BRIEF
Coldcard, the box (made by Coinkite) that bitcoiners were told to trust, shipped a wallet generation bug in 2021. Five years later, users were drained of 1,816 BTC. Roughly $116M, from 5,200 addresses - after sitting in cold storage for a median of 3.5 years. Median loss: 1.022 BTC, or roughly $65k.
Photo illustration by Shirley Yu at Sum of Parts for Zero Knowledge
So, whose fault is it?
Good morning.
Two weeks ago, a friend of mine nearly lost all of his Bitcoin.
He did the research. He followed the gold standard: Coldcard.
Decentralized, he said. But it was the opposite. Doomed, he was.
Grumping,
Austin Campbell
Teaching DeFi at NYU Stern
Bridging TradFi at Zero Knowledge
PS. The Zero Knowledge team works hard to produce this for you.
If you like it, share it with your colleagues 👇 We’ll send you socks.
🏹 BACK UP
Photo illustration by Shirley Yu at Sum of Parts for Zero Knowledge
WTF IS COINKITE?
The Canadian company that makes Coldcard. Small outfit, genuine institution in bitcoin, also behind the Block Clock display on every crypto desk.
Market share was small. Rep among hardcore Bitcoiners was huge.
WTF IS A COLDCARD?
Not a card. Shaped like a calculator, and the opposite of a credit card: it is for money you do not intend to spend.
A physical safe protects you with steel. A cold wallet protects you with air. It has never touched the internet, so there is nothing to reach through.
⏳ BREAKDOWN
Nobody hacked anything this month. Actually, the lock broke in 2021. Now, someone opened the safe.
HOW DID COLDHARD BREAK?
Every Coldcard starts by generating a seed phrase, the string of words every key in your wallet grows out of. Hardcore users etch theirs into steel and bury it. Get a good one and nobody can guess it, because there are 2128 (a 39-digit number) of them.
~80,000
2128
To generate one you need randomness, which is why the device has a dedicated chip for it. A 2021 firmware revision effectively switched that randomness chip off which madef the 39-digit number got a lot smaller.
At that size you don't need to break anything. Just guess every seed phrase until one opens a wallet with money in it, which is arithmetic and patience. But machines have infinite patience.
. BEFORE.
Coinkite spends years building the most trusted name in bitcoin self custody. Reportedly never commissions an independent security audit. Bug reporters allegedly go unpaid as far back as 2019.
. MAR 2021.
A firmware revision effectively switches off the random number generator. Every Coldcard sold from here carries the flaw.
. 2022.
A user reports a drained Coldcard and alleges Coinkite blocked the warning from its own forum. Nobody outside notices.
. 2023-2025
Quiet year. Seeds go into steel plates and into the ground. The median stolen coin sits untouched for three and a half years. That stillness is the product working exactly as sold.
. JUL 30 26.
Four waves. 1,816 BTC per TRM Labs, roughly $116M, across 5,200 addresses. Median loss 1.022 BTC.
. NEXT.
Possibly not one attacker. Once the vector is public, anyone can hunt the wallets nobody has emptied yet. Move your coins to a wallet generated from a new seed. Today.
ZERO INSIGHTS
The Trust You Did Not Know You Gave
“Unless you are doing the cryptography yourself, you are trusting someone. You are trusting someone differently than if you were trusting a regulated financial entity, but you are still trusting someone.”
In this week’s Zero Insights, David Z. Morris and Austin Campbell mull why trustless systems still run on trust, and what happens when nobody verifies.
🎭 BUSTED
Coldcard sold certainty. It relied on the community of users to provide it to themselves.
WHAT THEY SAID
Endorsed by Saifedean Ammous, whose book is the closest thing maximalism has to scripture. By Alex Gladstein of the Human Rights Foundation. By dozens more.
Victim Tim Lamb, an investment advisor, was “led to believe this was really secure.”
WTF?
Bitcoin is sold as trustless. Coldcard users did not escape trust. They moved it to a small hardware team who evaded accountability.
Could people have caught this? Code is not true open source : viewable, not usable. Warnings allegedly scrubbed in 2022.
💰 BAG HOLDERS
WINNERS
The spot ETFs, never hacked, custody procedures actually visible.
Regulated custodians. Every boring institution maximalism exists to reject.
LOSERS
Coinkite. Saifedean, Gladstein, and every name that vouched for it.
Thousands of victims and the HODLers, held up as the moral ideal of the movement. Targeted precisely because they held still.
ZERO OUT
“Be your own bank, but your own bank auditor too?”
No one caught this until it was too late. Why would they? Normal people do not audit hardware code, especially not a random number generator, written in python or in c.
That was something that Coldcard owed its users.
Three questions, if you self-custody anything:
1️⃣ If your largest asset goes to zero, what shape are you in?
2️⃣ If your largest holding container is compromised, what shape are you in?
3️⃣ If your main way of making payments is disrupted, what shape are you in?
My friend failed one and two. One asset, one device. He called it decentralization. It was the most concentrated position he could have built.
BEST CASE
Real audits, open compilation, spread across devices and across assets.
The movement learns anti-maximalism from the inside.
WORST CASE
Bitcoin consolidates into the institutions it was built to escape.
Self-custody dies as a mainstream idea.
ZERO INSIDER
Starred in But Why? Episode 2: Cryptocurrencies which run ~ 10 minutes and we walk you through cryptocurrency from its first principles. Illustrated. Animated. Check it out.
Wrote about evidence that Oxford-based Effective Altruists engaged in academic fraud by tying grant funding to the citation of movement leaders’ own work.