Five-Year Coldcard Flaw Exposes Critical Testing Gaps Across Hardware Wallet Industry

The Flaw and Its Impact

Coldcard, a widely-used hardware wallet manufacturer, disclosed that a critical seed-generation vulnerability has existed since March 2021. The flaw originated during a routine integration of a new cryptographic library, when the wallet’s seed-generation process was inadvertently routed to a weaker entropy source rather than the manufacturer’s intended true random number generator. This affected not the code’s existence, but which code was actually being executed in production devices. An ongoing attack exploiting this weakness has compromised over 4,500 addresses, draining nearly $90 million in Bitcoin as of early August.

How Auditors Missed It

The vulnerability’s persistence reveals a fundamental gap in hardware wallet security testing practices. According to Kraken chief security officer Nick Percoco, auditors verified that Coldcard’s intended true random number generator existed and functioned correctly—but crucially, they did not verify that this component was actually being called by the production firmware. The weaker MicroPython generator remained hidden in the codebase, creating a false sense of security. Code reviews confirmed the approved entropy method worked in isolation, without checking whether it was genuinely being used for seed generation.

This gaps stands in sharp contrast to standards already established across other security-critical industries. The U.S. government’s NIST SP 800-90B and Germany’s Federal Office for Information Security both specify requirements for independently validating entropy sources in cryptographic systems. The payments industry mandates independent lab testing for PIN entry devices before deployment. Yet as Percoco noted, hardware wallets lack equivalent protocols. While some devices have achieved Common Criteria certifications or vendor-sponsored audits, none systematically enforce end-to-end verification that the validated entropy source is actually executing in production firmware.

Industry Response and Future Standards

Coinkite halted all device shipments and destroyed remaining units containing the vulnerable firmware once the flaw was confirmed. The company’s postmortem revealed that the TRNG code existed in the repository but was only being used for less critical functions by chance, while seed generation inadvertently relied on the weaker generator.

Percoco’s response framed the incident as a necessary industry wake-up call, arguing that consumers currently have no independent verification that manufacturers’ approved randomness sources actually operate as intended. He pointed to the payments and cryptography sectors as models, where rigorous independent validation is non-negotiable before products reach users. Hardware wallet security requires similar rigor to protect the digital assets entrusted to these devices.

Source: Coldcard/Coinkite, via Cointelegraph. Not financial advice.