If You Can Inventory a Briefcase, You Can Inventory a Crypto Wallet: An Argument for Fourth Amendment Exception

When an officer makes an arrest that originates from a traffic stop, often that vehicle will need to be towed. The law has allowed an exception to fourth amendment protections for the purpose of conducting an inventory of the vehicle. Despite an understood expectation of privacy in the various compartments of the vehicle, the duty to document and safeguard the property supersedes those protections when performed in good faith. These procedures protect both the arrested person's property and shield officers from accusations of theft. But what happens when officers find what they recognize to be a seed phrase? Should it be looked at as a bank account password where the value is in the custody of a third party, or as cash where the custody of the value rests in the holder of the physical artifact? Does the officer incur a duty to identify, document, and safeguard the assets under control of the seed phrase, or even to create a chain of custody for when and to whom the seed phrases were exposed?

This is a new and contested topic; we can agree that seed phrases don't fit neatly into our existing legal framework. Many people might think of them as similar to passwords or PIN codes that would be protected under the Fourth Amendment. However, I believe this originates from a misunderstanding of how cryptocurrency actually works. Instead, I believe that seed phrases are more aptly compared to physical keys to a container which may or may not be holding valuable assets, like a locked briefcase in the trunk of a car when the keys are sitting in the cup holder. It would then be clear that officers have a duty to properly document and secure any valuable there in.

What Are Cryptocurrency Seed Phrases?

For those who aren't familiar with cryptocurrency, a seed phrase (sometimes called a recovery phrase) is typically a list of 12 to 24 words that gives irrevocable custody to a cryptocurrency wallet and all the digital assets it controls. This is fundamentally different from a password to your bank account which is an access control mechanism to a third party which holds custody in a secure and private database. What complicates the seed phrase further is that the assets reside in a public space, the blockchain, where there is no expectation of privacy. Yet the same private seed phrase which provides custody of those assets is also what generates the publicly viewable location of the assets. In this sense it is much like a physical hotel room key with the hotel name and room number affixed but where the hotel is constructed of glass walls.

When you have money in a bank, the bank holds your funds, and your password just proves you're allowed to access them. Additionally, the bank maintains a record of the legal ownership of the funds in the account. But with cryptocurrency, assets exist on the blockchain which is a public space no different in concept to a public roadway or sidewalk, nobody "holds" your assets and there is no record of who the legal owner is. Instead, whoever possesses the seed phrase controls the assets directly and is the effective owner of those assets. The seed phrase itself isn't just the way to access your crypto; it effectively IS your crypto. That is a hard concept for many to grasp but crucial to understanding the fundamental issue at hand.

That's why crypto enthusiasts are so careful with their seed phrases - writing them on paper instead of keeping them on computers, storing them in safes, or even engraving them on metal plates to protect against fire. The seed phrase IS the asset in a very real sense.

The Briefcase Analogy

To understand how we should think about this legally, consider this comparison: A police officer searching a car finds a locked briefcase in the trunk with the key sitting right in the center console. According to the legal precedent established in South Dakota v. Opperman, the officer not only can but should use that key to open the briefcase and document what's inside, especially if the contents might be valuable or dangerous.

If the briefcase contains $100,000 in cash, the officer needs to count it, record it, and secure it properly. If they don't and the money later disappears, the department could be accused of theft. The officer's job is both to protect the arrested person's property and to protect the police department from false accusations.

I believe a seed phrase is very similar. When an officer finds a seed phrase during a search, they've basically found the "key" to a digital container of assets. Just as with the briefcase, the officer now has a responsibility to figure out what assets they're holding and to document and secure them properly. This is performed not by using a password to enter an account held by a third-party custodian as it would be in the case of a bank account, but through open source publicly accessible websites which simply perform the math necessary to identify the public records on the blockchain.

Why Verification Is Necessary

This brings up a practical question: how can an officer tell if a list of words is actually a valid seed phrase that controls valuable crypto?

Unlike a physical briefcase where you can immediately see what's inside once opened, a seed phrase requires checking. The officer needs to confirm that:

1. The phrase is a valid cryptocurrency seed phrase (by running a simple verification check)
2. The associated wallet actually contains crypto assets

I contend that this verification process isn't an unreasonable search but rather an essential part of the inventory process and is no more intrusive than opening a locked briefcase in the trunk. It's similar to how an officer might need to test if a key fob works with a car in the impound lot.

Without this verification step, police departments could unknowingly take possession of valuable digital assets without proper documentation, creating serious liability issues later.

The Risk of Inaction

Imagine during an arrest the offender witnesses an officer curiously staring at the paper containing his seed phrase, then showing it to others on scene as they discuss how to treat it. The officer has unwittingly opened the door to the arrestee’s property to himself, other officers on scene, bystanders, as well as his body camera; all without documenting what he inadvertently opened the door to and without recording a chain of custody for who has perpetual and irrevocable access. Consider what could happen if police don't properly secure cryptocurrency they've unknowingly taken custody of through seed phrases:

1. Other People Could Take It: If others know about the cryptocurrency (business partners, family members, friends), they could transfer the funds while the seed phrase is in police custody, leaving no way for officers on scene to clear the shadow of suspicion.
2. Hackers Could Get It: If the seed phrase was stored somewhere else or previously compromised, hackers could empty the wallet while the person is in jail and the seed phrase is in sole police custody.
3. False Accusations Later: Any subsequent movement of assets from the previously encountered wallet could be falsely attributed to officers or staff who had access to the previously held seed phrase. Without a clear chain of custody or seed phrase handling policy the department may find little defense to mitigate their liability.

By failing to check and document cryptocurrency assets when they take possession of a seed phrase, police leave themselves open to serious problems and create opportunities for false accusations.

Fourth Amendment Considerations

The Fourth Amendment protects against unreasonable searches and seizures, and some might argue that accessing a cryptocurrency wallet crosses this line. However, I believe this neglects the intent and necessary function of an inventory search and fails to account for the new concepts introduced by how cryptocurrency functions.

Courts have consistently ruled that inventory searches are administrative, not investigative. Their purpose is to protect property, prevent claims of theft, and keep police safe. The Supreme Court has recognized these searches as reasonable under the Fourth Amendment when following standard procedures.

Possibly the most instructive precedent to examine in search for guidance on the reasonableness and scope of an inventory as it could relate to the complexities of seed phrases can be found in US v. Gravitt. In this case, an individual was arrested outside a bar in Panama City FL subject to an arrest warrant out of GA. Upon questioning, the officers identified that Gravitt had just come into town that morning and was staying at a hotel. They then located in his property a hotel key with a name and room number as well as a car key. In accordance with their policy they believed they had a duty to secure the arrestees property knowing that he would be extradited back to GA and unable to secure his belongings. They went to the hotel and spoke with the front desk to confirm he was staying there under an assumed name. They then located a vehicle in the assigned parking spot for the registered room. With no other way to confirm ownership, they used Gravitt’s car key to confirm it as his property. Once confirming the vehicle belonged to their arrestee, they towed the vehicle for safekeeping and conducted an inventory. During the inventory they found evidence of additional crimes which were deemed admissible. I believe there are many factors of this case which can be directly related to the reconstitution of wallets via seed phrases for the purpose of identifying and safeguarding arrestee property. In fact, I believe that US v Gravitt far exceeds the intrusiveness of any attempts to safeguard crypto assets.

The key point is that by finding the seed phrase, police have already taken custody of the assets - whether they realize it or not. At that point, checking and documenting the assets is a protective measure, not an invasive search. It's like counting cash found during an arrest; once the cash is in police custody, documenting the exact amount protects everyone involved.

Moving Crypto Is Not a New Search

Some might argue that transferring cryptocurrency from the owner's wallet to a police-controlled wallet is an unlawful search or seizure. This argument doesn't hold up because:

1. Police already have custody of the asset. The inventory process exists specifically to ensure property is kept safe. Once police have the seed phrase in evidence, they effectively have the crypto assets too, whether they know it or not.
2. Transferring is administrative, not investigative. There's a big difference between moving assets to keep them safe and actively investigating them. Moving cryptocurrency is administrative—just like depositing cash into a police bank account. Police aren't looking at transaction histories or trying to build a case; they're simply securing what they already possess. (Whether or not open source blockchain inquiries are conducted after the fact creates a new wrinkle which is a discussion for another time).
3. Not moving the crypto is actually negligent. If police find cash in a bag, they don't leave it sitting in the bag in an unlocked room; they secure it. Similarly, if they find cryptocurrency accessible via a seed phrase, leaving the funds in the original wallet while only keeping the written phrase would be careless, as the funds remain vulnerable to being taken.

Legal and Ethical Liability of Inaction

Let's talk about what happens if police don't properly secure cryptocurrency assets they find:

Risks to the Owner

1. While the owner is in custody, anyone else who knows about the seed phrase (family members, business partners, or even hackers) could transfer the funds away.
2. When the owner is released, they might discover their crypto is gone and blame the police for not protecting it properly.

Risks to Law Enforcement

1. If police just write down the seed phrase but don't secure the actual crypto, and the funds later disappear, they could be accused of stealing it themselves or letting it get stolen through carelessness.
2. Unlike physical items locked in an evidence room, cryptocurrency can be accessed remotely by anyone with the seed phrase unless it's properly transferred to a secure wallet controlled by the police.

Some people might worry that because cryptocurrency transactions can't be reversed, it's too risky for police to move the funds. But this isn't really different from when police deposit cash into a bank for safekeeping. In both cases, the property is still tracked and would be returned intact. Likewise, concerns over the fluctuations in value of the cryptocurrency while in police custody are irrelevant. This would be no different than any other property taken into police custody for safekeeping be it gold bars, diamond jewelry, or baseball cards. So long as there is no conversion in the asset type and the owner is given back the exact amount of whatever asset was held for safekeeping.

Legal Precedents and Similar Situations

While courts haven't specifically ruled on how to handle cryptocurrency during inventory searches, we can look at how police handle similar situations:

1. Physical Property: When police find a wallet with cash, they don't just leave the cash in the wallet – they count it, log it, and secure it. Many agencies have policies over certain amounts that dictate the funds will be deposited to police bank accounts and the property will be returned by check. Cryptocurrency should be viewed the same way.
2. Other Digital Assets: Police already handle other types of digital property. For example, they might copy files from a computer for safekeeping. Securing cryptocurrency follows the same principle – it's about preserving digital property.

Practical Implementation

If we accept this framework, how might it be implemented in practice? I propose a straightforward approach:

1. Officers discovering potential seed phrases during inventory searches should document them according to department procedures.
2. Trained personnel (crypto custodians) in the evidence section should verify if the phrase is valid and controls active cryptocurrency assets.
3. If assets are found, they should be documented just like any other valuable item taken into police custody.
4. Departments should establish secure storage protocols for cryptocurrency assets through their evidence section and dedicated crypto custodian, whether that be a hosted government wallet at a commercial exchange or through cold storage procedures.
5. Chain of custody documentation should be maintained for both the physical seed phrase and the assigned digital assets.
6. Any transfers of cryptocurrency should be fully documented with blockchain transaction IDs and placed into arrestee property logs to ensure complete transparency.

This approach balances Fourth Amendment protections with practical considerations of modern digital assets, safeguarding arrestee property, and law enforcement liability.

Conclusion

As cryptocurrency adoption continues to grow, law enforcement will increasingly encounter seed phrases during routine inventory searches. The current legal framework, which might treat these phrases as similar to passwords or PIN codes, fails to account for the unique nature of blockchain-based assets.

By recognizing that seed phrases represent direct custody of assets rather than mere access to them, we can develop more appropriate procedures that protect both individual rights and police departments. The briefcase analogy provides a useful framework: just as officers have a duty to inventory the contents of a locked container when they have the key, they have a similar duty when they discover the "key" to digital assets.

This approach doesn't expand police powers; rather, it recognizes the reality of what happens when law enforcement takes custody of seed phrases and establishes appropriate protocols to handle this new form of property responsibly. The purpose of an inventory search is not just to record property but to safeguard it. If police refuse to move crypto assets after exposing the seed phrase, even if only to themselves, when they know that third parties may still have access, they are failing to fulfill their duty of care. Hesitation to make a decision for concerns of liability ignore the reality that the liability is present regardless, and in fact it is greater if nothing is done to address this issue.

The lack of direct legal precedent for handling cryptocurrency in inventory searches doesn't mean securing such assets is unlawful—only that the courts haven't yet addressed this specific scenario. Existing legal principles regarding inventory searches, digital evidence, and asset protection all suggest that law enforcement not only may but should take appropriate steps to secure cryptocurrency assets once they've lawfully obtained the seed phrase.

As our legal system continues to adapt to the digital age, clarifying these procedures becomes increasingly important for protecting all parties involved. By treating cryptocurrency assets according to their unique nature—assets existing in a public place under the custody of seed phrase rather than traditional password-protected accounts at private institutions—we can establish a more rational, effective approach to handling digital assets in the criminal justice system.

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