.

Bitcoin Money Supply

Many of these losses are due to human errors such as the loss of private keys or the disposal of hardware wallets, which can impact the market circulation of assets. Therefore, how to securely manage and ensure the reliable transfer of digital assets to future generations has become a new challenge for asset holders today.

At the scene of inheritance, these characteristics have brought problems to the forefront. A notable example is that of American businessman Matthew Mellon, who amassed a fortune in XRP. He passed away suddenly in 2018, and most of his cryptocurrency assets, worth millions of dollars, were left inaccessible due to lost access methods. Although he had distributed management of his private keys, the backups were untraceable, and it took three years to settle the estate.

In Canada, in 2018, the founder of cryptocurrency exchange QuadrigaCX, Gerald Cotten, died suddenly. He alone managed the cold wallet's private keys, which were lost, rendering about $190 million worth of customer assets unrecoverable.

The inability to inherit businesses due to operational or internal issues raises questions, but as these cases illustrate, without the private key, cryptocurrency inheritance is impossible, leading to asset disappearance. In fact, it is estimated that over $1 billion in cryptocurrency goes missing annually due to sudden deaths or accidents. Often, transaction histories go unnoticed, and the very existence of assets is overlooked.

Despite this backdrop, preparations for inheritance are inadequate. According to one survey, 89% of cryptocurrency holders feel uneasy about asset succession after death, yet only 23% have taken measures to address inheritance. Legal frameworks are still under development, and although over 5 million people in Japan hold cryptocurrencies, few have taken steps to prepare. In Japan, cryptocurrencies are considered property with economic value and are subject to inheritance tax. However, after inheritance tax is levied based on the valuation at the time of the deceased's death, income tax is also imposed on capital gains when the heir sells the asset, leading to issues of double taxation. Due to the high volatility of these assets, the total of inheritance and capital gains taxes can exceed the valuation, effectively resulting in taxation of over 110%.

Domestic cryptocurrency exchanges have established procedural manuals for inheritance, making asset transfer possible with the necessary documents. However, if the deceased used foreign exchanges or self-custody wallets, the process becomes significantly more challenging. Particularly with DeFi-related assets, if the private key is lost, the assets essentially vanish.

Technological solutions are emerging to address these challenges. Casa Inc. offers a feature that allows users to designate a recipient who can inherit digital assets. Users can register a recipient in the 'Token Vault' via a dedicated app, and the recipient can prepare by creating a free Casa account and scanning a QR code. This QR code contains an encrypted mobile key that can only be used with the designated account and does not immediately grant access to the assets. If the owner is still alive, they can deny the request, and after a one-month timer, the recipient can obtain two signatures to withdraw the assets.

How to Use Casa

① Within the Casa app, designate a recipient and send an invitation via email. Once they create a Casa account, add them to the vault and share the mobile key using the QR code.

② The original owner remains in charge of self-management until the last moment. The recipient can access the assets only when necessary, maintaining security and peace of mind.

③ In the event of death or incapacity, the recipient can initiate a request via the app, starting the inheritance process.

④ Casa begins a series of notifications to confirm that the original vault owner is truly inactive. No cumbersome death verification or costly court orders are needed.

⑤ After the waiting period, the vault transfers to the recipient.

Furthermore, automated inheritance services using smart contracts are becoming practical. Kirobo's 'Liquid Vault' provides a mechanism that automatically transfers assets to a designated beneficiary on a preset date, exploring a new form of inheritance without human mediation or court intervention.

However, it will take time for these services to be widely recognized legally. Bridging the gap between current systems and technology remains a critical challenge ahead.

Attorney Kei Nishimura (tou Law Office), an expert in digital asset management, also sounds the alarm: 'Cryptocurrencies are as good as non-existent if they are not discovered. Proper management and sharing of private keys are the best preparations one can make during their lifetime.'

The time to consider cryptocurrency inheritance as a personal matter has already arrived.

Supervisor

◉ Akira Nishimura

Attorney-at-Law, Member of the Osaka Bar Association

Graduated from the Department of Law, Faculty of Law, Doshisha University, and completed his studies at Kyoto University Law School. After working at a law firm in Osaka, he founded tou Law Office. Currently active primarily in Osaka, Kyoto, and Tokyo, he provides legal support to startups, real estate businesses, and creative businesses, primarily focusing on Web 3.0/AI, as well as actively handles complex disputes. He is a member of BAMBOO INCUBATOR, a professional association supporting startups, and has established a multi-disciplinary Digital Heritage Practice Group.

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