Coldcard Vulnerability: An 8-Year Bug Causes $130 Million in Bitcoin Losses
A critical bug in the random number generator of the Coldcard hardware wallet exposed it to an attack that led to the theft of approximately 2,055 BTC, worth about $130 million at the current price. The manufacturing company, Coinkite, published a detailed technical report revealing how the error went undetected for eight years.
Entropy and Seed Generation
The main error was in the generation of seeds, which is the starting point for creating private keys and Bitcoin addresses. Coldcard uses a dedicated hardware chip to generate random numbers, but a configuration issue caused the system to use a fallback software algorithm called Yasmarang, which produces pseudo-random numbers instead.
Pseudo-random numbers, although they may appear random, are actually deterministic. If an attacker knows the initial value (seed), they can predict the entire sequence of numbers generated. In the case of Coldcard, the seed was derived from the chip's serial number and internal clock, drastically reducing the complexity of the search problem to about 40 bits for older models and 72 bits for newer ones, compared to the expected 128 bits.
The Attack and the Losses
According to Galaxy Research, at least 1,596 BTC were stolen in three confirmed waves of attacks, with a fourth suspected wave bringing the total to approximately 2,055 BTC. Coinkite estimates that at least 15 different attackers exploited the vulnerability. One of the transfers moved $70 million in just 41 minutes.
Discovery of the Bug
The bug was introduced during the migration of Coldcard's cryptographic code to the libsecp256k1 library, also used by Bitcoin Core. A configuration error caused the system to use the software generator instead of the hardware one. Coinkite suspects the error was discovered through the use of artificial intelligence tools.
Consequences and Solutions
Coinkite released a firmware update that fixes the problem, but it cannot repair already generated seeds. Users must regenerate their seeds and transfer funds to new addresses. Some users considered using physical dice to generate additional entropy, but developers like Luke Dashjr warned that common dice are not sufficiently secure.
The Importance of Entropy
Entropy is a measure of uncertainty and randomness. For a Bitcoin wallet, entropy determines how much work an attacker would need to guess the private key. With 128 bits of entropy, the number of possible combinations is so large that it is practically impossible to guess. With only 40 bits, however, it becomes a problem solvable with modern computing tools.
Lessons Learned
The incident underscores the importance of having multiple sources of entropy and not relying on a single component. The vulnerability was not caused by a slight bias in the entropy, but by the fact that a critical component stopped working without anyone noticing.
Users of Coldcard and other hardware wallets should consider using robust BIP-39 passphrases and additional sources of entropy to improve the security of their seeds.
Context and Market Impact
The Coldcard incident has shaken the entire cryptocurrency ecosystem, raising concerns about the security of hardware wallets. Industry experts have begun to scrutinize potential vulnerabilities in cold storage devices more closely, and some users have started transferring their funds to different platforms for added security. The market value of Coinkite and other hardware wallet manufacturers has experienced significant fluctuations, reflecting investor anxiety.
In-Depth Technical Analysis
The configuration error that led to the use of the software generator instead of the hardware one was caused by a seemingly trivial technical detail: a build guard using #ifndef. This command checks if a setting is defined, rather than if it is active. Coinkite had defined the setting as zero, which means "off." However, zero still counts as defined, so the security check passed, and the build was completed without issues. Both versions of the function had identical signatures, so nothing seemed wrong.
The pseudo-random number generator (PRNG) used as a fallback, Yasmarang, was not designed to be used on devices with hardware randomness chips. This led to a significant reduction in the search space, making it possible for attackers to guess private keys with modern computing tools.
Community Response
The Bitcoin development community and other cryptocurrencies reacted quickly to the incident. Block's engineering team published a detailed analysis of the problem, emphasizing that newer devices had an effective search space of about 2^32 candidates, while older models were completely deterministic with sufficient information. Developers also warned that using physical dice to generate additional entropy is not sufficiently secure.
Implications for Cryptocurrency Security
The Coldcard incident highlighted the importance of having multiple sources of entropy and not relying on a single component. The vulnerability was not caused by a slight bias in the entropy, but by the fact that a critical component stopped working without anyone noticing. This has led to a review of security practices across the industry, with a greater focus on code audits and security testing.
Lessons for Users
The Role of Artificial Intelligence
Coinkite suspects the bug was discovered through the use of artificial intelligence tools. This raises concerns about the use of AI by both attackers and defenders. Although both have access to the same tools, the incident demonstrated that AI can be used to discover vulnerabilities in ways that were not obvious to human developers.
The Coldcard incident is a reminder of the complexity and criticality of security in cryptocurrencies. Even the most secure devices can have hidden vulnerabilities that can be exploited by determined attackers. The community must continue to collaborate to improve security practices and protect users' funds.
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