A software flaw in Coldcard hardware wallets has raised fresh concerns about the security of offline cryptocurrency storage after a software flaw in Coldcard hardware wallets allowed attackers to drain millions of dollars in Bitcoin.The attack has affected thousands of wallets using Coinkite’s Coldcard devices.  By August 3, about 1,367 Bitcoin worth US$86 million had been stolen from more than 4,500 wallets by August 3. Cold wallets are widely considered among the most secure ways to store cryptocurrency, as they keep private keys away from internet-connected devices. The Coldcard incident shows,offline storage cannot protect funds if there is a weakness in the process by which cryptographic keys are generated.  Predictable Seed Phrases Exposed Bitcoin Wallets The problem centers on how Coldcard devices generated the seed phrases used to recover wallets that will be used to recover and control a Bitcoin wallet in the central issue. A flaw in Coldcard's random-number generation process could produce predictable values instead of sufficiently random keys, according to a Block's engineering team analysis. Coldcard devices included a fallback mechanism based on deterministic information, including serial numbers.  The flaw allowed attackers to calculate vulnerable wallet keys and move the funds. The losses quickly mounted over the following days. According to initial reports, the loss amount on July 31 was approximately US$38 million, however within days, the amount had more than doubled.  Initially, Jonathan Goodman believed all three of his wallets would not be affected after checking. However, he discovered that all three had been emptied within minutes of one another on July 29.  Coinkite Releases Fixed Firmware Bitcoins controlled by seed phrases generated through affected firmware may be at risk, as confirmed by Coinkite. The flaw has also renewed scrutiny of hardware wallet security, regarding the assumptions surrounding hardware wallets, Coinkite has since released fixed firmware for the affected models and release tracks.  Although offline access eliminates many Internet-based attack routes, it does not eliminate vulnerabilities in the hardware, firmware, or cryptographic processes required to create those keys. The incident also shows that keeping a wallet offline does not remove every security risk. Despite being physically disconnected from the internet, a wallet may still be vulnerable if its cryptographic keys can be predicted or reconstructed.  Cold Storage Does Not Eliminate Cryptocurrency Risk The Coldcard attack comes as cryptocurrency theft continues to cause major losses across the industry. Approximately US972 million of cryptocurrency were stolen during the first half of 2026, substantially lower than the US2.3 billion stolen during the same period in 2025, according to TRM Labs. A total of 207 hacking incidents were recorded during the first six months of 2026, the highest total in the firm's history.  A TRM Labs report indicates that infrastructure and key compromises account for approximately 15 percent of incidents, yet 76 percent of losses were caused by them. The incident highlights a basic problem with self-custody that self-custody self-custody does not eliminate the risk of losing funds. Hardware wallets can greatly reduce online threat exposure. Their security still depends on how reliably the device generates and protects private keys.  Affected users should check whether their wallet seeds were generated with vulnerable firmware and follow Coinkite’s guidance that their wallet seeds were generated using vulnerable firmware and follow the manufacturer's remediation instructions.The Coldcard incident shows that keeping a hardware wallet offline is only one part of cryptocurrency security. The software and cryptographic processes used to generate its keys can be just as critical.

  There has been a connection between a critical firmware flaw in the Coldcard hardware wallet and one of the largest cryptocurrency thefts of the year, after hackers allegedly drained nearly $70.2 million in Bitcoins (BTC) from 1,196 wallets on July 30 by exploiting a critical firmware flaw, according to Galaxy Research.  A firmware integration error introduced in March 2021 is responsible for the vulnerability, which affects Coldcard, a Bitcoin-only hardware wallet developed by Canadian company Coinkite. According to security researchers, affected firmware versions generated wallet recovery seeds using deterministic software-based pseudorandom number generators (PRNGs) rather than the hardware random number generators (RNGs) of the devices. In this way, the amount of randomness necessary to create cryptographic seeds has been significantly reduced.  Block researchers explained that, under certain circumstances, an attacker could reproduce seed values offline under sufficient knowledge of the device's unique identification number and internal state. Attackers can then identify and steal funds from vulnerable wallets by matching those candidate seeds against publicly available blockchain addresses.  It was found that the flaw occurred as a result of a production configuration error resulting in affected Coldcard devices relying on MicroPython's Yasmarang pseudorandom number generator instead of the hardware random number generator intended for them.  During initialization of the fallback algorithm, unique identifiers and timer values of the device were used without the collection of fresh entropy, leading to significantly more predictable recovery seeds. Contrary to conventional cryptocurrency attacks directed towards exchanges, smart contracts, and online wallets, this incident involved hardware wallets designed to remain offline.  According to security experts, the compromise did not require the device to be connected directly to the internet. As an alternative, attackers are alleged to have generated a large number of possible recovery seeds offline, derived the addresses of the corresponding wallets, and compared them with blockchain records available on the Internet until they found matching wallets containing Bitcoins.  As determined by investigators, the attacker generated candidate recovery seeds using hardware configured under similar conditions, then deduced the Bitcoin address corresponding to each seed. The address of a blockchain is publicly visible, and matching the address of a recreated seed to the address of an active wallet would allow the attacker to retrieve the private keys and transfer funds without physically accessing the victim's device.  A firmware update was released by Coinkite on July 31 for all Coldcard models that were affected. However, the company has stressed that installing the update alone will not secure wallets that have been created with vulnerable firmware.  Users whose recovery seeds were generated on affected versions have been advised to generate new seeds utilizing the patched firmware and transfer their Bitcoin to new wallets as soon as possible. It is important to note that even when an old seed is restored on an updated firmware or another wallet, the underlying weakness remains.  Galaxy Research has reported that the stolen funds were transferred in batches over a period of six Bitcoin blocks rather than through a single continuous transaction. Observations by researchers indicated that three interconnected blocks did not show any related activity, indicating that the transactions were deliberately grouped before being broadcast.  Coldcard versions 4.0.1 to 4.1.9, Mk4 and Mk5 versions before 5.6.0, Q versions before 1.5.0Q, and Edge builds released prior to the latest patches are affected by this firmware. The vulnerability has been estimated by Coinkite to reduce the effective entropy of wallet recovery seeds by approximately 40 bits for Mk3 devices and around 72 bits for Mk4, Mk5 and Q devices. This results in significantly lower levels of security than a standard 12-word BIP-39 seed's 128-bit encryption.  Researchers noted that practical challenges in recovering a seed are still influenced by factors such as device characteristics, boot timing and computational resources. It was noted by Coinkite that wallets generated with at least 50 fair and private dice rolls do not suffer from this vulnerability. Despite the fact that a strong passphrase provided additional security, users should nonetheless replace vulnerable seeds with stronger BIP-39 passphrases.  Multisignature wallets will not be compromised if all signing devices are not affected by the same issue. There has been no public identification of the attacker. According to Galaxy Research, the observed on-chain transaction patterns indicate a coordinated wallet sweep, but do not conclusively indicate theft. Researchers also observed that blockchain activity followed a distinctive transaction pattern, though they cautioned that on-chain analysis alone cannot conclusively prove theft.  The pattern instead pointing to coordinated wallet sweeps consistent with a single operator or related group of operators, which has raised concerns over the importance of secure random number generation in cryptocurrency wallets. In order to store cryptocurrency offline securely, hardware devices that remain disconnected from the internet must maintain strong cryptographic entropy during wallet creation, and any weakness in that process can compromise its security.  After Coinspect released the "Ill Bloom" vulnerability in just weeks past, another weak random number generation vulnerability has led to more than $5 million worth of cryptocurrency theft across Bitcoin, Ethereum, Tron, Rootstock and Polygon, with the "Ill Bloom" vulnerability being linked to more than $5 million in cryptocurrency thefts. Even wallets designed with strong offline security can be compromised by vulnerabilities in cryptographic randomness.  A subsequent update from Galaxy Research identified two more suspected Coldcard-related wallet sweeps, which increased the estimated losses to 1,367.05 Bitcoins, worth approximately $88.6 million across 4,585 addresses, for a total of 1,367.05 Bitcoins. In addition to sharing details with federal investigators, compliance organizations and cybersecurity teams about nearly 600 suspected attacker-controlled addresses, the firm said the activity is ongoing.