Section 33 of Kentucky House Bill 380 contains eleven words that the Bitcoin Policy Institute says are technically impossible to enforce: “resetting any password, PIN, seed phrase, or other similar information that is necessary to access the contents of the hardware wallet.”
The provision would require hardware wallet manufacturers to build a mechanism allowing users to recover seed phrases through the device maker itself. According to BPI, that is not a consumer protection measure. It is a backdoor — and one added through a last-minute floor amendment to legislation sponsored by state Representatives Aaron Thompson and Tom Smith.
The organization’s response was direct: “The mandate is technologically impossible for non-custodial wallets. Hardware wallets are specifically designed so that no one, including the manufacturer, can access or recover a user’s seed phrase.”
That design is the point. A hardware wallet’s security model depends entirely on the manufacturer never holding, seeing, or being able to reconstruct the seed phrase. The moment a recovery mechanism exists, so does a target — for hackers, for government subpoenas, for business failures. BPI warned that requirements like these would push users away from self-custody and toward centralized custodians, the exact entities whose collapses and breaches have defined some of the industry’s most damaging episodes.
What the bill also requires
The amended section does not stop at the recovery mechanism itself. It also mandates identity verification checks for any user requesting a password, PIN, or seed phrase reset from a hardware wallet provider — building a compliance layer into a device category that currently operates without one.
The bill’s sponsors have not publicly responded to BPI‘s characterization of the provision.
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Federal officials on the other side
SEC Chair Paul Atkins has said he is “in favor” of market participants having self-custody options, particularly where intermediaries would impose financial or operational burdens on users. The statement aligns with remarks made in November 2025 by SEC Commissioner Hester Peirce, who heads the regulator’s Crypto Task Force.
Peirce addressed the question plainly. “Why should I have to be forced to go through someone else to hold my assets?” she said on the Rollup podcast. “It baffles me that in this country, which is so premised on freedom, that would even be an issue — of course, people can hold their own assets.”
Kentucky’s bill now sits at the intersection of that federal posture and a state legislature’s floor amendment — one that, according to the announcement from BPI, violates the core ethos of Bitcoin as an asset designed for self-custody.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial or investment advice.
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