Kentucky House Bill 380, a state-level crypto regulatory bill, includes provisions that would require crypto hardware wallet manufacturers to build a “backdoor” into devices, the Bitcoin Policy Institute (BPI) warned.
A “last-minute” floor amendment added requirements that hardware wallet providers must offer recovery options for users’ seed phrases. The amended Section 33 reads: “A hardware wallet provider shall provide a mechanism for, and assist any person who owns a hardware wallet that was provided by the provider with, resetting any password, PIN, seed phrase, or other similar information that is necessary to access the contents of the hardware wallet.” The bill’s sponsors are state Representatives Aaron Thompson and Tom Smith.
The bill also proposes identity verification checks for users requesting a password, seed phrase, or PIN reset from a hardware wallet manufacturer.
BPI responded that the mandate is technologically impossible for non-custodial wallets, noting hardware wallets are designed so that no one, including the manufacturer, can access or recover a user’s seed phrase. The provisions, BPI said, threaten self-custody of private keys—a foundational feature of cryptocurrencies—and could push users toward centralized custodians, which are more vulnerable to hacks and business failures.
SEC officials have defended the right to self-custody. Former SEC Chair Paul Atkins said he favors market participants having self-custody options, particularly where intermediaries impose financial or operational burdens. In November 2025, SEC Commissioner Hester Peirce, head of the regulator’s Crypto Task Force, reaffirmed the right to self-custody and financial privacy, calling both foundational to freedom and questioning why people should be forced to rely on others to hold their assets.
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