Bitcoin and cryptocurrency holders are grappling with the repercussions of a breach involving the cold hardware wallet Coldcard, which has resulted in the theft of approximately $40 million in bitcoin. The bitcoin price has declined in the hours following the discovery of the attack; however, it continues to hold above the significant $60,000 per bitcoin support level. Currently, there are concerns that reports of the attack may lead to a decline in the bitcoin price, possibly causing it to drop below the $58,000 threshold it reached at the end of June. Panic swept through the bitcoin and crypto community last night following reports that nearly 600 bitcoin, valued at approximately $40 million, had been stolen from hundreds of individual wallets that their owners believed to be secure.
In a brief timeframe, attackers successfully compromised approximately 500 Coldcard hardware wallets, which predominantly employed single-signature security. These wallets were vulnerable due to a flaw that resulted in the utilisation of predictable software-based key generation, relying on chip data instead of a more advanced randomness generator. Coldcard is a hardware wallet exclusively for bitcoin, developed by the Canada-based Coinkite. It ensures the security of private keys by keeping them offline, employs dual secure elements, and facilitates air-gapped transaction signing. “Out of an abundance of caution, Coinkite is warning all users who generated a seed using a Mk3 on version 4.0.1 (March 2021) or any subsequent version that their funds may be at risk,” Coinkite developers wrote in a blog post. “We were unaware of the bug until today,” they added, advising users to “proceed calmly, verify every step,” and move their funds to a new wallet.
“Updating the firmware does not repair a seed that was generated by affected firmware. A new seed must be generated and the funds migrated to the new wallet … When migrating to a new key, calm and care should be applied. Rushing a wallet migration can create a more immediate risk than the issue you are trying to address.” The threat has extended to additional hardware wallets owing to the capacity of wallets to import seeds. “If you exported a seed generated in a vulnerable Coldcard, moving it to another wallet, then that same insecure seed is still affected,” security researchers with Jack Dorsey’s Block wrote in a blog post.
The attack has heightened concerns that the extensive integration of artificial intelligence tools will result in a surge in the frequency of attacks on bitcoin and crypto software. “The exploit is out in the wild, public attention is on it, and everybody has access to frontier LLMs [large language models],” a pseudonymous onchain analyst and prominent crypto skeptic using the handle @Pledditor posted to X. “I imagine there are dozens of hacking teams now researching how to exploit this. You are in a race against time.” And “I have a very bad feeling AI was involved in this unfolding situation with Coldcard’s being drained,” X user Cobra, posted to X, adding bitcoin could collapse under $60,000 as a result. “This will bring us down to $58,000 when the media get a hold of it,” Cobra posted.