The collapse of FTX in 2022 sparked an unprecedented demand for hardware wallets, significantly boosting the revenue of manufacturers like Trezor, Ledger, BitBox, and Coldcard. Coldcard carved out a unique position in the market as a distinctly "cryptopunk" device, supporting only Bitcoin, featuring an intentionally intimidating design, and operating without a direct connection to a computer (air-gap). Its official account on X (formerly Twitter) long used the slogan "Sleep at Night Technology," emphasizing the uncompromising security of its products.
Coldcard has consistently been one of the most recommended wallets within the Bitcoin community. An 11-minute compilation shared on Reddit highlights numerous influencers, both prominent and lesser-known, endorsing this wallet. It was favored by those who understand the technology and hold a significant portion of their savings in Bitcoin.
On July 30, 2026, an unknown perpetrator drained nearly 1,200 addresses without directly accessing any devices. Neither advanced security features nor the cryptopunk marketing approach could protect users who believed they were taking the right precautions. This incident raises questions about how it happened and why it impacts the Bitcoin industry more severely than any exchange hack.
The Security Theater
Galaxy Research documented the first wave of this incident. On July 30, 1,082.65 BTC (approximately $70.2 million at the time) was transferred from 1,196 addresses in just 41 minutes across six blocks, with the same embedded fee in each transaction and no change outputs. By August 3, analysts identified four waves totaling 1,431.97 BTC and affecting 5,415 addresses.
Data as of August 3. Source: coldcard.rip.The vulnerability was explained by Coinkite, the manufacturer of Coldcard. Each wallet starts with a large random number, which Coldcard was supposed to generate using a hardware generator inside the chip. In March 2021, the company transitioned its cryptography to the libsecp256k1 library from Bitcoin Core, adding a layer called libNgU.
https://twitter.com/DocumentingBTC/status/2084347267067113825
Due to an error in this integration, the requests began to come from a software generator that relied on the chip's serial number and timer readings. These values are not random, resulting in a drop in the expected 128 bits of security to around 40 bits for the Mk2 and Mk3 models. The Mk4, Mk5, and Q models incorporated entropy from secure elements, yielding 72 bits. Coinkite labeled both assessments as preliminary and recommended users to replace seed phrases on all affected models.
Time required to brute-force a seed at different entropy levels. Source: X.Coldcard itself warned of such a scenario. In October 2021, a user inquired about a "retirement attack," to which the official account explained that it refers to a backdoor where creators leave a "bug" in the entropy generation to later access users' funds. In the same thread, Coinkite assured that its own dice rolls made such an attack impossible. However, the firmware error had already existed for seven months by that time.
https://twitter.com/COLDCARDwallet/status/1447213375398846473
Now, under that post, users are asking if this was an admission of guilt. There is no evidence of intent: the company described a known theoretical risk and offered a safeguard against it. This safeguard worked: 50 dice rolls provided manual randomness, and a compromised generator did not affect such a seed. However, this option was not utilized by all.
Similar incidents have occurred before. In 2022, the generator for the Trust Wallet browser extension was initialized with a 32-bit value, producing 4 billion mnemonic phrases. But this is a hot wallet, which is not recommended for large sums. Coinkite marketed Coldcard as its polar opposite.
Thus, those who entrusted significant savings to this hardware wallet, believing it to be the safest option, were affected.
Time to Move Coins
According to the manufacturer and Block, the following seed phrases are at risk:
- Seeds created on Mk2 or Mk3 with firmware 4.0.1 and newer without 50 private dice rolls;
- Seeds on Mk4 and Mk5 with firmware versions below 5.6.0, as well as Q up to 1.5.0Q;
- Any such seed exported to another device: transferring to Trezor or BitBox does not rectify the weak randomness;
- Multisig setups where the quorum consists solely of vulnerable devices.
For those on the list, Coinkite recommends the following steps:
- Determine the firmware version when the seed was generated. The version at the time of generation matters, not the current firmware on the device.
- Create a new seed phrase on the corrected firmware or on a hardware wallet from another manufacturer.
- Verify access recovery with the new words before sending a significant amount to the address.
- Transfer funds and cease using the old addresses.
There is no consensus on the passphrase. Some commentators believe a long, unique password for the seed phrase is a sufficient barrier. Developers like Wizardsardine (of the Liana wallet) clarify that a weak seed narrows the passphrase brute-force effort, allowing attackers to gain hours or days, but it does not resolve the underlying issue.
The most reliable way to protect against such incidents within the community now suggests a multisig scheme across devices from different manufacturers. However, this is aimed at advanced users: one must understand xpub and derivation paths, maintain configuration files, and create separate backups for each key. Even a basic "2-of-3" scheme requires multiple secure storage locations and discipline.
A newcomer is unlikely to set up such a system or even attempt it. In some ways, this is prudent: hasty actions can be more dangerous than the vulnerability itself. For users who have just learned about hardware wallets, the simplest and most straightforward option is to entrust their coins to someone who will take responsibility for their safety. This is one of the key takeaways from the Coldcard incident: it has undermined trust in the non-custodial storage model.
Toxic Maximalism as a Cause of the Catastrophe
There are relatively few hardware wallet owners, but many manufacturers. Besides Trezor, Ledger, and BitBox, the market also includes Keystone, OneKey, Bitkey, Jade, and others.
Coldcard was successfully marketed not only by its technical advantages but also through strong criticism of its competitors' devices. Co-founder of Coinkite, Rodolfo Novak (NVK), built marketing around harsh critiques. For instance, in October 2025, he commented on Trezor Safe 7:
“Congratulations to Trezor on Trezor 7. A nice piece! […] It’s amusing that after all the years of FUD, they ultimately borrowed the idea of multiple secure elements from COLDCARD. Sorry, couldn't resist. […] BLE (Bluetooth): an unreliable technology. The standard itself is a rare garbage, and, in my opinion, it has no place in hardware wallets. […] Claims of ‘quantum readiness’—marketing nonsense. […] Bitcoin was hardly considered here. Everything is designed as a universal platform to accommodate all possible shitcoin scams. Just because you painted it orange doesn’t make the scam any less.”
https://twitter.com/nvk/status/1981724837476196802
Coinkite also accused the developers of Passport of borrowing its firmware. The DIY project SeedSigner was criticized by NVK for using Raspberry Pi as a hardware wallet.
https://twitter.com/sesi_the_man/status/2083628408550895859
Overall, Coldcard developed a reputation as a keeper of "orthodoxy." Supporting anything other than Bitcoin was considered a scam. Connecting a wallet via USB to an internet-connected computer was seen as reckless, putting users one click away from losing their coins.
However, Coinkite itself has not always adhered to the principles it publicly championed. Zak Herbert, head of Foundation Devices—the manufacturer of Passport—reported that on July 28, 2020, his team presented Passport, built on Coldcard firmware that was distributed under the GPLv3 license.
https://twitter.com/zherbert/status/2082993276324319713
Just two days later, Novak expressed regret over the choice of that license and announced plans to change the approach.
In November, Coinkite replaced the GPLv3 license with the MIT license with a Commons Clause that prohibits commercial use of derivative products. Formally, the source code remained open but only for reading: it could not be used by others when creating commercial devices.
On March 1, 2021, a commit removed libraries inherited from Trezor under the GPL, and the same set of changes in 120 files altered the seed generation. Two weeks later, version 4.0.0 was released, stating the removal of "the last remaining GPL code." Herbert emphasized that the decision to eliminate third-party code was driven not only by licensing constraints but also by technical reasons. However, the entropy error was included in the same commit that removed the dependency on external open-source code.
Coldcard's source code had been publicly available for five years, but publication does not guarantee that anyone reviewed the code. Spending weeks auditing a library that cannot be used in one's products was unnecessary for external developers.
Trust Lost
The industry has grown accustomed to exchange hacks. This time, the breach occurred in a place considered one of the most secure.
The Bitcoin protocol held up, the cryptography functioned as intended, and other manufacturers remained unscathed. But the logic of a frightened individual sets in: what if others have similar errors in their firmware? In that case, it might be better to leave coins on exchanges, where at least compensation is possible in the event of a hack.
On July 31, analysts from CryptoQuant recorded a surge in deposits on exchanges through small transactions, totaling 7,300 BTC. The number of active addresses in the network increased from 645,000 to nearly 1 million. The cumulative volume of transfers under 1 BTC reached 39,600 BTC.
A comparable figure was seen on November 16, 2022, just days after the FTX bankruptcy. At that time, people were withdrawing coins from exchanges to self-custody. Now, some holders have returned their Bitcoin to exchanges.
Coinkite released emergency firmware updates and pledged to provide a detailed technical analysis as well as reports on the incident for law enforcement and insurance purposes. Novak took full responsibility for the firmware error.
“I am sorry, and I am crushed,” wrote the company founder.
There has been no mention of compensation. Journalist L0la L33tz noted that engineers from Block, analysts from Galaxy, and independent developers with their projects have been working around the clock to assist the affected users.
“The worst blow in Bitcoin’s history to the most knowledgeable and 'properly protected' holders,” noted podcaster Guy Swann.
Crypto vs. AI
There are speculations within the community that the vulnerability was discovered using artificial intelligence by running old firmware versions through a model. Novak himself does not rule out this possibility, calling it a harsh reality of the new paradigm.
Until now, the rivalry between crypto and AI appeared more abstract. Neural networks have captured the attention and funds of investors, with many blaming them for the less-than-impressive results of this market cycle: capital has shifted to the new shiny technology.
Now, the debate has tangible consequences. On May 29, security researcher Taylor Hornby discovered a flaw in Zcash's Orchard private pool scheme using the Claude Opus 4.8 model. This flaw allowed the silent creation of counterfeit ZEC, existing in the code since 2022 and passing audits by recognized experts. Claude Mythos Preview helped researchers at Anthropic find two crypto-analytical attacks: one on the post-quantum digital signature scheme HAWK and a reduced semi-round version of AES-128.
The outcome of this confrontation remains uncertain. However, such incidents are likely to become increasingly frequent.
Text: Sasha Kosovan