Kentucky's crypto ATM bill could effectively ban self-custodied hardware wallets, sparking industry criticism.

A Kentucky bill (HB380) aimed at regulating crypto ATMs has sparked controversy due to its new provisions concerning hardware wallets, with critics arguing that the regulation could "effectively ban self-custody." The bill originally targeted cryptocurrency self-service terminal operators, covering licensing, compliance requirements, transaction limits, and user protection. However, the latest revisions require hardware wallet providers to "provide mechanisms and assistance to users in resetting access credentials," including passwords, PINs, and mnemonic phrases. Industry insiders point out that this requirement conflicts with the core design of non-custodial wallets. Since private keys and mnemonic phrases are only controlled by the user, wallet manufacturers cannot access or recover this information, making the provision technically difficult to implement. Organizations such as the Bitcoin Policy Institute state that such provisions are tantamount to creating a "backdoor" for wallets, weakening the security of crypto assets and potentially forcing users to switch to centralized custody services. The bill still needs to pass the state Senate review, and the relevant provisions may still be modified or deleted.