Kentucky Advances Crypto Bill with Wallet Recovery Mandate

Kentucky lawmakers have advanced a cryptocurrency regulation bill that includes a controversial amendment requiring hardware wallet manufacturers to enable recovery of users' access credentials, drawing sharp criticism from industry experts who argue the provision is technically unfeasible and could undermine secure self-custody of digital assets.

House Bill 380, introduced on January 14 by state Representatives Aaron Thompson and Tom Smith, primarily establishes licensing requirements, transaction limits, and consumer protections for operators of virtual currency kiosks, such as Bitcoin ATMs. The bill passed the Kentucky House unanimously 85-0 on March 13 and was referred to the Senate Committee on Committees this week, where it could advance quickly given broad support for its kiosk regulations.

The contentious addition, Section 33, emerged as a last-minute floor amendment during House debate. It mandates that hardware wallet providers "provide a mechanism for, and assist any person who owns a hardware wallet in resetting any password, PIN, seed phrase, or other similar information" necessary to access the device. Requests for resets would require identity verification,...