Kentucky Bill Could Compromise Self-Custody with Backdoor Requirement

The Kentucky legislature is weighing a bill that could undermine the state's commitment to wallet sovereignty. HB 380, aimed at regulating cryptocurrency kiosks, includes an amendment that forces hardware wallet providers to assist with recovery mechanisms.

Section 33 of the amendment requires live customer service and assistance with resetting passwords or seed phrases, which critics argue would create a backdoor in non-custodial wallets. The provision contradicts HB 701, signed in 2025, which defined a hardware wallet as a device that stores private keys offline and allows users to retain independent control.

If passed, the amendment would expose manufacturers to deceptive trade practices and potentially degrade self-custody options for Kentuckians. The Senate has a narrowing window to resolve the contradiction before the session closes.