Who Holds the Keys? Understanding the Legal Risk of Crypto Custody
- Calgary Legal Team
- Sep 8
- 3 min read
The way you store your digital assets isn’t just a matter of convenience, it’s a matter of control, privacy, and legal risk. A recent BC court case involving the collapse of a custodial crypto platform serves as a clear warning: if you don’t hold the keys, you may not truly own the assets.
Self-Custody: Control and Responsibility
Self-custody means holding and controlling your digital assets—such as cryptocurrencies—directly through private keys. This gives you full ownership of your funds without relying on a third party.
The crypto community often sums it up in a single phrase:
“Not your keys, not your coins.”
Advantages of Self-Custody:
Full control: You’re in charge of your assets at all times.
Privacy: No intermediaries means fewer eyes on your transactions.
Protection from centralized failure: Your assets aren’t affected by another company’s insolvency or misconduct.
Challenges of Self-Custody:
Personal responsibility: If you lose your private keys, your assets are likely gone for good.
Technical complexity: Securely managing wallets requires knowledge and discipline.
For those unwilling or unable to take on that responsibility, custodial options may seem easier—but they come with their own set of risks.
Custodial Custody: Convenience with Risk
Custodial custody means handing control of your digital assets to a third party—typically an exchange, bank, or specialized custodian. They manage your private keys and facilitate transactions on your behalf.
Advantages of Custodial Custody:
Convenience: No need to learn wallet security or blockchain protocols.
Support and recovery: Lost your password? Customer service may be able to help.
Regulatory alignment: Many custodians follow legal standards that can provide added protections.
Challenges and Risks of Custodial Custody:
Third-party exposure: If the custodian mismanages funds, falls victim to fraud, or declares bankruptcy, your assets may be at risk.
Less control: You’re trusting someone else to keep your investments safe—and sometimes, that trust is misplaced.
A Legal Case That Changed the Conversation
In Smillie v British Columbia (Securities Commission) (2025 BCCA 179), the Court of Appeal addressed the collapse of ezBTC, a custodial cryptocurrency platform. Customers believed their crypto was safe and recoverable. It wasn’t.
When the platform failed, users found themselves legally classified as unsecured creditors—placing them at the back of the line for recovery. Many lost access to significant amounts of cryptocurrency, with limited legal recourse available.
The court also cited inadequate safeguards and poor governance practices behind the platform’s downfall.
Unfortunately, this isn’t an isolated incident. Centralized platforms like FTX, Celsius, Voyager, and BlockFi have all faced similar collapses, with users losing funds despite believing their assets were secure.
Finding the Right Balance
Choosing between self-custody and custodial services means balancing convenience with control and security. Self-custody offers greater autonomy but requires more personal responsibility. Custodial services make digital asset management easier, but they come with real, and sometimes irreversible, risk.
Legal cases like Smillie highlight the importance of due diligence. Before choosing a custodian, digital asset holders should carefully assess their credibility, regulatory compliance, and governance practices. In some cases, diversifying your approach—using both custody models—may help reduce overall exposure.
Final Thoughts
Ultimately, how you choose to store your crypto should align with your technical comfort level, risk tolerance, and long-term financial goals. As legal precedents around digital assets continue to evolve, so does the need for thoughtful, informed decision-making.
If you’re considering how best to protect your digital assets, or want legal insight into the options available, The Calgary Legal Team is here to help.
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