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Cryptocurrency Wallet

Also known as: Crypto Wallet, Digital Wallet

Definition

A cryptocurrency wallet is a digital tool that stores private keys—secret codes needed to access, manage, and transfer cryptocurrency, rather than storing the actual coins themselves.

Understanding cryptocurrency wallets is essential for estate planning, as executors can only inherit your digital assets if they have the necessary access credentials.

What Does Cryptocurrency Wallet Mean?

A cryptocurrency wallet doesn't work like a traditional wallet that holds cash. Instead, it stores cryptographic keys that prove you own cryptocurrency recorded on the blockchain—a public digital ledger. Your wallet contains a private key (secret code that authorises transactions) and a public key or address (where others send you cryptocurrency). The cryptocurrency itself never leaves the blockchain; the wallet simply provides the keys to access it. Most wallets generate a seed phrase—typically 12 to 24 words—that can restore wallet access if lost. Under the Property (Digital Assets etc) Bill 2024, cryptocurrency is recognised as property under English law, and HMRC confirms that crypto assets form part of your estate and are subject to inheritance tax.

There are two main types. Hot wallets are online—such as mobile apps or exchange accounts like Coinbase—convenient for quick transactions but vulnerable to hacking. Cold wallets are offline storage, including hardware wallets (physical USB-like devices) or paper wallets. They offer superior security but require physical access. Wallets can be custodial (a third party controls your keys and may allow password resets) or non-custodial (you control the keys—no password recovery exists). Emma holds £5,000 in Ethereum in a mobile app for convenience, while David stores £50,000 in Bitcoin on a hardware wallet in his safe.

For estate planning, access is critical. When you die, your wallet becomes part of your estate, but executors must have your private keys or seed phrases—no legal process can bypass cryptographic security. James accumulated £85,000 in cryptocurrency but kept his seed phrase on paper without telling anyone. When he died unexpectedly, his executor couldn't find it, and the cryptocurrency became permanently inaccessible despite forming part of his taxable estate. Never include private keys in your will, as wills become public after probate. Maintain a digital inventory with your solicitor, store recovery seeds securely, and ensure your executor knows where to find access instructions.

Common Questions

"Does a cryptocurrency wallet actually store my crypto?" No, wallets don't store cryptocurrency—the coins remain on the blockchain. Instead, a wallet stores your private keys that prove ownership and allow you to access and transfer your cryptocurrency. Think of it like a keyring holding keys to safes, rather than the safes themselves.

"What happens to my cryptocurrency wallet when I die?" Your cryptocurrency wallet becomes part of your estate under UK law. However, executors can only access it if they have your private keys or recovery phrases. Without these, the cryptocurrency is permanently inaccessible, even though it forms part of your estate for inheritance tax purposes.

"Should I include my wallet details in my will?" Never include private keys directly in your will, as wills become public after probate. Instead, mention that you own cryptocurrency in your will and store access instructions separately with your solicitor or in a secure location your executor can access after your death.

Common Misconceptions

Myth: My cryptocurrency wallet stores my actual Bitcoin, Ethereum, or other coins.

Reality: Wallets don't store coins—the cryptocurrency remains on the blockchain. Your wallet only stores the private keys that prove ownership and allow you to access and transfer the crypto. Losing your private keys means losing access permanently, even though the coins still exist on the blockchain.

Myth: If I forget my cryptocurrency wallet password, I can reset it like any other account.

Reality: With non-custodial wallets, there is no password reset option. If you lose your private keys or seed phrase, your cryptocurrency is permanently inaccessible—no company or expert can recover it. This differs from bank accounts where legal representatives can regain access. Custodial wallets may allow password reset, but then you don't truly control the cryptocurrency.

  • Cryptocurrency: The digital asset that cryptocurrency wallets provide access to—wallets store the keys, while cryptocurrency itself remains on the blockchain.
  • Digital Assets: The broader category of digital property that includes cryptocurrency wallets as one type requiring special estate planning consideration.
  • Private Key: The critical secret credential that cryptocurrency wallets protect—without private keys, executors cannot access inherited cryptocurrency regardless of legal authority.
  • Hardware Wallet: A specific type of cold wallet using physical devices for offline storage—generally considered the most secure option for substantial cryptocurrency holdings.

Need Help with Your Will?

Understanding cryptocurrency wallets is crucial for protecting your digital assets and ensuring they can be inherited. If you own cryptocurrency, documenting wallet information properly in your estate plan prevents permanent loss.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.