The Coldcard flaw let attackers drain $88.6M in BTC. CZ urges splitting funds across wallets. Galaxy Research traced 1,367 BTC to 4,585 addresses. Coinkite issued patches but old seeds remain weak.
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Binance founder Changpeng Zhao reopened the debate on hardware wallet security after a flaw in Coldcard devices allowed weak recovery seeds to be generated. The bug meant funds could be drained without any phishing, malware, or theft. Galaxy Research raised its loss estimate to 1,367.05 BTC across 4,585 addresses, worth about $88.6 million. The firm earlier traced 1,082.65 BTC from 1,196 addresses during a 41-minute sweep on July 30.
Block’s Bitcoin engineering and security teams traced the weakness to a firmware integration error introduced in March 2021. Affected software could use a deterministic fallback instead of consistently relying on the hardware random-number generator for unpredictable recovery seeds, Block said. That fallback used chip identifiers and timing data, letting an attacker narrow the possible inputs and generate candidate seeds offline. The attacker could then derive public addresses and compare them against funded addresses visible on Bitcoin’s blockchain. Once a match appeared, the corresponding private keys could transfer the funds.
Coinkite said Coldcard Mk2 and Mk3 seeds created on firmware versions 4.0.1 through 4.1.9 may contain critically weak entropy. The company also warned that seeds generated on Mk4, Mk5, and Q devices before emergency updates could contain about 72 bits of entropy. Those devices were intended to provide 128 bits, making the affected seed space easier to search. Coinkite issued firmware patches, an update cannot strengthen an old seed already created by vulnerable software. Users must update the device, generate a new seed, and move funds to addresses controlled by replacement keys.
Zhao wrote on X that no wallet is secure. “Even hardware wallets can have bugs. Even old wallets (with long history) can have bugs,” he said. “How to mitigate? Split your funds in a few wallets maybe? This has a different set of risks. Nothing is 100%. Stay informed. Stay SAFU!” His multi-wallet approach changes the security goal from finding one perfect device to limiting damage when one system fails. Separate wallets with independently generated seeds can prevent one compromised recovery phrase from exposing an entire portfolio. Using products from different manufacturers can also reduce dependence on one codebase, firmware design, or random-number process.
A multi-wallet setup is safer only when each seed is created independently and every backup remains protected. Splitting funds across several wallets derived from the same vulnerable root seed would not remove the underlying exposure. Multisignature custody adds another safeguard by requiring several keys before funds can move. Block warned that arrangements built entirely from vulnerable devices may still fail if compromised keys control the required quorum. A stronger structure requires independently generated keys, tested recovery procedures, and regular attention to vendor security notices.
The Coldcard case shows that a hardware wallet can protect keys offline yet still fail during key creation. The devices remain useful. Self-custody depends on secure generation, careful diversification, and rapid user response. Zhao’s advice acknowledges the trade-off: reducing concentration risk means protecting and recovering more keys. For context on how self-custody fits into the broader market, see our crypto market analysis.
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