Coldcard: Canada accounts for 25% of losses linked to security breach

Hardware wallets are among the safest solutions for storing bitcoins offline. However, this certainty has just been shaken. A critical flaw discovered in the Coldcard ecosystem enabled the theft of $116 million, revealing a software vulnerability that went unnoticed for five years. The case questions the reliability of self-preservation tools, while digital sovereignty is establishing itself as a pillar of the Bitcoin ecosystem. The losses, mainly concentrated in Canada, further reinforce the scale of this incident.

Coldcard: Canada on the front line of $116 million hack

The analysis data reveals a particularly disproportionate geographical distribution of the harm caused in the Coldcard affair, which is established according to the following map:

• Canada (25%): Canadian bitcoin holders are the primary demographic affected by this attack, absorbing a quarter of all attributable losses. This heavy regional concentration is largely explained by the territorial anchoring of Coldcard’s parent company, Coinkite, whose head office is located in Toronto, historically favoring strong local adoption by early investors;
• Australia (15% to 20%): according to the visual analysis provided by the specialist company Chainalysis, this country ranks second among the nations hardest hit by this siphoning of assets;
• The United States and Thailand (10% to 15%): these two countries follow immediately in the ranking of recorded damage, with losses estimated for each territory in this range;
• The overall global impact: while the attack primarily hit English-speaking jurisdictions that were pioneers in the adoption of bitcoin, significant damage was also seen in Western Europe, Latin America, as well as in major crypto hubs on the African continent such as Nigeria and South Africa.

In total, the consolidated amount of assets stolen during this incident, particularly bitcoin, now reaches $116 million. The financial community is observing with concern this hack on an unprecedented scale, which calls into question the vulnerability of physical wallets supposedly isolated from any external network. The speed with which funds were siphoned across multiple continents illustrates the methodical precision of hackers and the systemic fragility of users relying on a single equipment model.

A software flaw hidden for five years

The origin of this situation dates back to a specific software modification made several years before the hack broke out. In a detailed analysis of the incident, Galaxy Research identified an internal software update from March 2021, specifically the integration of a new random number generator, as the single point of failure that enabled the attack. “It was incorrectly wired and defaulted to a weaker generator. So it failed silently, without warning. Nobody knew that their private keys were generated with low entropy”explained Galaxy Research. Explaining how standard checks missed this misconfiguration for over five years, Natalie Newson, Senior Blockchain Investigator at CertiK, says the root cause is the MICROPY_HW_ENABLE_RNG parameter set to zero. “For a static guard checking #ifndef, a macro set to 0 remains set”indicates the latter.

This invisible vulnerability caused a critical weakening of entropy. Due to this automatic fallback to a pseudo-random software entropy system, the mathematical complexity of the generated private keys was significantly reduced without the user being informed. The hacker was thus able to algorithmically reconstruct the vulnerable keys and orchestrate an automated scanning with formidable efficiency. The fact that a low-level security component remained faulty within the source code during this period reveals the limitations of traditional static analysis in hardware quality control processes.

Towards the end of the single signature?

To remedy this vulnerability and manage the operational risk linked to the deployment of emergency patches in the midst of a wave of automated thefts, strict protocols are now imposed on manufacturers and users. Natalie Newson insists on the fact that the hardware architecture must evolve: “the strongest control measure is to eliminate the fallback mechanism in production and have a single approved RNG supplier”specifying that the entire key generation process must strictly fit within a validation limit compliant with the NIST FIPS 140-3 standard.

Additionally, she emphasizes that when responding to an incident, “the priority should be to immediately communicate the extent of the vulnerability, identify affected users and provide clear mitigation guidelines while rigorously validating any patch before release”. For non-technical users who have a compromised seed phrase and are concerned about locking out their device during an emergency software update, the expert recommends first acquiring a new trusted hardware wallet, generating a keyphrase on it offline, validating the installation with a low-value test transaction, then transferring all funds to this new secure wallet before attempting to update the original device’s internal software.

Addressing this breakdown in trust, Nanak Nihal Khalsa, co-founder at Human.tech, notes that “the formula, not your keys, not your coins, misses an important fact: you are always outsourcing trust, even with self-management. This provides further evidence that self-management does not change this fact.”. For her part, Natalie Newson recalls the intrinsic limits of single signature architectures: “Single signature self-management offers no margin for error. Users relying on a single device trust the physical hardware, the code and all its dependencies, and the quality assurance controls”.

Faced with this observation, the sector is converging towards the systematic adoption of multi-signature, multi-supplier structures or threshold signatures (MPC). She concludes by affirming that this approach must become the reference: “yes, that should be the basic standard. The goal is to move from trusting a single device to ensuring that no compromised component or actor can move funds. In practice, signing keys or threshold shares must cover independent organizational and technological failure areas, such that no single provider can reconstruct the key or authorize a transaction alone..

This situation marks a decisive turning point in the perception of the security of cryptos. It demonstrates that simply keeping a hardware wallet offline no longer guarantees absolute protection if the software chain of trust is compromised from the start. In the future, the industry will have to abandon the illusion of zero risk linked to single equipment in favor of distributed architectures. The transition to multi-signature, multi-vendor and multi-party calculation technologies is now no longer an advanced option, but as the only viable standard for perpetuating the self-management of capital.