Coinkite, the manufacturer of Coldcard, released firmware fixes and recommended that affected users migrate their funds. However, the incident shook the Bitcoin community to its core and raised an uncomfortable question: if Coldcard wallets can be compromised, does that mean all hardware wallets are potentially unsafe?
The Coldcard vulnerability did not exploit Bitcoin itself or break modern cryptography, but it struck something far more fundamental: randomness.
Every Bitcoin wallet begins by generating a seed phrase from a pool of random data. This means the randomness must be unpredictable enough to make the resulting private keys effectively impossible to guess. Entropy refers to how random that data actually is.
If that randomness is weakened for any reason, attackers can reduce the number of possible keys and eventually find a way to reproduce them.
A Coinkite representative explained to the publication:
“Certain firmware versions had a fallback path in seed phrase generation that could produce weak entropy when the seed was generated directly by the device firmware.”
Weak random number generation (RNG) is not unprecedented, but unlike many other security vulnerabilities, it can be extremely difficult to detect.
Bitcoin security expert Jameson Lopp noted that RNG vulnerabilities have previously affected a long list of cryptocurrency wallets and libraries, ranging from Blockchain.com’s Android wallet to Trust Wallet.
Vincent Buzon, Ledger’s Director of Product Security, explained that “weak randomness can still pass output tests,” meaning compromised random number generators may continue producing values that appear random, making such flaws difficult to identify.
Hardware wallet manufacturers agree that secure entropy generation is non-negotiable, but they use different approaches to achieve it.
Ledger’s philosophy centers on specialized secure hardware. Buzon says Ledger devices generate seed phrases using a true random number generator built into a certified Secure Element. The entropy source is certified under the AIS-31 PTG.2 standard, while the Secure Element itself undergoes Common Criteria certification.
“This Coldcard incident was a failure in one specific implementation, not a verdict on secure self-custody [...] Entropy generation must be anchored in secure hardware with an architecture that cannot silently downgrade to an unreliable software source,” Buzon stated.
Trezor combines randomness generated inside the device with randomness provided by the host computer rather than relying on a single entropy source. Newer models also include additional hardware-based sources.
The company also performs entropy checks to confirm that the device actually produced unpredictable randomness during wallet creation.
“The industry-wide lesson is that randomness cannot depend on a single source or a single line of code being correct,” said Tomáš Sušánka, Chief Technology Officer at Trezor.
Foundation’s Passport wallet similarly relies on multiple entropy sources while emphasizing transparency. CEO Zach Herbert says Passport combines randomness generated by separate hardware components before creating the wallet.
The firmware is also published as free and open-source software with reproducible builds, allowing independent researchers to verify that the software running on the device matches the publicly available source code.
“The bug itself was specific to Coldcard [...] The bigger warning is that it remained unnoticed for more than five years while people trusted the product with life-changing amounts of money,” Herbert noted.
Nick Percoco, Chief Security Officer at Kraken and former Chief Security Officer at Uptake, sees the Coldcard incident as an opportunity for the industry to adopt stricter standards regardless of which design philosophy manufacturers choose.
“The Coldcard entropy failure should be a wake-up call for the entire hardware wallet industry,” he said, arguing that today’s certification schemes often validate individual components without confirming that production firmware actually uses them correctly.
Percoco proposed an industry assurance standard requiring:
| Manufacturer | Entropy Approach | Key Features | Code Openness |
|---|---|---|---|
| Ledger | Dedicated Secure Element with AIS-31 PTG.2 certification | Hardware protection, Common Criteria certification | Partially closed-source |
| Trezor | Combination of device + host computer + additional entropy sources | Entropy checks, multiple sources | Fully open-source |
| Foundation Passport | Multiple hardware components | Reproducible builds, transparency | Fully open-source |
| Coldcard | Hardware RNG with a vulnerability in older versions | Bitcoin-only focus, advanced features | Fully open-source |
For Coldcard users, the immediate priority is to follow Coinkite’s migration recommendations if they believe their wallets were created using affected firmware.
In the longer term, the broader Bitcoin community should use this episode as a learning opportunity. Experts including Michael Tanguma emphasize the importance of avoiding security architectures in which a single failure can compromise funds.
“Realistically, today you want multisig and independently generated entropy [...] The mitigation that truly scales is architectural: setups where no single device, vendor, or institution can lose your funds by being wrong,” Tanguma said.
The Coldcard incident clearly demonstrated that security should not depend on a single component. Several architectural approaches can significantly reduce risk:
Configure a multisignature wallet, such as 2-of-3 or 3-of-5, using devices from different manufacturers:
Even if one manufacturer has a vulnerability, an attacker would still need to compromise the other devices to gain access to the funds.
Split a seed phrase into several parts, requiring a predetermined number of shares for recovery, such as 3 out of 5. This allows users to:
Adding an additional passphrase to a standard 12- or 24-word seed phrase creates an entirely different wallet. Even if an attacker obtains the seed phrase, they cannot access the funds without the passphrase.
Important: the passphrase should not be stored together with the seed phrase, otherwise the additional layer of security is largely defeated.
The Coldcard incident will likely lead to several important changes across the industry:
Current certification schemes often focus on individual components without verifying how they are integrated into the final product. More comprehensive standards are likely to emerge that:
Manufacturers are likely to introduce more sophisticated mechanisms for verifying that devices operate as intended:
Community pressure is likely to push more manufacturers to:
To understand the scale of the issue, consider the key figures:
The Coldcard incident contains several critical lessons for the entire cryptocurrency ecosystem:
The Coldcard vulnerability was particularly dangerous for several reasons:
Unlike many other vulnerabilities, this issue did not affect normal device behavior. The wallet continued to operate normally, sign transactions, and display balances, giving users no indication that anything was wrong. People could use their devices for years without realizing that their keys might be compromised.
As Vincent Buzon of Ledger noted, weak randomness can still pass standard statistical tests. This means that even sophisticated analysis may fail to identify the problem without a deep understanding of the device’s internal operation.
Because the seed phrase is generated only once when the wallet is created, the vulnerability affected every future transaction made with that wallet. Even after updating the firmware, old wallets remained vulnerable unless a completely new seed phrase was generated.
This highlights a critical point: updating firmware is not always enough. If the seed phrase itself has been compromised, users must create an entirely new wallet with a new seed phrase.
So, are all hardware wallets unsafe? The answer is no. The Coldcard incident exposed a failure in one specific implementation, but it also forced manufacturers to reveal more about the process at the heart of self-custody: generating a secret that no one else can predict.
The incident serves as a powerful reminder of several fundamental truths:
For Bitcoin holders, the incident should serve as a catalyst for reviewing their security strategies. Not as a reason to panic or abandon self-custody, but as motivation to adopt more robust approaches that do not depend on the flawless operation of any single device or manufacturer.
Multisig, diversification, independent entropy generation, and regular verification create a security system capable of surviving the failure of any individual component. In a world where perfect security does not exist, resilient security is the goal worth pursuing.
Despite its severity, the Coldcard incident may ultimately strengthen the ecosystem. It has forced manufacturers to reconsider their approaches, encouraged users to become more vigilant, and pushed the community toward better standards. Over the long term, that is exactly what the Bitcoin ecosystem needs to become more mature and resilient.
“Security is not a destination, but a journey. And on that journey, the most important lessons often come from the most painful incidents. The question is not whether the next vulnerability will happen, but how prepared we will be when it does.”
— Andreas Antonopoulos, renowned expert on Bitcoin and decentralized technologies
