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Private Key (Crypto)

Also known as: Cryptographic Key, Secret Key

Definition

A private key in cryptocurrency is a secret alphanumeric code (typically 64 hexadecimal characters) that proves ownership of cryptocurrency and authorizes transactions—if lost or stolen, the associated funds are permanently lost or transferred.

Private keys are critical for UK estate planning because without them, executors cannot access cryptocurrency holdings, leaving beneficiaries legally entitled to assets they can never obtain.

What Does Private Key (Crypto) Mean?

A private key in cryptocurrency is a unique 64-character string of numbers (0-9) and letters (a-f) generated using cryptographic algorithms when you create a cryptocurrency wallet. Unlike passwords you choose, private keys are randomly generated and mathematically paired with a "public key" (similar to a bank account number that others can see). While your public key is the address where people send you cryptocurrency, your private key is the secret code that proves you own those funds and authorizes you to send them elsewhere. The cryptocurrency itself isn't stored in the key or your device—it exists as a record on the blockchain (a public ledger recording all transactions). Your private key is simply cryptographic proof that you have the right to control specific funds recorded at your public address. Under the Property (Digital Assets etc) Bill 2024, introduced in Parliament in September and currently progressing through the House of Lords, cryptocurrency accessed via private keys will be formally recognized as personal property in England and Wales, meaning it forms part of your estate and is subject to inheritance laws and taxation.

When you send cryptocurrency, your private key "signs" the transaction by creating a unique digital signature. The Bitcoin or Ethereum network verifies this signature using your public key, confirming you authorized the transfer—but your private key never leaves your device or becomes visible to anyone. This is fundamentally different from traditional banking where institutions verify your identity through centralized systems. Anyone who obtains your private key has complete, immediate, and irreversible access to all funds in that wallet. If a scammer obtains David's private key (perhaps through a phishing email where David typed it into a fake website), the scammer can immediately transfer all £18,000 worth of Ethereum in David's wallet to their own address within seconds. There is no bank to call, no transaction to reverse, and no way to recover the funds. Private keys cannot be reset, changed, or recovered like traditional passwords—they're mathematically unique. If Emma stored her private key in a text file on her laptop and the laptop died without warning and she had no backup, her £22,000 in Bitcoin became permanently inaccessible. The Bitcoin still exists on the blockchain at her public address, but without the private key, neither Emma nor anyone else can ever move or access those funds.

Private keys create unique challenges in UK estate planning because cryptocurrency ownership exists purely through possession of the key—unlike bank accounts, where financial institutions can verify rightful ownership using death certificates and grants of probate. HMRC requires executors to value cryptocurrency at the date of death and pay 40% Inheritance Tax on its value, but executors cannot even identify crypto holdings or determine their value without the deceased's private keys or access credentials. This creates an urgent problem: some estimates suggest 20% of all Bitcoin (worth over £130 billion) is permanently lost due to deceased owners who didn't share access information. Critically, you must never include your private key in your will itself—once a grant of probate is issued in England and Wales, your will becomes a public document that anyone can request and read, exposing your private key to potential theft. Instead, UK solicitors recommend creating a confidential "letter of wishes" stored securely with your solicitor (not as part of the will), which details the location of your private keys, seed phrases, hardware wallets, and exchange account credentials. Your will should reference your cryptocurrency holdings and instruct executors to consult this separate letter, ensuring beneficiaries can access your crypto assets while keeping access credentials secure and private.

Common Questions

"What happens to my cryptocurrency if someone finds my private key?" Anyone who obtains your private key has complete control over your cryptocurrency—they can transfer or spend all funds in that wallet immediately and irreversibly. This is why private keys must never be shared, photographed, or stored digitally on internet-connected devices. Unlike bank accounts, cryptocurrency transactions cannot be reversed or disputed.

"Can I recover my cryptocurrency if I lose my private key?" No, if you lose your private key without having a seed phrase backup, your cryptocurrency is permanently inaccessible. According to UK government guidance, if a private key is lost, the tokens continue to exist at the public blockchain address but can never be accessed or transferred. Some estimates suggest 20% of all Bitcoin is lost forever due to lost private keys.

"Should I include my private key in my will so my family can inherit my cryptocurrency?" Never include your private key in your will—wills become public documents during probate in England and Wales, allowing anyone to view them. Instead, accompany your will with a confidential letter of wishes stored securely with a solicitor, detailing the location of your private keys or seed phrases. Your will should reference cryptocurrency assets without revealing access credentials.

Common Misconceptions

Myth: "If I forget my private key, the cryptocurrency exchange or wallet provider can reset it for me, like a bank password."

Reality: Private keys cannot be reset, recovered, or changed by anyone—including cryptocurrency exchanges, wallet providers, or blockchain developers. If you lose your private key without having a seed phrase backup, your cryptocurrency is permanently and irrevocably lost. Some estimates suggest 20% of all Bitcoin (worth over £130 billion) is lost forever due to lost private keys. This permanence is why UK solicitors emphasize creating secure backups and clear inheritance instructions—your executors cannot call a helpline to recover access.

Myth: "My private key and my seed phrase are the same thing."

Reality: A private key is a single 64-character hexadecimal string controlling one specific cryptocurrency address, while a seed phrase is a series of 12-24 words that acts as a master backup, capable of regenerating all private keys in your entire wallet. If you lose your private key but have your seed phrase, you can recover everything. For inheritance planning, seed phrases are often more practical than private keys because a single 12-24 word phrase can restore access to an entire wallet containing multiple cryptocurrencies across multiple addresses. UK estate planning documents should reference "private keys AND/OR seed phrases" to ensure executors understand they need either one to access cryptocurrency holdings.

  • Cryptocurrency: The digital assets that private keys grant exclusive access to, recognized as personal property under UK law and subject to inheritance tax.
  • Cryptocurrency Wallet: Software or hardware that stores and manages private keys, allowing you to control your cryptocurrency holdings.
  • Hardware Wallet: Physical USB-like devices that store private keys offline, keeping them protected from hacking—but executors must be able to locate these devices after your death.
  • Seed Phrase: A 12-24 word backup phrase that can regenerate all private keys in a wallet, often more practical for inheritance planning than individual private keys.
  • Digital Assets: The broader category of online property including cryptocurrency, NFTs, and digital accounts—private keys are the access credentials for blockchain-based digital assets.

Need Help with Your Will?

Understanding how private keys work is essential for passing cryptocurrency safely to your family. Without proper documentation, even significant crypto holdings can become permanently inaccessible to your beneficiaries, leaving them legally entitled to assets they can never obtain.

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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.