Kentucky Crypto Bill Sparks Backlash Over “Backdoor” Wallet Provision
- A last-minute floor amendment to Kentucky’s HB380 requires hardware wallet providers to assist users in resetting passwords, PINs, and seed phrases.
- The provision contradicts Kentucky’s own HB701, enacted unanimously in 2025, which explicitly protects self-custody rights and independent control of private keys.
- HB380 passed the Kentucky House 85-0 on March 13 and now sits in the Senate, where lawmakers can still revise or remove the controversial amendment before a final vote.
A provision added to Kentucky’s crypto ATM bill has triggered massive criticism from digital rights advocates, who say it could make self-custody hardware wallets unworkable by requiring manufacturers to help users recover lost access credentials.
The disputed language appears in Section 33 of HB380, a 77-page bill passed unanimously in the Kentucky House on March 13.
It basically says hardware wallet providers must offer, and get ready for it, a way to reset a password, PIN, seed phrase or similar access information, and even assist wallet owners with that process after verifying their identity.
But then, critics say that clashes with how non-custodial hardware wallets are built, because these devices are designed so the manufacturer does not know or store a user’s seed phrase (which means there is nothing to recover).
Read more: Citigroup Cuts Bitcoin and Ether Targets as U.S. Crypto Legislation Stalls
Critics and Supporters
Bitcoin Policy Institute managing director Conner Brown said the measure would amount to a ban on self-custody in practice. The group argued that compliance would require either a backdoor that weakens security for all users or a withdrawal from the Kentucky market.
That position also appears to conflict with Kentucky’s own recent crypto policy. In March 2025, the state enacted HB701, which protects the right of residents to hold digital assets in self-hosted wallets and retain independent control of private keys. A manufacturer recovery requirement would cut against that principle.
Supporters of the bill have focused on crypto ATM fraud as HB380 would license ATM operators, cap daily transactions at US$2,000 (AU$2,800) and impose waiting periods for first-time users.
At the federal level, the amendment also appears out of step with recent statements supporting self-custody, including Executive Order 14178 and comments from the Securities and Exchange Commission (SEC) Chair Paul Atkins and Commissioner Hester Peirce.
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The post Kentucky Crypto Bill Sparks Backlash Over “Backdoor” Wallet Provision appeared first on Crypto News Australia.
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