California’s Landmark AB1052 Bill Mandates On-Chain Storage of Dormant Crypto Assets

Main Points:

• The California State Assembly passed AB1052 to include digital assets under the Unclaimed Property Law, requiring custodians to transfer dormant cryptocurrency assets to state-designated custodians rather than liquidating them into cash.
• Under current law, exchanges are forced to sell unclaimed Bitcoin after three years of inactivity; AB1052 preserves native crypto holdings, allowing owners to reclaim tokens at their full market value.
• The bill expands consumer protections by aligning cryptocurrency with traditional bank and securities accounts under unclaimed property regulations, while explicitly exempting self-custodied private wallets.
• AB1052 also authorizes California individuals and businesses to accept digital assets as valid payment for goods and services, removing barriers to on-chain transactions.
• The legislation now proceeds to the State Senate for review and may be amended; if enacted, it will take effect on July 1, 2026, and impose licensing and reporting requirements on digital financial asset businesses.
• Fiscal analyses estimate multi-million-dollar costs to the State Controller’s Office for contracting qualified custodians, developing online claim processes, and hiring personnel to manage digital assets.
• Observers interpret AB1052, alongside AB1180 (allowing state agencies to accept Bitcoin), as California’s broader effort to legitimize digital assets, modernize financial regulations, and foster blockchain adoption.

Background: The Preexisting “Unclaimed Property” Framework

Since its inception, California’s Unclaimed Property Law has targeted tangible and intangible property held in custody that remains inactive or unclaimed for three years. Under this statute, financial institutions, brokerages, and other “holders” must report dormant accounts—such as inactive bank and securities accounts—to the State Controller’s Office (SCO). Subsequently, the Controller “escheats,” or takes custody of, unclaimed assets and makes them available for reclamation by rightful owners, paying only the cash value at the time of sale or transfer. This mechanism aims to safeguard consumer funds and prevent private entities from profiting indefinitely off dormant accounts. 

However, until 2025, digital assets such as Bitcoin, Ethereum, and other cryptocurrencies lay outside this regulatory perimeter. As cryptocurrency exchanges proliferated, many users deposited tokens on centralized platforms without maintaining active communication or frequent trading, leading to “dormant” crypto accounts. Under existing procedures, if an exchange loses contact with an account holder for three years, the exchange “sells” or liquidates the cryptocurrency into U.S. dollars (USD), delivering only the cash proceeds to the state. Consequently, when owners eventually file a claim, they recover only the devalued USD amount—often a fraction of the current token price.

Current System Shortcomings: The Case of 0.444 BTC

Critics of the status quo highlight stark illustrations of value loss. Consider a user who purchased 0.444 BTC in 2015 for $100 (equivalent to roughly $225 per Bitcoin at that time). If that BTC became dormant, an exchange would be compelled under the Unclaimed Property Law to liquidate it once communications ceased. In 2018, Bitcoin’s price soared to roughly $3,500. Instead of preserving the on-chain token, the exchange sold the 0.444 BTC for approximately $1,554 (0.444 BTC × $3,500/BTC). By 2025, assuming Bitcoin’s market value reached $105,000 per BTC, those same 0.444 BTC would be worth roughly $46,620. But because the crypto was liquidated in 2018, the claimant recovers only $1,554—an effective forfeiture of nearly $45,066 in potential value.

From the customer’s perspective, such forced liquidation inherently penalizes long-term holders (“HODLers”). As cryptocurrency markets historically experience substantial appreciation over multi-year periods, mandating cash-out disregards the latent asset appreciation. This dynamic not only creates frustration among investors but also undermines confidence in centralized exchanges’ stewardship of customer assets. Moreover, owners who move, lose login credentials, or simply take a prolonged hiatus may inadvertently forfeit significant gains. 

AB1052’s Core Provisions: Ensuring On-Chain Preservation

In response, Assembly Member Ken Cooley introduced AB1052 in early 2025. On June 5, 2025, the California State Assembly passed the bill by a bipartisan vote, sending it to the State Senate for further consideration. AB1052’s primary innovation is to extend the Unclaimed Property Law to cover “digital financial assets” (DFAs)—defined as crypto tokens or digital currencies not issued or backed by any government or central bank.

Under AB1052, the definition of a “dormant” digital asset account mirrors that of traditional accounts: three years after either (a) a communication to the owner returns undelivered or (b) the last confirmed exercise of ownership interest, whichever is applicable. “Exercise of ownership interest” includes, but is not limited to, conducting any transaction—buying, selling, depositing, or withdrawing fiat or crypto—or electronically accessing the account. Once three years elapse without such activity, the holder (e.g., a crypto exchange or custodian) must report and deliver the digital assets in their native form to a qualified custodian preselected by the Controller’s Office. 

Notably, AB1052 disallows any conversion of crypto to cash prior to transfer. When an asset escheats, the holder must transfer the private keys, or if only partial keys exist, maintain custody until all requisite keys or multisignature components are available. The State Controller will engage a licensed custodian—likely a regulated trust company—to store and manage these assets on behalf of dormant account owners. When the rightful owner comes forward, they reclaim the identical quantity of digital asset tokens originally held. 

This “on-chain escheatment” paradigm aligns crypto with traditional bank accounts or custodial securities: the state serves solely as a custodian, refraining from forcibly selling or liquidating assets. As a result, if BTC appreciates from $60,000 to $90,000 during the interim, the owner receives the full token value (0.444 BTC × $90,000 = $39,960), mitigating the value erosion inherent in forced liquidation. 

Legislative Mechanics: How AB1052 Amends Existing Law

AB1052 embeds several key amendments into existing statutes:

1. Addition of “Digital Assets” to the Unclaimed Property Law
   The bill explicitly defines “digital assets” to include cryptocurrencies, tokens, and other non-fiat digital representations of value. These assets now fall under the purview of California’s Unclaimed Property Law, codified in the California Code of Civil Procedure (CCP) sections governing escheatment. 
2. Revision of the “Three-Year Dormancy” Trigger
   Dormancy triggers on (a) attempted communications—written or electronic—to the owner returning undelivered, or (b) absence of any ownership activity for three years. Importantly, “ownership activity” includes not only outright trades but any account access that confirms the owner’s knowledge. When activity resumes, the dormancy clock resets immediately.
   
3. Holder’s Reporting and Delivery Requirements
   Upon dormancy, holders must report the on-chain balance and transfer private keys (or maintain custody until transferable) to the SCO-designated custodian. The Controller’s Office will publish a “Digital Asset Claims” portal, enabling claimants to verify historically held addresses and request asset retrieval. 
4. State-Designated Qualified Custodian
   The SCO is empowered to vet and designate qualified custodians—likely chartered trust companies or regulated crypto custodians—based on criteria such as insurance coverage, cybersecurity practices, and proof-of-reserves. These custodians safeguard escheated tokens in offline cold storage or insured hot wallets. 
5. Prohibition on Holder Liquidation
   Any digital asset subject to escheatment must remain in its native format. Holders cannot convert or liquidate to USD. If a holder lacks full private key access, it must retain the asset until it can fully transfer control. 
6. Exempting Self-Custodied Private Wallets
   Recognizing the self-sovereignty ethos of crypto, AB1052 excludes noncustodial wallets—where owners hold private keys—from escheatment. This carve-out ensures that individuals using self-hosted hardware or software wallets never face state custody for abandoned funds. 
7. Expansion of Digital Asset Use
   In parallel, AB1052 amends the Political Reform Act and various financial codes to validate digital assets as lawful consideration for private transactions. Public entities cannot prohibit, tax, or otherwise restrict cryptocurrency usage for goods and services. This section aligns with AB1180 (pending), which authorizes state agencies to accept BTC and other digital assets for payments. 

Fiscal and Administrative Impact: State Custody and Compliance Costs

Per the Assembly Bill Fiscal Committee, integrating digital asset custody into the Unclaimed Property Program entails substantial resource allocation. Beginning in Fiscal Year (FY) 2026–27, projected costs to the SCO include:

• Up to $717,000 for five new positions: auditors, blockchain auditors, IT specialists, and claims examiners to manage digital assets.
• By FY 2029–30, costs escalate to approximately $1.8 million annually for 13 positions to process higher claim volumes, maintain secure storage, and support the online claims platform.
• Contracting a qualified custodian to custody digital assets entails ongoing fees, which may reach millions of dollars yearly, depending on asset volume and insurance premiums.
• Technology upgrades are required to develop an integrated digital asset tracking system, ensuring real-time audit trails and public claims interface. 

Some stakeholders express concern over taxpayer burden, questioning whether the benefits justify the added costs. However, proponents argue that safeguarding tens or hundreds of millions of dollars’ worth of crypto merited dedicated resources, especially as unclaimed assets could grow exponentially. Furthermore, by preserving token value, the state potentially reduces future claim disputes and litigation. 

Consumer Protections and Market Implications

By mandating on-chain custody rather than liquidation, AB1052 preserves consumer gains from token appreciation. This shift fosters trust in centralized exchanges, as customers can maintain confidence their assets will remain intact if forgotten or neglected. For example, a long-term Ether (ETH) holder who loses access to an exchange account may rest assured that, should they reestablish contact after dormancy, the full ETH balance—including staking rewards or airdrops credited to the address—remains recoverable. 

Moreover, aligning crypto asset escheatment with traditional unclaimed property models mitigates regulatory arbitrage. Historically, some exchanges headquartered outside California claimed exemption by alleging that crypto did not constitute “intangible personal property.” AB1052 unequivocally slots crypto under unclaimed property laws, removing ambiguity. This uniformity not only benefits consumers but also clarifies compliance obligations for holders operating across state lines.

From a broader market perspective, AB1052 signals that California positions itself as a crypto-forward jurisdiction. By explicitly supporting self-custody exemptions and validating on-chain privacy tools, the state strikes a balance between safeguarding consumer assets and preserving decentralization principles. In parallel with AB1180—which allows state agencies to accept Bitcoin payments—California is crafting an ecosystem conducive to digital asset adoption. 

Exemptions and Delimitations: Protecting Self-Custody

A central tenet of AB1052 is its recognition that “Not Your Keys, Not Your Coins.” The bill safeguards self-custodied wallet holders from unintended escheatment. If users exclusively hold keys offline—on hardware wallets or noncustodial software—they technically never deposited tokens with a regulated “holder” (i.e., an exchange or institutional custodian). As a result, self-custodied funds remain outside AB1052’s scope, eliminating fears of state seizure for truly private wallets.

Nevertheless, the bill removes explicit “self-custody protections” language from earlier drafts. Instead, its exemption is implied: the dormancy triggers and reporting duties apply solely to “holders”—entities with custodial responsibilities. Thus, consumers must understand that if they deposit crypto on any third-party platform (centralized exchange, broker, or custodial wallet service), AB1052’s escheatment timeline activates. 

State Senate Considerations and Potential Amendments

Having passed the Assembly, AB1052 now awaits Senate committee hearings. Senators may propose amendments to clarify definitions, adjust dormancy thresholds, or refine financial impacts. For instance:

• Dormancy Period Adjustments: Lawmakers could consider extending the dormancy window from three to five years, aiming to align with federal unclaimed property standards for certain securities.
• Fee Structures for Custody Services: The state may negotiate fee caps with custodians to minimize administrative costs passed to taxpayers.
• Clarifying “Qualified Custodian” Criteria: Defining minimal cybersecurity certifications, insurance thresholds, and proof-of-reserves requirements can ensure transparency in custodial selection.
• Integrating Tokenized Securities: Future amendments might explicitly include tokenized securities or stablecoins under the unclaimed property umbrella, ensuring comprehensive coverage of emerging digital assets.

Political debate in the Senate has begun to mirror broader national discussions on crypto. Advocates praise AB1052 for pioneering consumer protections, while critics—often libertarian-leaning—view it as government overreach into personal property. In digital-rights forums, some argue that any mandatory state custody, even if noncustodial, sets a concerning precedent. Meanwhile, consumer advocates counter that without state involvement, lost or stolen tokens vanish irretrievably, harming average investors.

Comparative Jurisdictions: How California Stands Out

Internationally, only a handful of jurisdictions have addressed unclaimed crypto. For example, France’s regulatory framework allows holders to report dormant tokens directly to the government, which may sell or hold them on behalf of owners, though liquidation remains permissible. Similarly, in some Canadian provinces, unclaimed securities laws treat tokenized assets analogously to traditional equities, but guidelines for on-chain storage are nascent.

Within the United States, New York’s Department of Financial Services (NYDFS) requires licensed virtual currency firms to escheat dormant wallets but offers no mandate to maintain native format; tokens are converted to fiat. By contrast, California’s AB1052 emerges as the first state law requiring unequivocal on-chain preservation, marking it as the most progressive regime in the nation. By mandating native custody, California affirms its reputation as a crypto innovation hub. 

Impact on Crypto Businesses and Compliance Strategies

Custodial firms and exchanges operating in California must promptly revise their policies. Key compliance steps include:

1. Asset Reconciliation and Dormancy Tracking
   Exchanges should enhance systems to detect owner activity across communications channels and on-chain transactions. Implementing analytics that flag dormancy accurately—resetting clocks upon any account access—will be crucial. 
2. Private Key Management Upgrades
   To satisfy AB1052’s “native transfer” requirement, custodians must maintain full private-key control. If a custodian uses a multisignature wallet, it should ensure that partial keys suffice to transfer assets or coordinate with counterparties to consolidate keys when necessary. 
3. Coordination with State-Designated Custodians
   Firms should proactively communicate with the SCO regarding digital asset reporting formats and cryptographic standards. Joint testing with the prospective state custodian can unearth technical issues—such as transfer of ERC-20 tokens, cross-chain bridges, or hardware security modules (HSMs). 
4. Client Transparency and Disclosures
   Exchanges must amend user agreements to disclose that dormant accounts older than three years will result in on-chain escheatment. Clear explanations about dormancy triggers, reclamation procedures, and potential fees ensure customer awareness and reduce dispute risk. 
5. Licensing and Registration
   If AB1052’s companion provisions on licensing pass, digital financial asset businesses—exchanges, custodial wallets, and brokerage services—will require licensure from California’s Department of Financial Protection and Innovation (DFPI) starting July 1, 2026. Entities must prepare for DFPI audits, capital requirements, and cybersecurity examinations.

By undertaking these steps, crypto firms minimize legal exposure and bolster consumer confidence. Early engagement with California’s regulatory agencies may further streamline transition, preventing last-minute scrambling when the law takes effect. 

Consumer Takeaways: What Crypto Users Should Know

For California residents and investors:

• Monitor Dormancy Periods: Ensure you log into custodial accounts at least once every three years. Even small on-chain transactions (e.g., transferring a fraction of a token) reset the dormancy timer. 
• Prefer Self-Custody for Long-Term Holding: If you plan to HODL for decades, consider hardware wallets or noncustodial wallets. By sidestepping third-party custody, your tokens remain immune to escheatment actions.
  
• Stay Informed on Licensing Requirements: Verify that any exchange or custodian you use is licensed or exempted by the DFPI after July 1, 2026. Unlicensed firms may face penalties, and assets held with noncompliant entities risk additional legal complications. 
• Be Aware of Claim Procedures: If you suspect your assets have been escheated, visit the State Controller’s “Digital Asset Claims” portal (expected to launch in mid-2026). Provide proof of identity, address, and prior address to reclaim on-chain assets.
  
• Leverage Crypto for Everyday Transactions: AB1052 affirms your right to pay or be paid in crypto for goods and services within California. Merchants and individuals can transact in digital assets without fear of local prohibitions or extra taxes.
  

Recent Developments: Parallel Legislation and Industry Reaction

Simultaneously with AB1052, the California Legislature is pushing Assembly Bill 1180 (AB1180). Unlike AB1052’s focus on escheated property, AB1180 authorizes state departments and agencies to accept digital asset payments—chiefly Bitcoin—for fees, taxes, and services. If enacted, AB1180 will inaugurate a five-year pilot program (effective July 1, 2026 – January 1, 2031) under which agencies must devise rules for payment acceptance, reporting, and cybersecurity. 

Collectively, both bills reflect California’s “all-in” strategy on crypto. Industry commentators observe that enabling state acceptance of Bitcoin—alongside on-chain escheatment protections—sends a strong signal: California intends to be a hub for digital asset innovation and consumer-friendly regulation. CNBC reports that over 117 merchants in California already accept Bitcoin, even ahead of AB1180’s potential enactment. This merchant adoption suggests a readiness in the private sector to embrace on-chain value transfer. 

On social media, reactions vary. Advocates argue AB1052 corrects a decades-old oversight, aligning crypto holders’ rights with those of bank depositors. However, skeptics claim any requirement for state custody infringes on property rights. Twitter threads highlight concerns about potential “quiet confiscation,” though proponents clarify that AB1052 does not seize tokens for state use—it merely transfers them to custodians until rightful claims.

Case Study: Impact on an Exchange’s Dormant Holdings

To illustrate potential outcomes, consider “CryptoHub Exchange,” a hypothetical California-based exchange with 1,000 dormant BTC wallets each holding 0.1 BTC. Under current law, CryptoHub must liquidate these wallets after three years and remit $6,000 per wallet (0.1 BTC × $60,000/BTC) to the state, assuming a $60,000/BTC price at liquidation. If a dormant wallet owner resurfaces in 2025, they would claim only $6,000—regardless of Bitcoin’s prevailing value.

Under AB1052, CryptoHub must transfer private keys corresponding to those 100 BTC (1,000 wallets × 0.1 BTC each) to a state-designated custodian, rather than liquidate. If Bitcoin appreciates to $90,000/BTC by the time owners claim, each user recovers $9,000 (0.1 BTC × $90,000), resulting in a collective consumer gain of $300,000 compared with forced liquidation. Although CryptoHub avoids the administrative burden of USD remittance, it must implement robust tracking and key-management infrastructure. 

This example underscores how AB1052 realigns incentives: exchange operators invest in secure key management and precise dormancy monitoring, while owners enjoy full asset recovery potential. Crucially, the state-designated custodian retains tokens in cold storage, possibly providing staking or yield opportunities until owners claim. 

Broader Implications: Fostering Blockchain Adoption in California

California’s historic embrace of technology—from Silicon Valley’s rise to its leadership in software and biotech—now extends firmly into blockchain. By codifying AB1052, the state legitimizes crypto as a mainstream asset class, encouraging entrepreneurs to innovate without fearing government seizure. Startups can now pitch California-based custodial services, decentralized finance (DeFi) platforms, and self-sovereignty tools with greater regulatory certainty. 

For institutional investors, AB1052’s on-chain custody requirement reduces counterparty risk. With a state-certified custodian acting as the fallback for dormant accounts, hedge funds and family offices gain confidence that their assets are shielded from forced liquidation or opaque transfer practices. This predictability may further catalyze venture capital inflows into California’s blockchain ecosystem. 

Meanwhile, consumer education campaigns—spearheaded by the SCO and DFPI—can enlighten residents about crypto security best practices, such as hardware wallets, multisignature setups, and robust password management. As California’s K–12 and university curricula increasingly incorporate blockchain modules, AB1052 potentially empowers a new generation of developers, attorneys, and compliance professionals well-versed in crypto law and digital economy stewardship.

Conclusion: A Watershed Moment for Crypto Governance

California’s passage of AB1052 marks a watershed in crypto regulation. By expanding the Unclaimed Property Law to mandate on-chain custody of dormant digital assets, the state bridges a critical gap between traditional financial regulation and emergent decentralized finance paradigms. Instead of forcing liquidation, AB1052 preserves token value, aligns consumer protections with longstanding bank and securities frameworks, and clarifies that self-custody remains sacrosanct. 

As the bill advances through the State Senate, stakeholders—legislators, custodians, exchanges, and consumers—should engage in constructive dialogue to refine dormancy triggers, custodial standards, and procedural frameworks. Paired with AB1180’s authorization for state agencies to accept Bitcoin payments, California is cultivating a crypto-friendly environment that incentivizes innovation, safeguards assets, and acknowledges the on-chain future of finance. 

For crypto enthusiasts and entrepreneurs, AB1052 highlights the importance of key management, dormancy vigilance, and licensing diligence. Owners are reminded that digital asset sovereignty begins with personal custody; nevertheless, should tokens escheat, California ensures full restoration in native form, unlocking the possibility of capturing market gains accrued during dormancy. 

In the coming months, as California’s legislature finalizes AB1052, other states and jurisdictions will undoubtedly monitor its implementation. Should on-chain escheatment succeed, we may see a ripple effect: a national or even international movement toward preserving crypto wealth rather than liquidating it prematurely. Ultimately, AB1052 represents a milestone in harmonizing blockchain’s technical realities with consumer protection mandates—a model for how governments can respect decentralization while fulfilling fiduciary responsibilities.