Why is legal confirmation of self-custody rights still needed for the control of Private Key of encrypted assets?

Author: Zhang Feng

In recent years, with the popularity of crypto assets, self-custody (i.e., individuals independently controlling private keys to manage digital assets) has become an important way to ensure financial autonomy. According to news from Jinse Finance, the latest digital asset report released by the White House explicitly supports individuals' rights to self-custody of digital assets and suggests that Congress pass legislation to affirm this right. The report also acknowledges that privacy-enhancing technologies such as crypto mixers, privacy coins, and zero-knowledge proofs may be misused by illegal actors for money laundering activities while protecting users' legitimate rights and interests. Taking the Tornado Cash case as an example, federal prosecutors alleged that this privacy protocol was used for money laundering billions of dollars, but its founder, Roman Storm, argued that he merely released open-source code and did not control how users utilized the protocol.

This report has sparked widespread discussion. Many people question: since the core of crypto assets is “private key equals control”, why is it still necessary for the law to confirm self-custody rights? Let's discuss this.

1. The Essential Difference Between Private Key Control and Legal Confirmation of Self-Custody Rights

The technical foundation of crypto assets is blockchain and cryptography. A private key serves as the sole credential for accessing and transferring assets, essentially representing control over a technical means. Holding a private key implies having the ability to control the assets in a factual sense, but whether this control is equivalent to rights in the legal sense requires further analysis.

Factual status vs. Legal status. Private key control is a factual status, which means asset possession is achieved through technical means. For example, if someone holds a Bitcoin private key, they can independently complete transactions without the intervention of a third party. However, this factual control does not automatically gain legal recognition. Legal status requires clear definition of rights, protection scope, and remedies through statutes or case law. For instance, in traditional property rights, possession of real estate must be confirmed through a registration system to establish ownership; similarly, if the self-custody rights of crypto assets are not legally recognized, their control remains at the technical level and lacks institutional protection.

Legitimacy Confirmation. The control of private keys is neutral: it can be used for legitimate transactions but may also involve illegal activities (such as money laundering or hacking theft). Legal confirmation of self-custody rights aims to distinguish between legitimate possession and illegal actions, providing a basis for good faith holders. For example, if the law clearly recognizes self-custody rights, individuals may assert their rights based on the law when they encounter loss or theft of private keys; conversely, if the law does not confirm this, the ownership of assets may face disputes and could even be regarded as illegal.

Exclusive Protection. While control of private keys can technically exclude others from access, it cannot address more complex infringement actions. For example, when a third party obtains private keys through fraud, coercion, or technical vulnerabilities, it is difficult to recover losses solely through technical means. Legally recognized self-custody rights provide exclusive protection, including the right to prohibit others from infringement, to reclaim unlawfully transferred assets, and to request intervention from judicial or administrative authorities. This type of protection is similar to “exclusive ownership” in property law, which cannot be replaced by technical control.

Judicial Relief. If private key control lacks legal endorsement, it may lead to rights protection dilemmas in disputes. For instance, when self-custodied assets are illegally transferred, victims must rely on legal procedures to pursue claims; if the law does not recognize self-custody rights, the court may have no basis for action and may even deny its legitimacy. Conversely, legal recognition can provide a basis for judicial relief, including freezing the assets of the infringing party, ordering the return of assets, or compensation. The White House report suggests that Congress legislate to fill this relief gap.

2. The Impact of Unrecognized Self-Custody Rights by Law

If self-custody rights remain in a legal gray area for a long time, not only may individual rights be harmed, but it may also hinder technological innovation and market development.

The lack of legal support for rights may be unmaintainable. The decentralized nature of crypto assets creates tension with traditional financial systems. In many jurisdictions, the legal definition of digital assets remains unclear, and self-custody may be viewed as an “informal” or “unprotected” action. For example, in some countries, courts may refuse to provide relief in cases related to private keys on the grounds of “lack of legal basis.” Moreover, certain regulatory bodies associate self-custody with illegal financial activities, putting well-meaning holders at risk of having their assets frozen or confiscated. The absence of legal recognition effectively undermines the sense of security in controlling private keys.

The law may even legislate to influence the exercise of rights related to crypto assets. To maintain financial stability or combat illegal activities, the government may introduce regulations that restrict self-custody. For example, some countries have proposed banning privacy coins or requiring private key backups to designated institutions. Although such policies aim to regulate the market, they may excessively infringe on personal property rights. If the law does not clearly define self-custody rights, individuals may be unable to resist such regulatory measures. The reason the White House report suggests that Congress legislate is to ensure that regulatory goals are met while preventing public power from excessively intruding into the private domain.

Market trust and institutional risk. Legal uncertainty can suppress market participation. Institutional investors and individual users may avoid self-custody due to concerns about the protection of their rights, opting instead for centralized platforms, which may lead to a repeat of the FTX collapse event—user assets being misappropriated or lost. Legal recognition of self-custody rights can enhance market trust in cryptocurrency technology and promote the healthy development of decentralized finance.

3. Recognizing the right to self-custody does not imply absolute freedom

It is important to emphasize that the legal recognition of self-custody rights does not equate to granting individuals unlimited freedom. The exercise of any rights must be predicated on not infringing upon the rights of others and the public interest.

Prohibition of Rights Abuse. Self-custody rights should be bound by laws such as anti-money laundering and counter-terrorism financing. For example, when individuals engage in illegal transactions using crypto assets, law enforcement agencies can still restrict, freeze, or recover assets based on the law in conjunction with relevant technical means. The law confirms self-custody rights, which precisely provides a standard for distinguishing between legal and illegal activities, rather than offering shelter to wrongdoers.

Balancing Public Interest. The government has the authority to implement reasonable regulations on self-custody to maintain financial stability, tax fairness, or national security. For example, requiring the declaration of large transactions or cooperating with judicial investigations. The White House report also emphasizes that digital asset innovation must be premised on “responsibility,” and the legal recognition of self-custody rights is fundamentally about seeking a balance between personal freedom and public interest.

Collaboration between Technology and Law. The future of crypto assets relies on the joint evolution of technology and institutions. Private key control provides a decentralized technological foundation, while legal confirmation establishes an order framework under social consensus. The two complement each other to achieve the unity of “technology empowerment” and “rights protection.”

The control of private keys for crypto assets is indeed a reflection of a technological revolution, but relying solely on technology cannot solve complex issues such as rights attribution, legal remedies, and the balance of public interest. The White House report supports the right to self-custody and calls for legislative confirmation, recognizing that technological facts must be transformed into legal status to achieve true property rights protection. In the digital age, the law should not be absent from technological innovation but should proactively construct an adaptive institutional framework—protecting individuals' autonomy over digital assets while ensuring their exercise aligns with the overall social interest. Only in this way can crypto assets transition from a technological experiment to a mature economic infrastructure.