According to Odaily Odaily, a Kentucky bill (HB380) aimed at regulating encrypted ATMs has sparked controversy in the industry due to its new provisions related to hardware wallets. Critics say the regulation could "effectively ban self-custody."
The bill originally targeted virtual currency self-service terminal operators, covering licensing, compliance requirements, transaction limits, and user protection. However, the latest revisions include a new clause requiring hardware wallet providers to "provide mechanisms and assist users in resetting access credentials," including passwords, PIN codes, and seed phrase.
Industry insiders point out that this requirement conflicts with the core design of non-custodial wallets. Since the private key and seed phrase are only held by the user, and wallet manufacturers themselves cannot access or recover this information, this clause is technically difficult to implement.
Organizations such as the Bitcoin Policy Institute have stated that such regulations are tantamount to setting up a "backdoor" for wallets, which will weaken the security of crypto assets and may force users to turn to centralized custody services.
The bill still needs to be reviewed by the state Senate, and relevant clauses may still be modified or deleted.
