- A proposed bill amendment in Kentucky would require hardware wallet makers to provide a way for users to reset lost credentials, a mandate experts call “technologically impossible.”
- The Bitcoin Policy Institute is urging the state Senate to remove the provision, warning it undermines Bitcoin’s security model and could effectively ban self-custody.
- Industry experts predict hardware wallet providers would likely exit the Kentucky market rather than redesign their products to comply.
- The amendment was added to a broader virtual currency kiosk regulation bill, which passed the Kentucky House unanimously and could clear the Senate soon.
A controversial last-minute amendment in Kentucky, requiring hardware wallet providers to help users recover lost passwords, is sparking a fierce industry backlash for misunderstanding core crypto technology. The provision, Section 33 of House Bill 380, was added as a floor amendment to a broader crypto ATM bill that passed the House 85-0.
Consequently, the Bitcoin Policy Institute is now lobbying the state Senate, calling the mandate “technologically impossible for non-custodial wallets.” The group argued on X that it pushes users toward less secure, centralized custodians.
Industry expert Joe Ciccolo told Decrypt that the requirement shows a fundamental misunderstanding of self-custody. “There is no central authority capable of resetting access credentials,” he explained, unlike traditional financial systems.
Critics warn the rule would force a dangerous redesign of hardware wallets, which store private keys offline where not even the manufacturer can access them. Bitcoin Policy Institute Managing Director Conner Brown stated on X, “Kentucky is suddenly about to ban self-custody.”
Ciccolo predicted most providers would exit the Kentucky market rather than compromise their security. This action would reduce consumer choice and eliminate one of the safest storage methods, harming the very people the bill aims to protect.
Meanwhile, the underlying bill establishes comprehensive regulations for virtual currency kiosk operators, including licensing and disclosure rules. That popular framework is expected to propel the legislation quickly through the Senate after its referral this week.
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