Bitcoin Wallet Vulnerability Exposes $38M BTC Loss in Lightning-Fast Attack

A vulnerability in a hardware wallet’s random number generation process turned supposedly “unpredictable” seed phrases into potentially recoverable ones, resulting in the loss of about $38 million in Bitcoin.

Approximately 594 BTC, valued at around $38 million, was drained from nearly 500 wallets between 01:31 and 01:56 UTC on Friday. The attack was linked to a flaw in the key-generation process used by Coldcard hardware wallets.

The attacker moved 1,324 separate Bitcoin outputs through 500 transactions within just three blocks. Around 562 BTC was later combined into a single wallet address, where the funds remain untouched.

All affected wallets were single-signature wallets holding more than 0.15 BTC each. Many had remained inactive for years, with the stolen coins originating from transactions between 2021 and 2026—roughly matching the period during which the vulnerability existed.

Coldcard, developed by Canadian company Coinkite, is a hardware wallet designed to keep Bitcoin private keys stored offline and away from internet-connected devices. The product line includes several generations, including Mk2, Mk3, Mk4, Q, and Mk5, released over multiple years similar to numbered smartphone models.

The risk was determined by the firmware version running when a wallet was initially created, rather than the date the hardware device was purchased.

A Bitcoin wallet seed phrase is designed to be generated randomly from an extremely large pool of possibilities, making brute-force guessing practically impossible.

However, Coldcard’s firmware failed to provide that level of randomness. According to an investigation from Block’s Bitcoin engineering and security teams, a configuration issue caused the device to bypass its hardware-based random number generator. A related software check only verified that the option existed, not whether it was actually enabled.

As a result, key generation relied on a simpler software-based fallback that used the device’s serial number and clock-related data as the source of randomness.

Those inputs were not secret. The serial number is permanent factory information, while clock data represents timing information that attackers could estimate or reproduce using their own devices. Block linked the issue to a code change made on March 1, 2021, which was included in firmware version 4.0.0 released that month.

Following the discovery, Coinkite advised users who created seeds on Mk3 devices running version 4.0.1 or later to take precautions. The company said early analysis indicated that Mk4, Q, and Mk5 devices were not affected.

Block said it shared its findings with Coinkite, and the company acknowledged the issue. Both organizations described their assessments as preliminary, while Block noted that it released the findings without completing full exploit testing because active exploitation was already occurring.

The vulnerability extended beyond wallet seed phrases. The same random generation process was also used for Coldcard paper wallet private keys, where the generated output directly becomes the key, as well as seed-splitting masks, device cloning keys, and Key Teleport transfers.

Despite the large-scale wallet drain, Bitcoin showed little reaction. The cryptocurrency traded above $64,000 during early Asian trading hours, with the incident appearing to have limited impact on broader market sentiment.

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