Source says Coldcard wallet exposure extends beyond Mk3 after $38 million sweep

Why it matters

The suspected theft strikes at hardware wallets' core promise: users can follow the prescribed self-custody process and still lose funds if seed generation fails.

Rodolfo Novak (@nvk) and Peter Gray's Coinkite warned Coldcard Mk3 owners to move their bitcoin after identifying a seed-generation issue that may have exposed wallets created over a span of more than five years. But a source familiar with the incident told RuntimeWire the problem is "not just Mk3." The source did not identify other affected devices or specify whether the statement referred to the seed flaw, the wallets swept, or both.

The warning followed a coordinated sweep of roughly 594 bitcoin from about 500 addresses early on July 30th. At Friday's bitcoin price, the assets were worth about $38.1 million. Public analysis linked the transfers to one receiving address, where the funds arrived within roughly 25 minutes before most were consolidated elsewhere. A wallet owner who reported a loss said the affected seed had been generated on a Coldcard purchased in 2021.

Coinkite's July 30th security advisory confirms that seeds generated by a Coldcard Mk3 running firmware 4.0.1 or any later release may be at risk. Coinkite does not confirm that the full 594 BTC sweep came from Mk3 wallets, or that the roughly 500 sending addresses represent 500 separate victims. Its public advisory says Coldcard Mk4, Q and Mk5 devices are unaffected based on its early analysis, a conclusion now complicated by the source's statement.

That distinction remains important. The blockchain confirms the transfers, and the advisory confirms an Mk3 seed-generation problem. The public evidence does not yet establish that every input in the sweep was tied to the same flaw, while the source's statement does not establish which additional devices or wallets may be involved.

A security product built for self-custody

Gray, a University of Waterloo mathematics and computer science graduate, introduced Novak to Bitcoin after reading its whitepaper in 2011. The pair first built the BTC Look blockchain explorer and later created Coinkite after failing to find a Bitcoin wallet and payment terminal they wanted to use themselves, according to a 2018 profile of Coinkite.

Novak, a product designer who previously worked at Method:CRM and financial-data provider Quandl, has described Coldcard as a product born from his dissatisfaction with existing hardware wallets. Coinkite launched the Bitcoin-only device around 2018 and built its pitch around offline key storage, air-gapped transaction signing and publicly inspectable firmware.

The incident cuts into that central promise. Coldcard users chose dedicated hardware to remove private keys from internet-connected devices and avoid dependence on an exchange or software-wallet provider. A failure during seed creation compromises the secret at the root of that security model, even when the owner follows the expected storage practices afterward.

Coinkite's alert applies specifically to seeds created on a Mk3 beginning with firmware 4.0.1, released on March 29th, 2021. Importing an older seed into an affected device is a different case from generating the seed on that device. The company says Mk4, Q and Mk5 devices are unaffected, but the source's statement leaves open whether the broader incident reaches beyond the Mk3 flaw described in the advisory.

A predictable fallback narrowed the Mk3 search space

Coinkite's advisory does not describe the technical mechanism, but Block's engineering analysis identifies a predictable random-number-generator fallback and a reseeding path limited to 32 bits. Under the conditions that triggered the fallback, the firmware could produce wallet seeds from a far smaller set of possibilities than users would expect from a properly generated BIP-39 seed.

A 32-bit search space contains about 4.3 billion possible values. That is large for manual guessing but tractable for systematic enumeration compared with the effective search space expected from secure wallet entropy. An attacker able to reproduce the fallback behavior could generate candidate wallets, monitor their addresses and move funds after finding a match.

The analysis supplies a plausible path from the Mk3 firmware defect to wallet compromise, but it does not by itself prove that the same attacker controlled every input in the 594 BTC sweep. Nor does it establish how often affected devices entered the fallback path or explain how other devices may be implicated.

The advisory leaves a version mismatch

Coinkite's advisory says the issue extends through firmware 5.0.3 and describes that version as the final Mk3 release. Coinkite's own Mk3 firmware archive instead lists version 4.1.9, released on June 26th, 2023, as the final release for the Mk3 and Mk2. The broader firmware archive lists 5.0.3 as an Mk4 release.

Mk3 users should therefore follow the advisory's wider instruction: treat any seed generated on an Mk3 running version 4.0.1 or later as exposed, regardless of the version-number discrepancy. The source's statement does not provide enough detail to extend that instruction to a specific additional model.

Coinkite says wallets protected by a strong BIP-39 passphrase face minimal risk from this issue. That protection refers to a separate passphrase attached to the seed, rather than the device PIN. A passphrase creates a distinct wallet whose keys cannot be derived from the seed words alone.

For users without another device, Coinkite recommends moving funds temporarily into a new wallet protected by a long, unique passphrase. Coinkite also documents an advanced option using at least 99 physical dice rolls on Mk3 firmware 4.1.9, which bypasses the device's normal random-number generator. The safer route is to create a fresh seed on an unaffected device, verify a receiving address on its screen and move the funds after a small test transaction.

Confirmed Bitcoin transactions have no administrator who can reverse them. Stolen funds can be traced and potentially seized if they reach an identifiable service, but victims cannot cancel the transfers or restore balances through Coinkite.

Coldcard's source code and reproducible builds made the product more inspectable than closed firmware. Coinkite itself acknowledges that public code does not prove a product has no defects. The incident gives that caveat a measurable cost: roughly $38 million in transfers now suspected of exploiting security products designed to eliminate reliance on anyone except their owners.