Security

A Five-Year Bug Made Bitcoin's "Safe" Wallet a Searchable Target

2026-08-11

Since Thursday, Bitcoin owners who store their crypto with Coldcard have experienced four waves of thefts that have affected more than 5,200 individual addresses, with approximately 1,816 Bitcoin—nearly $116 million—already moved off those wallets. And the thing that makes this worse than most hacks isn't that someone breached a server or exploited a contract. It's that the vulnerability was built into the device's DNA years before anyone realised it was there.

The confirmed attack hit Mk2 and Mk3 devices on firmware versions 4.0.1 through 4.1.9. But the actual problem goes deeper. Seeds generated on Mk4, Mk5, and Q devices before the fixed releases carried roughly 72 bits of entropy rather than the intended 128, which is far better than 40 bits and was not exploited in this sweep, but still sits well below standard.

What we're looking at here is a firmware vulnerability that silently bypassed Coldcard hardware wallets' random number generator for five years, culminating in a 25-minute sweep on the final night of July, draining approximately 594 bitcoin worth $38.3 million from around 500 wallets. Then the real panic started. On August 1, Galaxy Research identified a second wave of thefts tied to the same attacker, tracking 1,158.66 BTC (roughly $75.1 million) taken from 2,673 addresses, then flagged a third wave, pushing the running total to 1,367 BTC—roughly $89 million—drained from 4,585 addresses.

The vulnerability wasn't some edge case, either. A flaw in Coldcard's wallet-seed generation reduced the randomness protecting some private keys, turning supposedly unreachable Bitcoin into a searchable target. That's the whole promise of a hardware wallet—it sits offline, your keys never touch the internet, and an attacker would need physical access to steal anything. Instead, they just needed to run the right search algorithm.

The company at the centre of the breach—Canada-based Coinkite Inc.—warned that artificial intelligence failed to detect the software flaw that was exploited to steal users' funds, saying the vulnerability "is a warning for every company building Bitcoin hardware and software, not only us". Firms using AI to monitor security-critical code needed immediate reviews, Coinkite said.

Analysis shows that where remaining funds have moved past the initial receiving address, it has amounted to a single additional hop of consolidation rather than any attempt at layering or mixing, pointing to an attacker or attackers potentially still working out how to move a sum large enough to attract attention wherever it lands. At least a dozen different hackers are said to be targeting Bitcoin owners who use Coldcard, and it appears there's more than one group of hackers.

The incident is not an isolated embarrassment. This is the third major documented failure of this class—following the 2023 Milk Sad PRNG vulnerability and the 2026 Ill Bloom mobile wallet breach. In each case, the failure occurred at the point of wallet creation, a moment the user had no way to independently verify regardless of how carefully they followed security practices afterward.

REKT documented 276 crypto exploits totaling approximately $1.2 billion in losses since January 2026, with the Coldcard hardware wallet compromise accounting for roughly 10% of the year's total hack losses within days. You build a piece of hardware specifically to avoid trusting anyone. And then the hardware itself breaks the deal.

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