Kentucky Crypto ATM Bill Could Indirectly Ban Self-Custody Hardware Wallets, Sparking Industry Criticism

Odaily News A bill (HB380) in Kentucky, USA, aimed at regulating crypto ATMs has sparked industry controversy due to newly added clauses related to hardware wallets. Critics argue the provision could "indirectly ban self-custody."

The bill primarily targets virtual currency kiosk operators, covering licensing, compliance requirements, transaction limits, and user protection. However, the latest revision added a clause requiring hardware wallet providers to "provide mechanisms and assist users in resetting access credentials," including passwords, PINs, and seed phrases.

Industry insiders point out that this requirement conflicts with the core design of non-custodial wallets. Since private keys and seed phrases are solely controlled by the user, wallet manufacturers themselves cannot access or recover this information, making the clause technically difficult to implement.

Institutions like the Bitcoin Policy Institute state that such regulations are equivalent to creating a "backdoor" for wallets, which would weaken the security of crypto assets and could force users to turn to centralized custodial services.

The bill still needs to pass the state Senate, and the relevant clauses may still be amended or removed.