How to Explain Bitcoin Custody to Attorney

Communicating Custody Details to Legal Counsel

This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.

The Vocabulary Mismatch

A bitcoin holder faces a situation requiring legal counsel. Estate planning, business formation, divorce, or litigation may all involve disclosing and discussing bitcoin holdings. The holder needs to communicate with an attorney who may have limited familiarity with cryptocurrency. The question of how to explain bitcoin custody to attorney becomes a barrier in itself. Technical concepts do not map cleanly to legal frameworks. Explanations that seem clear to the holder may not land as intended.

This page examines the translation failure that occurs when custody details move between technical and legal domains. Attorneys think in terms of ownership, possession, title, and control as defined by legal tradition. Bitcoin custody operates on cryptographic principles that do not align neatly with these categories. The gap between frameworks produces misunderstanding, incomplete documentation, and planning that may fail to address the actual structure of the asset.

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The Vocabulary Mismatch

Holders and attorneys often use the same words to mean different things. "Ownership" has a legal meaning involving rights, title, and enforceability. In bitcoin, ownership means possessing the cryptographic keys that authorize transactions. These are related concepts but not identical ones. A holder who says "I own this bitcoin" may communicate something different than what the attorney understands.

"Control" presents similar problems. Legal control implies the ability to direct an asset through recognized mechanisms. Cryptographic control means holding the keys that enable transactions. A holder controls their bitcoin absolutely in the cryptographic sense while potentially having no legal documentation of that control. The attorney may ask who else has control, expecting an answer about legal authority. The holder may answer about key distribution, which is the technically accurate response but may not address the legal question.

"Custody" itself varies in meaning. To a holder, custody refers to the method of key storage and the security architecture around it. To an attorney, custody may evoke concepts from financial services: an institution holding assets on behalf of a client. Self-custody in bitcoin terms means no institution is involved. This can confuse an attorney who expects custody to involve a custodian.

These vocabulary mismatches are not obvious until they cause problems. Both parties believe they are communicating. Both parties use familiar words. The mismatch lives in the definitions, not the words themselves. Hours of conversation can proceed with neither party realizing they have been talking past each other.

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The Location Question

Attorneys reasonably ask where an asset is located. For most assets, location has a clear answer. Cash is in a bank account at a specific institution. Real estate is at a physical address. Securities are held by a particular brokerage. These answers matter for jurisdiction, for estate administration, and for practical access.

Bitcoin does not have a location in the traditional sense. The bitcoin exists as entries on a distributed ledger that is maintained by computers around the world. No single computer holds it. No single jurisdiction contains it. The holder's keys can access it from anywhere. The "location" of the bitcoin is everywhere and nowhere at once.

Holders often respond to location questions by describing where their keys are stored. "The seed phrase is in my safe deposit box." This is accurate but may not answer the attorney's underlying question. The safe deposit box has a location. The bitcoin it enables access to does not share that location. The attorney may record "client stores bitcoin in safe deposit box at First National Bank," which is a reasonable interpretation that happens to be technically incorrect.

Jurisdictional questions become confusing as a result. Which state's law applies to bitcoin held via keys stored in multiple locations? If the hardware wallet is in California and the backup seed phrase is in Nevada, where is the bitcoin? Legal frameworks assume assets exist somewhere. Bitcoin's somewhere is not a place.

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The Institutional Assumption

Legal practice evolved around institutions. Wills direct banks to release funds. Trusts authorize trustees to manage assets held by third parties. Powers of attorney enable agents to act with institutions on someone's behalf. The entire apparatus of estate and asset law assumes that assets can be reached through legitimate claims to institutions.

Self-custody bitcoin breaks this assumption. There is no institution to direct. There is no third party to accept a power of attorney. The bitcoin responds only to valid cryptographic signatures, not to legal documents. An attorney who drafts documents assuming institutional custody has drafted documents that describe a system that does not exist.

Holders may not clearly convey the absence of institutions. They may refer to the wallet software they use, which could be mistaken for a service provider. They may mention a hardware wallet manufacturer, which could be mistaken for a custodian. The attorney, working from familiar patterns, may fill gaps with underlying assumptions that the holder's words did not explicitly confirm or deny.

Even attorneys who understand "self-custody" in general may not grasp its legal implications fully. Self-custody means that legal authority to control the asset is meaningless without technical capability to exercise that authority. A court can order bitcoin transferred, but the order does not move the bitcoin. Only keys move bitcoin. This inversion of the normal relationship between legal authority and practical control is hard to internalize without direct experience.

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The Complexity-Simplicity Tension

Holders face a choice in explanation. They can provide full technical detail, risking confusion and lost attention. Or they can simplify, risking omission of important factors. Neither approach produces reliable understanding without significant effort from both parties.

Full technical explanations overwhelm attorneys without relevant background. Seed phrases, derivation paths, passphrase protection, multisignature configurations, hardware wallet architecture: each concept requires foundational knowledge the attorney may not have. The holder who explains everything explains nothing. The attorney cannot process information that does not connect to their existing framework.

Simplified explanations omit critical details. "I have bitcoin stored securely at home" captures a basic truth while hiding the specific mechanisms that matter for planning. What happens if the holder dies? The simplified explanation does not address whether anyone else has the keys, whether documentation exists, or whether backup mechanisms are in place. The attorney cannot advise well without these details. The simplified explanation makes advising possible but not accurate.

Analogies offer partial bridges but introduce their own distortions. "It's like a bearer bond" captures the possession aspect but implies a physical document. "It's like a Swiss bank account" captures the privacy aspect but implies an institution. Every analogy is wrong in some way. The attorney who plans based on the analogy plans for the wrong thing.

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The Documentation Gap

Legal planning requires documentation. The attorney needs to capture what the client has, how they hold it, and what happens under various circumstances. For traditional assets, documentation can reference account numbers, institution names, and established legal categories. For bitcoin, the documentation must describe a technical reality that may not fit standard forms.

A will that says "I bequeath my bitcoin to my daughter" expresses clear intent. But it does not tell the executor how to deliver on that intent. Where are the keys? How are they accessed? What technical steps are required? The will as written creates a legal right without providing a practical path. The documentation is legally complete but operationally useless.

Technical documentation and legal documentation serve different purposes. Technical documentation for bitcoin custody might describe the seed phrase storage, the devices used, the passphrase if any, and the process for recovery. This documentation is operationally useful but may have no legal effect. It does not transfer title or establish rights. The two types of documentation must work together, but they are written in different languages for different audiences.

Attorneys who do not understand the technical side may create documents that appear complete but are not. A trust that grants the trustee authority over digital assets grants authority that cannot be exercised without technical access. The document looks correct. The mechanism behind it is broken. Neither the attorney nor the holder may notice until the trust terms need to be executed.

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Asymmetric Verification

In most client-attorney relationships, the attorney can verify client claims through independent channels. Bank statements confirm account balances. Deeds confirm property ownership. Tax returns confirm income. The attorney does not rely solely on the client's word.

Bitcoin holdings are harder to verify independently. The attorney cannot call a bank to confirm the balance. They cannot look up ownership in a public registry. The blockchain is public, but connecting a specific holder to specific addresses requires information only the holder can provide. The attorney must trust the client's claims in ways they do not usually have to trust.

This asymmetry affects the attorney's ability to advise. If the attorney does not know how much bitcoin the client actually holds, planning may be based on incomplete information. If the attorney cannot verify that the client's custody arrangements work, they cannot confirm that estate plans will succeed. The attorney proceeds with less certainty than they would have with traditional assets.

Clients may not realize they need to prove their holdings. With a bank account, the bank provides statements. The proof is automatic. With bitcoin, proof requires the holder to demonstrate control, which may require actions they are reluctant to take. Showing an address balance does not prove ownership. Signing a message proves ownership but exposes keys to potential risk. The verification process itself is unfamiliar and uncomfortable.

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The Evolution Problem

Bitcoin custody practices evolve. What was standard five years ago may be obsolete now. The terminology changes. The technology improves. Best practices shift. An attorney who learned about bitcoin from a client years ago may have outdated understanding. A client who learned years ago may describe their setup in terms that no longer reflect current practice.

Legal documents must have lasting effect. A will drafted today may be executed in twenty years. If the will's language reflects today's understanding, it may not match the technical reality at execution time. Wallet software mentioned in the document may not exist. Terms used may have acquired different meanings. The document may be legally valid and technically meaningless.

Neither the holder nor the attorney may recognize this temporal mismatch. The documents seem fine when drafted. They will seem fine on review. The problem emerges only when execution is attempted, and the technical world has moved on while the legal document remained static.

Updates are possible but often do not happen. Estate documents sit in folders for years. Holders do not think to inform their attorney when they change wallet software or custody arrangements. The attorney has no reason to follow up on technical changes. The documents drift further from reality with each passing year.

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The Trust Barrier

Explaining bitcoin custody requires revealing sensitive information. The holder must describe where keys are stored, how they are protected, and who else has access. This information is exactly what a malicious actor would need to steal the bitcoin. Disclosing it, even to a trusted attorney, creates risk.

Holders may withhold critical details out of security concern. They mention that they own bitcoin but decline to explain where the keys are stored. They describe the general structure but omit specifics about passphrase protection or multisignature setup. The attorney receives a partial picture. The partial picture enables only partial planning.

Attorney-client privilege provides some protection, but the concern goes beyond legal disclosure. Notes could be lost. Offices could be breached. Staff could be compromised. The holder who has protected their bitcoin for years may hesitate to share details with anyone, regardless of professional obligations. This hesitation is not irrational. It reflects accurate understanding of the risks.

The result is often minimal disclosure. The holder says enough to get basic planning done but not enough to enable full understanding. The attorney works with what they have. Both parties may feel the arrangement is adequate when it is actually incomplete.

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Outcome

The challenge of how to explain bitcoin custody to attorney reflects a structural gap between technical and legal domains. Vocabulary differs. Assumptions differ. Verification mechanisms differ. Neither the holder nor the attorney is equipped by default to bridge these differences effectively.

Translation failure results in legal documents that may not match technical reality. The attorney may draft based on incomplete understanding. The holder may believe the drafts are adequate without recognizing what was missed. Both parties operate in good faith while producing incomplete results.

The explanation problem is not solved by better communication alone. It requires recognition that technical and legal frameworks describe different aspects of the same asset. Neither framework is complete without the other. Planning for bitcoin custody demands attention to both, even when the professionals involved are fluent in only one.

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System Context

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Bitcoin POA Acceptance by Third Parties

Can My Bitcoin Custody Survive Attorney Questions

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