Code, Custody, and Criminality: The Legal Future of Crypto Wallets

As crypto wallets evolve from simple storage tools into gateways of financial freedom and digital identity, they are drawing new scrutiny from regulators, prosecutors, and political systems. Once considered neutral infrastructure, wallets are now being reimagined as instruments of power and potential criminality. The arrest of the Samourai Wallet developers in 2024 marked a turning point: open-source wallet developers are no longer insulated by the "code is speech" doctrine. The implications extend beyond privacy wallets to the very architecture of crypto itself.

This article explores the changing legal and ethical landscape for wallets, the growing risks for developers and users, and how regulatory and political forces are reshaping what wallets can and can't be.

From Infrastructure to Intent

For years, crypto wallets were seen as passive tools. Whether a wallet facilitated a basic ETH transaction or enabled anonymous coin mixing, the prevailing assumption was that tools themselves were not responsible for user behavior. That distinction is now eroding.

In the Samourai Wallet case, prosecutors alleged that building privacy features amounted to intent to facilitate money laundering. The logic is chilling: the very design of a wallet can now be interpreted as criminal motive.

This shift mirrors older legal battles:

• PGP and export controls: In the 1990s, U.S. cryptographers fought to release encryption code publicly despite military export restrictions.
• Tornado Cash and OFAC: In 2022, the U.S. Treasury sanctioned a smart contract—raising questions about whether code can be a person under the law.
• Napster and Grokster: File-sharing platforms were liable not because of what they hosted, but because they designed systems that allegedly "induced" infringement.

In all these cases, design became evidence of intent. Wallet developers now face the same scrutiny.

Developer Liability: A New Legal Frontier

Crypto has long been a haven for open-source builders working under pseudonyms or in decentralized teams. But as wallets integrate smart contracts, privacy tech, and compliance features, the legal exposure for contributors grows.

Legal Risks Developers Now Face:

• Criminal Charges: Like in the Samourai case, developers can be charged with conspiracy, wire fraud, or money laundering facilitation.
• Civil Liability: Victims of scams or illicit transactions may seek damages from wallet devs, especially if features are seen as "reckless".
• Regulatory Fines: Agencies may fine teams for failing to implement KYC/AML features, even if they're not custodians.

Some teams are now taking defensive steps:

• DAO-based structures: Distributing governance to token holders or multisig signers to avoid centralized liability.
• Legal entities abroad: Incorporating in crypto-friendly jurisdictions to reduce exposure.
• Pseudonymity: Hiding real-world identities, though this may not hold up under subpoena.
• Code disclaimers: Including legal warnings in repositories stating the tool is for educational use only.

Still, the chilling effect is real: fewer developers want to touch privacy features, and many projects are going quiet.

Compliance by Design: A Double-Edged Sword

To avoid being targets, some wallet teams are now building compliance into the wallet experience. While this may shield them from legal risk, it risks fragmenting the crypto ecosystem.

Common Compliance Features Emerging:

• Blacklist Integration: Wallets like MetaMask have begun geo-blocking users or warning against sanctioned addresses.
• Reputation Layers: Systems like Gitcoin Passport, Worldcoin, or Proof of Humanity let wallets assess a user's trustworthiness.
• KYC Hooks: Some embedded wallets (e.g. in games or exchanges) require ID verification before withdrawal or access to advanced features.
• GeoIP Filtering: Wallets block users from OFAC-listed or high-risk jurisdictions.

These approaches are sparking backlash:

• Privacy advocates warn that wallets are becoming surveillance tools.
• Open-source purists argue that infrastructure should not judge users.
• Regulators still aren’t satisfied, demanding more control.

The result: a bifurcation of the wallet ecosystem into compliant and resistant camps.

The Ethics of Wallet Design

With wallets being politicized, developers now face deep ethical questions:

• Should a wallet block addresses if it increases legal safety but breaks censorship-resistance?
• Is it ethical to offer anonymous tools in jurisdictions where that could get users jailed?
• Should devs intentionally make wallets less powerful to avoid regulatory scrutiny?

As one builder put it: “Every line of wallet code is now a political decision.”

The crypto ethos has long championed freedom, decentralization, and privacy. But under pressure, some teams are walking that back in favor of safety and compliance. Others are doubling down, risking prosecution to defend digital sovereignty.

The User's Dilemma

End-users are caught in the middle. They may not know if their favorite wallet:

• Uses a centralized service for key storage
• Logs IP addresses or transaction metadata
• Is blocked in their jurisdiction
• May be removed from app stores or GitHub

Even non-technical users now face important decisions:

• Do I use a wallet that requires ID or one that doesn’t?
• Is my wallet open source and auditable?
• Can I recover funds if the devs are arrested or the project is delisted?

This creates an incentive to diversify:

• One wallet for compliant activity (e.g. Coinbase Wallet)
• Another for self-custody or long-term storage (e.g. Coldcard or Safe)
• A third for experimental or privacy-focused uses (e.g. Wasabi, Phoenix, or Samourai pre-arrest)

What Comes Next?

1. Legal Defense Funds for Builders

Groups like Coin Center, EFF, and new crypto-native legal DAOs are preparing to defend developers against unjust prosecution. More funding and public education are needed.

2. Standardized Legal Disclaimers

Like Creative Commons for content, devs may adopt standard legal shields to signal tool neutrality.

3. Decentralized Dev Structures

More teams will split roles (e.g. interface vs. backend devs), use pseudonyms, or launch via multisigs to reduce individual liability.

4. Privacy by Abstraction

Rather than privacy being a feature, wallets may offer flexible logic layers (e.g. ZK proofs, MPC) where users can choose their level of disclosure.

5. Legal Precedent Battles

The Samourai case and others to follow will shape whether wallets can be criminalized for design alone. The outcomes will define crypto’s future.

Conclusion: Tools or Targets?

Crypto wallets are no longer neutral ground. Their code, defaults, and architecture now carry political and legal consequences. For developers, this means building defensively or facing prosecution. For users, it means choosing wallets based not just on UX or features, but on the values and risks they encode.

Whether the community can defend open-source development, preserve privacy, and resist the overreach of infrastructure criminalization will determine not just the shape of crypto wallets, but the broader battle for digital self-sovereignty.