A security flaw in Coinkite's Coldcard wallets has led to an estimated $38 million loss in Bitcoin, with AI suspected in the exploit.
Significant Bitcoin Losses Due to Coldcard Vulnerability
Coinkite has reported a serious security flaw in its Coldcard hardware wallets that has resulted in user losses of approximately $38 million in Bitcoin, equating to around 594 BTC. The company suspects that an attacker exploited this vulnerability using AI, which had eluded detection in their own prior assessments.
The issue was identified in the Mk3 model, where a build error caused seed generation to default to a software fallback instead of utilizing the hardware generator. This flaw has made the seeds generated more predictable than intended, putting user funds at risk.
Coinkite stated, "If you generated a seed on a Mk3 after firmware version 4.0.1, your funds may be at risk."
The exploit occurred early Friday, with funds withdrawn from around 500 wallets in just 25 minutes, later consolidating 562 BTC into a single address. Coinkite is now assessing the possibility that AI tools were used to analyze previous firmware versions to uncover this vulnerability, which had not been identified in earlier reviews.
Technical Analysis of the Vulnerability
The Coldcard firmware included dual functions for generating randomness, one from the hardware generator and another from a software fallback. A preprocessor check failed to adequately assess which function was in use, allowing the less secure software option to operate without errors. This issue has persisted since a migration in March 2021.
All current Coldcard models are affected to some degree, with the Mk3 having an effective seed search space of only 40 bits, compared to the ideal 128 bits. The Mk4, Q, and Mk5 models offer improved security through additional entropy, raising their effective search space to about 72 bits, although still below the target.
Recommended Actions for Users
In response to the vulnerability, Coinkite has released emergency firmware updates for the Mk4, Mk5, and Q models. However, users must generate new seeds with patched hardware to secure their funds, as updating firmware alone will not protect already compromised seeds. Coinkite advises users to create strong BIP-39 passphrases and recommends a minimum of 99 dice rolls for added security.
Owners of the Mk3 model are directed to alternative migration options, as this model is no longer supported. Competitors like Trezor have reassured their users that their funds remain secure, emphasizing that compromised seeds cannot be restored safely on different devices.
Max Guise from Block confirmed that their products are unaffected and urged those impacted to transfer their funds safely.
