Key Points
- Kentucky legislators modified House Bill 380 to mandate hardware wallet recovery features.
- The legislation instructs manufacturers to help users reset access credentials including seed phrases.
- Identity verification requirements were added before any reset request can be processed.
- Bitcoin Policy Institute argues the mandate is technically unfeasible for non-custodial solutions.
- Advocacy groups are pressing the Kentucky Senate to eliminate this provision ahead of the final vote.
Kentucky legislators have modified a crypto bill to mandate recovery mechanisms for hardware wallets. The Bitcoin Policy Institute has condemned this change, arguing it would compel manufacturers to build backdoors into their products. Advocacy groups are calling on senators to strike the controversial provision before final approval.
HB 380 Amendment Introduces Wallet Recovery Requirements
State Representatives Aaron Thompson and Tom Smith introduced House Bill 380 in the Kentucky legislature. Just before Senate consideration, lawmakers inserted an amendment that targets hardware wallet recovery procedures. This revision mandates that wallet manufacturers help users regain access to their credentials.
🚨BPI has just learned of an amendment buried in Kentucky HB 380 that would require hardware wallet providers to reset users' seed phrases on request. This would effectively outlaw self-custody in Kentucky. BPI is sending a letter to the Kentucky Senate informing them of the… pic.twitter.com/hW5Jqe1k3t
— Bitcoin Policy Institute (@bitcoinpolicy) March 19, 2026
According to the bill’s language, providers “shall provide a mechanism for and assist any person who owns a hardware wallet.” The requirement encompasses resetting credentials such as “password, PIN, seed phrase, or other similar information.” This directive applies to any data needed for accessing stored assets.
Additionally, the amendment establishes identity verification protocols before manufacturers can handle reset requests. Users must demonstrate ownership before receiving any assistance. Legislators included this requirement to establish explicit compliance guidelines for hardware wallet companies.
The Bitcoin Policy Institute has voiced strong opposition through a public statement. The organization maintains the requirement is “technologically impossible for non-custodial wallets.” It emphasized that no entity “can access or recover a user’s seed phrase.”
The institute cautioned that this measure jeopardizes self-custody protections in Kentucky. According to their analysis, the rule might push users toward centralized custodial platforms. They have called on the Senate to “strip this provision before the bill reaches a vote.”
Self-Custody Rights Emerge as National Policy Priority
The principle of self-custody has become a focal point in cryptocurrency policy debates across the United States. Advocates maintain that individuals should retain control of private keys without intermediary involvement. They characterize self-custody as a fundamental property right associated with digital holdings.
Certain regulatory officials have indicated support for self-custody arrangements. U.S. SEC Chair Paul Atkins stated he is “in favor” of self-custody under specific circumstances. He referenced scenarios where intermediaries create financial or operational complications.
In California, Banking and Finance Committee Chair Avelino Valencia modified separate cryptocurrency legislation. His amendments include provisions safeguarding users’ rights to self-custody digital holdings. Legislators there positioned these modifications as consumer protection initiatives.
Nevertheless, the SEC released an advisory to retail investors last year concerning custody considerations. The regulator encouraged users to evaluate trade-offs between self-managing wallets and utilizing custodial services. It noted that losing a private key means irreversible asset forfeiture.
The SEC additionally highlighted risks associated with custodial platforms. The agency cautioned that security breaches, mismanagement, or bankruptcy could prevent fund access. This guidance was distributed as part of comprehensive investor education efforts.
Kentucky legislators have not yet set a date for the final Senate vote on House Bill 380. The Bitcoin Policy Institute maintains its campaign to remove the recovery mandate. The legislation remains pending in its current form as deliberations continue.
