California Becomes the First U.S. State to Protect Unclaimed Digital Assets in Original Form

In a groundbreaking step for digital asset regulation, California Governor Gavin Newsom has signed Senate Bill 822 into law, setting a national precedent by prohibiting the automatic liquidation of unclaimed digital assets held by the state. This move positions California as the first U.S. state to introduce such a measure, preserving unclaimed digital assets in their original form rather than converting them into cash. The legislation is a bold stride toward aligning state policies with the evolving dynamics of the digital economy.

Updated Legislation Designed for the Digital Era

Senate Bill 822, co-sponsored by State Senator Josh Becker and Assemblywoman Valencia, represents a significant modernization of California’s “Unclaimed Property” laws, which now explicitly account for the unique nature of digital assets. By officially recognizing digital assets as “intangible property,” the new law establishes a robust framework for their management and protection under state custody.

Among its key provisions, the legislation eases user identification requirements, permitting users to verify residency using state-only information rather than requiring full residential addresses. This adjustment simplifies the process while safeguarding user privacy. The law’s adaptability demonstrates California’s leadership in modernizing outdated legal frameworks to fit the realities of new technologies.

Mandatory Advance Notifications for Digital Asset Holders

The legislation also introduces stricter regulations for exchanges and custodians handling digital assets. These entities are now required to provide advance notification to users regarding unclaimed digital assets, ensuring users have ample opportunity to take corrective action.

Under the new guidelines, exchanges and custodians must notify users at least six to twelve months before any unclaimed assets are transferred to the state. Notifications must include explicit instructions on how users can secure their assets and highlight the consequences of failing to respond. Should a user verify their state residency within this timeframe, the transfer clock restarts, extending the period during which assets can be reclaimed. Additionally, exchanges must securely facilitate the transfer of assets within 60 days following user verification.

Timely Enforcement Amid Market Volatility

The timing of this legislation is particularly noteworthy, coming mere days after a major crash in the digital asset market on October 10. Market liquidations during this downturn amounted to an eye-watering $19 billion (approximately 27.3 trillion won), underscoring the heightened need for regulatory measures that safeguard asset integrity. By shielding digital assets from forced liquidation, the law addresses the shortcomings of existing frameworks that fail to account for sudden market turbulence and its impact on users.

Industry Praise and Broader Impact on Regulation

The digital asset industry has responded positively to this landmark regulation. Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition, commended the legislature for its user-centric revisions. "The initial draft of this bill would’ve given exchanges, custodians, and wallet providers the power to liquidate users' digital assets without their consent," Ciccolo noted. "The updated law avoids imposing undue tax liabilities and preserves the integrity of digital assets in their original form."

Governor Newsom’s broader comments also drew attention to California’s intent to lead in ethical technology governance. Expanding beyond digital assets, the governor pledged to address accountability in artificial intelligence (AI), including the societal risks posed by tools like deepfakes and other emerging technologies. The comprehensive scope of Newsom’s tech-focused legislative efforts highlights California’s ambition to become a model for tech regulation. Other newly signed legislation includes initiatives targeting social media safety, cybersecurity, and the ethical use of AI.

Paving the Way for Comprehensive Digital Asset Protections

The enactment of Senate Bill 822 represents more than just a policy shift; it signifies the growing recognition of digital assets as a legitimate and protected form of property. By equating digital assets with physical currency in terms of legal and financial protections, California has bolstered user confidence and set the stage for a more sophisticated regulatory framework.

This landmark move reaffirms California’s status as a forerunner in adapting to the digital economy, ensuring that users retain access and control over their assets while avoiding unnecessary financial penalties or burdens. As the digital asset landscape evolves, the state’s initiative could inspire similar actions nationwide, shaping the future of digital finance regulation on a broader scale.