Kentucky Legislature Urged To Strip Hardware Wallet From Crypto Bill

A last-minute change that requires hardware wallet providers to help process user credentials, which was included in Kentucky’s crypto ATM bill, is facing widespread disagreement, with experts saying it’s a lack of understanding of how crypto infrastructure works.

Article 33 of House Bill 380added as a last-minute amendment during the House debate, it would require wallet hardware providers to provide customers with a way to set “any secret, pin, seed word, or similar” required to access a wallet.

“BPI is sending a letter to the Kentucky Legislature informing them of the negative nature of this language,” the group posted on. X.

Hardware wallets are physical devices that store cryptographic keys on the Internet and ensure that a user, even a developer, can access or retrieve them.

“This probably shows a misunderstanding more than a deliberate attempt,” Joe Ciccolo, Founder and President of BitAML, told Decrypt.

“Politicians often struggle with the idea of ​​self-sustainability,” Ciccolo said, noting that “there is no central authority that can recover information,” unlike traditional systems where recovery is necessary.

BPI described the service as “technically impossible for non-encrypted wallets,” citing the need for a backdoor as a barrier. Bitcoin‘s security framework is pushing users to a central administrator who is vulnerable to hacking and failure.

“Kentucky is about to ban abstinence. Tell your friends,” Conner Brown, Managing Director at BPI, wrote on X.

“Requiring hardware wallet providers to restore or restore information would force them to re-engineer their products in a way that undermines self-regulation – or leave the market altogether,” Ciccolo said.

“Many wallet-free providers would choose not to operate in Kentucky rather than compromise their security measures,” he added, warning of “reduced consumer choice” and “reduced privacy protections.”

“The very consumers that the bill seeks to protect would lose one of the most secure ways to store digital assets,” he said.

On safe ways, Ciccolo noted that “reintroduction methods or multiple signatures” can reduce the risk “without introducing centralized control,” adding that “good security is to ensure that users understand the advantages and responsibility of self-restraint.”

He also supported the move of the BPI, saying that “education is very important,” and that when ideas come from “a difference of knowledge,” direct interaction with policymakers is “the best way forward,” saying that it “directly affects consumers who value financial autonomy and security.”

HB 380 was introduced in the House on January 14, was reported out of the Banking and Insurance Committee on March 4, and passed the full chamber 85-0 on March 13.

The bill regulates virtual currency operators, establishes licensing requirements, and establishes trading limits, disclosures, and refund rules, which has political support and is expected to move the bill quickly through the upper house.

The bill reached the Senate on Monday and was referred to the Committee on Committees.

Kentucky’s move follows a major crackdown on crypto kiosks, and Connecticut suspends Bitcoin Depot for failures to comply with Minnesota considering banning crypto ATMs.