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Date: Tue, 20 Jan 2015 12:40:05 -0500
From: Peter Todd <pete@petertodd.org>
To: Matt Whitlock <bip@mattwhitlock.name>
Message-ID: <20150120174004.GB29353@muck>
References: <20150120154641.GA32556@muck>
 <2236907.ZtrNgikFVR@crushinator>
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In-Reply-To: <2236907.ZtrNgikFVR@crushinator>
Cc: bitcoin-development@lists.sourceforge.net
Subject: Re: [Bitcoin-development] The legal risks of auto-updating wallet
 software; custodial relationships
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On Tue, Jan 20, 2015 at 12:23:14PM -0500, Matt Whitlock wrote:
> 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.
> >=20
> > 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.
>=20
> 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 cus=
todial relationship, as you have both the ability and the right to spend th=
ose bitcoins. Possession of a private key is equivalent to ownership of the=
 bitcoins controlled by that private key.

Posessing a private key certainly does not give you an automatic legal
right to anything. As an example I could sign an agreement with you that
promised I would manage some BTC on your behalf. That agreement without
any doubt takes away any legal right I had to your BTC, enough though I
may have have the technical ability to spend them. This is the very
reason why the law has the notion of a custodial relationship in the
first place.

Don't assume the logic you'd use with tech has anything to do with the
logic courts use.

--=20
'peter'[:-1]@petertodd.org
00000000000000001a5e1dc75b28e8445c6e8a5c35c76637e33a3e96d487b74c

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