A years-old firmware flaw in Coldcard hardware wallets allowed attackers to drain roughly $130 million in cryptocurrency by exploiting weak random-number generation. The bug, which went undetected from 2021 until its disclosure in July 2026, affected devices running firmware versions 4.0.1 through 4.1.9 on Mk2 and Mk3 models. Users who generated their seed phrases during that window must create entirely new wallets and move their funds — simply importing the old phrase into another wallet won't fix the underlying weakness.
How the attack worked
The vulnerability stemmed from a fallback in the random-number generator. When the STM32 hardware source failed, the firmware defaulted to MicroPython's deterministic Yasmarang algorithm, which produces a much smaller set of possible seeds. Attackers could reconstruct private keys by searching that limited output space. The Mk4, Q, and Mk5 models were less severely affected — they generated seeds with about 68 bits of entropy instead of the specified 128 bits — but still fell short of the security standard.
What users need to do
Anyone who created a seed phrase on a vulnerable device must generate a completely new seed and move their funds to a fresh wallet. Using a strong, unique BIP-39 passphrase can resist the seed-reconstruction attack because the passphrase is combined with the mnemonic to derive the wallet seed. But Coinkite, the company behind Coldcard, still recommended migration for those users as a precaution. Users who generated their seed with at least 50 fair, independent, private dice rolls are not affected by this specific flaw — the external entropy bypassed the defective generator entirely.
Massive on-chain movement
As word of the bug spread, over 77,000 BTC were moved from older wallets as users rushed to secure their funds. That sudden shift complicated bearish on-chain indicators, making it harder for analysts to distinguish between genuine market sentiment and panic-driven transfers. The sheer volume of migration underscored how many people had relied on Coldcard devices for key generation.
Concentration risk in hardware wallets
The incident highlights a broader issue: relying on a single device for key generation introduces a concentration risk. Andrew Mannoukas, CISO at Xapo Bank, noted that point. When a hardware wallet's firmware has a hidden flaw, every key created on that device becomes suspect. The fact that the bug existed for five years despite the source code being public raises questions about how thoroughly open-source hardware wallets are audited in practice.
For now, affected users face a tedious but necessary migration. The next step is for Coinkite to release a full post-mortem and for the community to decide whether additional third-party audits should become standard before firmware updates are pushed to production.
