Compass Investments

The Bitcoin Policy Institute (BPI) has asked the Kentucky Senate to remove Title 33 from the HB 380 bill, arguing that it is “technologically infeasible” for non-custodial wallets.

This provision, added as an amendment to the kiosk regulation act, has already passed the House 85-0 and could be passed by the Senate in the coming days.

According to one expert interviewed by Decrypt, hardware wallet developers are more likely to leave the Kentucky market than to modify their products in a way that would infringe on the principle of non-custodiality.

A last-minute amendment requiring hardware wallet providers to help users recover credentials included in Kentucky’s crypto-machine legislation is raising more and more questions, as experts see it as a fundamental misunderstanding of how crypto-infrastructure works.

Section 33 of Bill 380, introduced as an emergency amendment during a House hearing, would require hardware wallet operators to provide customers with a tool to reset “any password, PIN, cid phrase or other similar information” needed to access the wallet.

“BPI is sending a letter to the Kentucky Senate informing them of the harmful nature of this wording, the group said on social network X.

Hardware wallets are physical devices that store private cryptocurrency keys offline, providing access and recovery only to the owner, even without the involvement of the manufacturer.

“It’s probably more of a misunderstanding than a deliberate attempt at control, Joe Ciccolo, founder and president of BitAML, commented for Decrypt.

Ciccolo noted that policy makers often struggle with the concept of “self-storage, emphasizing that “there is no central authority authorized to dump access data, unlike traditional systems where recovery is the norm.

BPI characterized this requirement as technologically infeasible for non-custodial wallets, stressing that “the need for a backdoor undermines Bitcoin’s core security model and pushes users towards centralized custodians that are more susceptible to hacks and failures.

“Kentucky is suddenly ready to ban self-checkouts. Tell the people you know about it, Conner Brown, managing director of BPI, wrote in X.

Requiring hardware wallet providers to restore or reset credentials would effectively force them to either fundamentally redesign their products, undermining self-storage, or shut down altogether.

Ciccolo said most non-custodial wallet providers would likely choose to exit the Kentucky market rather than compromise their core security technology.

“Most non-custodial wallet providers will likely choose to exit Kentucky rather than undermine their core security model, he added, warning of “narrowing consumer choice” and “deteriorating privacy protections.

The very consumers this law is designed to protect will lose access to one of the most secure methods of storing digital assets, he concluded.

As for safer alternatives, Ciccolo mentioned that “social recovery mechanisms or multi-signature schemes” could reduce risks “without imposing centralized control, adding that “the best defense is to educate users about the benefits and responsibilities of self-storage.

He also supported the BPI’s actions, saying that education is key, and when initiatives stem from a lack of knowledge, direct engagement with lawmakers is the most effective way because it directly affects consumers who value financial independence and security.

HB 380 was introduced in the House on January 14, passed through the Banking and Insurance Committee on March 4, and was unanimously supported by the full House (85-0) on March 13.

The bulk of the act regulates virtual currency kiosk operators, establishes licensing requirements, and sets transaction limits, disclosure requirements and refund rules – provisions that have broad political support and are expected to move quickly through the upper chamber.

The bill arrived in the Senate on Monday and has been referred to a select committee.

Kentucky’s decision follows broader moves against cryptokiosks, with Connecticut suspending Bitcoin Depot for non-compliance and Minnesota considering a total ban on cryptomarts.