A hardware wallet's $130 million randomness bug — why upgrading the firmware is not enough

Coinkite has released new firmware for its Coldcard Bitcoin hardware wallets after a flaw in the way the devices generated wallet seeds led to roughly $130 million in stolen Bitcoin. The most important part for owners is the part that is easiest to miss: installing the update does not repair a seed that already exists. Seeds created on affected versions between 2021 and July 2026 have to be replaced with a new one, and the Bitcoin has to be moved to it.

Every wallet begins as a random number, and the strength of that number is the whole security model. TRM Labs said a firmware bug dating to March 2021 weakened seed randomness on some Coldcard devices, cutting key strength from 128 bits of entropy to roughly 40 bits and, in its description, making the seeds brute-forceable without physical access to the device. Attackers began draining air-gapped Coldcards in July, with a first wave taking 594 BTC, about $38 million at the time, from roughly 500 wallets in 25 minutes. Galaxy Research tracked about $88.6 million across 4,585 addresses by early August, then more than 1,778 BTC, worth roughly $112 million at the time, by August 14 across three major waves and dozens of smaller incidents. DefiLlama data ranks it the third-largest crypto exploit of 2026.

The new release is firmware 5.6.1 for the Coldcard Mk4 and Mk5 and 1.5.1Q for the Coldcard Q. Generating a new seed now requires the owner to supply randomness by hand: at least 65 key presses with unpredictable timing, 50 rolls of a six-sided die, or 128 coin flips. The device mixes that input with randomness from its own secure elements and hardware random number generator, so that the resulting seed stays unpredictable even if one of those sources fails. Coinkite also replaced the Yasmarang pseudo-random generator used for backups with SHA-256 Hash_DRBG, added checks meant to catch a failing hardware generator, and added a boot-time test of the device's intended hardware path.

The rest of the release came out of a three-week review with outside security researchers. Coldcard now re-checks a partially signed Bitcoin transaction, or PSBT, immediately before signing it, closing a path where a compromised computer on the USB connection could in theory alter a transaction after the owner had already reviewed it; signing halts and a warning appears if anything changed. Coinkite described that issue as theoretical and did not say it had been exploited. USB downloads are now limited to the device's most recent output and require an encrypted session, Delta Mode was hardened, wallet backups were changed, and certain Bitcoin signature hash modes that leave transaction outputs modifiable are blocked by default.

There is an artificial-intelligence thread running through the whole episode, in both directions. Coinkite suggested attackers may have used AI to comb through older versions of its open-source firmware and find the flaw, and Galaxy described the attacks as deliberate, programmatic and potentially orchestrated with a large language model. The review that produced this firmware also used outside researchers alongside AI models. Separately, the security firm Coinspect has published a free tool called Unlukey that tries to reproduce known weak seed generation and check whether a public address belongs to the affected set, and the swap service Boltz suspended operations earlier this month saying AI-assisted attackers were finding bugs faster than its developers could fix them. Coinkite says law enforcement is still investigating the thefts.

For a beginner, the lesson underneath the technical detail is worth more than the patch notes. A hardware wallet is usually described as the safe end of self-custody, and it mostly is, but its safety rests on a number you never see and cannot check by looking at the screen. Three practical habits follow from that. Take firmware only from the manufacturer's own site or app, never from a link someone sends you. If you generate a replacement seed, remember that the new seed does nothing until you actually move the coins to addresses derived from it. And never type an existing seed phrase into a website, form or support chat that offers to check whether you were affected, since tools like the one above examine public addresses, not secret words. This is information, not advice.