Bitcoin Glossary

A legal designation naming who receives an asset upon the owner's death, typically bypassing probate. For bitcoin held with custody providers, beneficiary designations provide a direct path for transfer to heirs without court involvement.

An institution providing custody, transaction services, and relationship banking for bitcoin holders, focused on long-term preservation rather than trading. Unlike traditional banks, a bitcoin bank should operate on full reserves without lending, staking, or creating derivative claims against client holdings.

The taxable profit realized when selling or disposing of bitcoin for more than its cost basis. Capital gains treatment, tax rates, and holding period requirements vary significantly by jurisdiction. Understanding capital gains is essential for tax-efficient bitcoin management.

An institution that holds bitcoin on behalf of clients, assuming responsibility for key security, operational continuity, and withdrawal execution. The provider's role is to safeguard assets and maintain predictable access, not to generate returns or provide trading services.

The integration of bitcoin holdings into comprehensive estate plans, ensuring digital assets transfer according to the owner's wishes while minimizing tax consequences, probate complications, and family disputes. Estate planning addresses bitcoin alongside traditional assets within unified legal and financial structures.

A person or institution designated to manage the transfer of bitcoin holdings to beneficiaries upon the owner's death, combining the legal authority of a traditional executor with the technical capability to handle digital asset custody.

The process of establishing legally enforceable arrangements to transfer bitcoin ownership to designated beneficiaries upon death, addressing the unique challenges of digital asset succession.

Coverage that protects against loss of bitcoin due to theft, hacking, employee misconduct, or operational failures. Insurance does not prevent losses but provides financial recovery if custody controls fail. Coverage terms, limits, and exclusions vary significantly between policies.

The comprehensive process of preparing for the orderly transfer of bitcoin holdings across generations or to designated successors. Succession planning encompasses legal structures, technical access mechanisms, and operational procedures that ensure continuity of ownership when the current holder dies or becomes incapacitated.

Tax obligations arising from bitcoin transactions, including capital gains on sales, income tax on mining or staking rewards, and reporting requirements. Tax treatment varies significantly by jurisdiction, transaction type, and holding period.

A legal structure that holds bitcoin on behalf of beneficiaries according to terms in a trust document. The trustee holds legal title while beneficiaries receive distributions according to the trust terms. Trusts enable controlled inheritance, asset protection, and customized distribution rules.

A secure storage solution for bitcoin featuring time-delayed withdrawals, multiple approval requirements, or other controls that prioritize security over immediate access. Vaults trade convenience for protection against theft, coercion, and hasty decisions.

A structured system requiring periodic confirmation that the bitcoin owner is alive and capable. Failed check-ins trigger escalating responses designed to re-establish contact or initiate recovery procedures. This provides evidence of continued ownership while creating defined triggers for inheritance.

The practice of keeping bitcoin private keys on devices that have never been connected to the internet. Cold storage eliminates remote attack vectors, making it the foundation of institutional-grade custody. Keys are typically stored on hardware security modules, hardware wallets, or air-gapped computers.

A bitcoin custody model where control is shared between the holder and a service provider, typically using multi-signature technology, so that no single party has unilateral access to funds.

The risk that an institution holding your bitcoin fails to honor its obligations, whether through insolvency, fraud, operational failure, regulatory action, or simple incompetence. Counterparty risk is the fundamental tradeoff of custodial bitcoin storage.

The fundamental distinction in bitcoin storage: whether a third party holds your private keys (custodial) or you retain direct control (non-custodial). This choice determines who bears responsibility for security, who can authorize transactions, and what risks you accept.

A mechanism that triggers automatically when the owner fails to perform periodic check-ins. If check-ins stop, the system initiates pre-defined responses such as notifying trusted parties or releasing key information. This addresses the timing problem of bitcoin inheritance.

The safekeeping and management of cryptographic assets by institutions responsible for protecting private keys and enabling controlled access. Custody services range from basic key storage to comprehensive offerings including transaction services, reporting, and succession planning.

The ability to withdraw bitcoin on-chain to an address you control, under clear rules, with predictable handling. Exitability is the clearest test of whether custody is real.

The ability of legally authorized parties, such as executors or trustees, to access bitcoin holdings on behalf of an owner who is deceased or incapacitated. Legal authority must be bridged with technical access to seed phrases or custody accounts.

A custody model where the custodian holds less bitcoin than they owe to clients, sometimes intentionally through lending or rehypothecation, sometimes through fraud or poor accounting. Fractional reserves create risk that withdrawals cannot be honored during stress.

A custody model where the custodian holds 100% of deposited bitcoin at all times, without lending, staking, or otherwise encumbering client assets. Every unit of bitcoin held on behalf of clients is present and withdrawable on demand.

Assets accumulated and preserved across multiple generations, transferred through inheritance structures that maintain value and control over decades or centuries. For bitcoin holders, generational wealth requires custody solutions that outlive any single individual and succession plans that survive changes in law, technology, and family circumstances.

The mechanisms and procedures by which designated beneficiaries gain control of bitcoin holdings after the original owner's death or incapacity. Heir access is the ultimate test of whether an inheritance plan works.

A bitcoin wallet connected to the internet, enabling immediate transactions but introducing exposure to remote attacks. Hot wallets serve operational needs but should hold only modest amounts, with the majority of holdings secured in cold storage.

Arrangements for managing bitcoin if the owner becomes unable to act due to illness, injury, or cognitive decline. Unlike death, incapacity requires ongoing management while preserving the owner's interests. Durable powers of attorney combined with technical access provisions form the foundation.

The predictable ways bitcoin inheritance plans fail to transfer holdings to intended beneficiaries. Understanding these failure modes is essential to designing plans that actually work.

Professional custody services designed for corporations, funds, family offices, and high-net-worth individuals. Institutional custody features regulated infrastructure, insurance coverage, audit trails, and operational controls beyond what retail solutions provide. The focus is wealth preservation over convenience.

The policies, procedures, and technical controls governing how bitcoin private keys are generated, stored, backed up, used, and eventually retired or transferred. Key management is the operational discipline that makes custody reliable over time.

The practice of periodically replacing cryptographic keys by moving funds to addresses controlled by new keys. Rotation limits the window during which a compromised key could be exploited. If rotation happens before an attacker acts, the old key becomes worthless.

A security arrangement requiring multiple private keys to authorize a bitcoin transaction. Instead of a single key controlling funds, a defined threshold of keys from a larger set must sign. This eliminates single points of failure and enables separation of duties in custody operations.

An arrangement where a custodian pools client bitcoin in shared addresses rather than maintaining separate addresses for each client. Ownership is tracked only in the custodian's internal ledger. In insolvency, omnibus holdings may be treated as custodian assets rather than client property.

The final transfer of bitcoin directly on the Bitcoin blockchain, as opposed to internal ledger entries or IOUs. On-chain settlement provides cryptographic proof of ownership and ensures that withdrawals represent actual bitcoin, not claims against a custodian's balance sheet.

The legal process through which a deceased person's estate is settled and assets distributed to heirs. Bitcoin held in individual custody passes through probate like other property. Trusts and beneficiary designations can transfer holdings outside probate for faster, more private distribution.

A cryptographic verification method that demonstrates a custodian holds the bitcoin they claim to hold on behalf of clients, allowing independent verification without revealing individual account balances.

A financial institution meeting specific regulatory requirements to hold client assets, providing legal protections and oversight. The designation indicates minimum standards and external accountability, but does not eliminate custody risk. Security architecture, reserve practices, and withdrawal policies matter independently.

The practice of a custodian using client-deposited bitcoin as collateral for their own borrowing, lending, or trading activities. When a custodian rehypothecates, the same bitcoin backs multiple claims simultaneously, creating counterparty risk where none should exist in genuine custody.

A custody arrangement where client assets are held separately rather than commingled. Each client's bitcoin is identifiable and held specifically for them, not pooled with other clients' holdings or the custodian's own assets.

A custody model where you control your own private keys, typically through a hardware wallet or multi-signature setup. No institution can move your bitcoin without your authorization. Self-custody eliminates counterparty risk but places full responsibility for key protection, backup, and succession on the holder.

Any component in a bitcoin custody system whose failure alone would result in permanent loss of funds or unauthorized access. Identifying and eliminating single points of failure is fundamental to secure custody design.

A custody model where an institution holds private keys on your behalf. You have a claim on bitcoin rather than direct control, trading sovereignty for operational simplicity, professional security, and succession support. The quality of third-party custody depends entirely on the custodian's reserves, incentives, and withdrawal policies.

The point at which a bitcoin withdrawal is irreversibly settled on the Bitcoin blockchain and the recipient has full, unconditional control of the funds. Finality is achieved when the transaction is confirmed on-chain, not when a custodian says the withdrawal is "complete."

A documented set of rules governing how withdrawals are processed: verification requirements, processing windows, limits, and conditions for delay. A clear, stable withdrawal policy is the foundation of trustworthy custody. Policies that change unexpectedly or become discretionary are warning signs.