From: Matt Whitlock <bip@mattwhitlock.name>
To: bitcoin-development@lists.sourceforge.net
Date: Tue, 20 Jan 2015 12:23:14 -0500
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Subject: Re: [Bitcoin-development] The legal risks of auto-updating wallet
	software; custodial relationships
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On Tuesday, 20 January 2015, at 10:46 am, Peter Todd wrote:
> I was talking to a lawyer with a background in finance law the other day
> and we came to a somewhat worrying conclusion: authors of Bitcoin wallet
> software probably have a custodial relationship with their users,
> especially if they use auto-update mechanisms. Unfortunately this has
> potential legal implications as custodial relationships tend to be
> pretty highly regulated.
> 
> Why is this? Well, in most jurisdictions financial laws a custodial
> relationship is defined as having the ability, but not the right, to
> dispose of an asset. If you have the private keys for your users'
> bitcoins - e.g. an exchange or "online" wallet - you clearly have the
> ability to spend those bitcoins, thus you have a custodial relationship.

If you have the private keys for your users' bitcoins, then you are every bit as much the owner of those bitcoins as your users are. There is no custodial relationship, as you have both the ability and the right to spend those bitcoins. Possession of a private key is equivalent to ownership of the bitcoins controlled by that private key.