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HomeNewsKentucky Bitcoin Bill Sparks Backlash Over Wallet Recovery Mandate

Kentucky Bitcoin Bill Sparks Backlash Over Wallet Recovery Mandate

Pavlos Yorkas
By Pavlos Yorkas
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Kentucky Bitcoin Bill Sparks Backlash Over Wallet Recovery Mandate

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Kentucky Crypto ATM Bill Faces Backlash Over Hardware Wallet Provision

In brief

  • The Bitcoin Policy Institute urged the Kentucky Senate to remove Section 33 of HB 380, calling it “technologically impossible” for non-custodial wallets.
  • The provision was buried as a floor amendment in a kiosk regulation bill that passed the House 85-0 and could clear the Senate within days.
  • An expert told Decrypt that hardware wallet providers would likely exit the Kentucky market entirely rather than redesign products in ways that undermine self-custody.

A last-minute amendment requiring hardware wallet providers to help reset user credentials, tucked into Kentucky’s sweeping crypto ATM bill, is facing mounting backlash, with experts saying it is a fundamental misunderstanding of how crypto infrastructure works.

Section 33 of House Bill 380, added as a last-minute floor amendment during House debate, would require hardware wallet providers to furnish customers with a mechanism to reset “any password, pin, seed phrase, or other similar information” needed to access a wallet. 

“BPI is sending a letter to the Kentucky Senate informing them of the harmfulness of this language,” the group wrote on X.

Hardware wallets are physical devices that store private keys offline, ensuring only the user can access or recover them.

“This is likely far more indicative of a misunderstanding than a deliberate attempt to undermine self-custody,” Joe Ciccolo, Founder and President of BitAML, told Decrypt. 

“Policymakers often struggle with the concept of self-custody,” he added, noting that unlike traditional systems, there is no central authority capable of resetting access credentials.

BPI described the mandate as “technologically impossible” for non-custodial wallets, arguing that requiring a backdoor undermines Bitcoin’s fundamental security model and pushes users toward centralized custodians that are more vulnerable to hacks and failures.

“Kentucky is suddenly about to ban self-custody. Tell your friends,” Conner Brown, Managing Director at BPI, wrote on X.

“Requiring hardware wallet providers to recover or reset credentials would effectively force them to redesign their products in a way that undermines self-custody—or exit the market altogether,” Ciccolo said. 

“Most non-custodial wallet providers would likely choose not to operate in Kentucky rather than compromise their core security model,” he added, warning of reduced consumer choice and diminished privacy protections.

“The very consumers the bill aims to protect would lose access to one of the safest ways to store digital assets,” he said.

On safer paths forward, Ciccolo noted “social recovery mechanisms or multi-signature setups” can reduce risk “without introducing centralized control,” adding that “the best protection is ensuring users understand both the benefits and responsibilities of self-custody.” 

The provision was added as a floor amendment to a bill primarily focused on regulating cryptocurrency kiosks. The bill passed the Kentucky House of Representatives with a unanimous vote of 85-0 and could be approved by the Senate within days.

Pavlos Yorkas
Pavlos Yorkashttps://satoshisbrain.com

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