Bitcoin holders are rethinking how they store their funds after a major flaw was discovered in Coldcard hardware wallets. The issue dates back to firmware version 4.0.1, released in March 2021. This update shifted Coldcard’s entropy generation to MicroPython’s Yasmarang PRNG instead of using the reliable STM32 hardware RNG. The flaw opened the door for attackers to exploit the system.
Coldcard used to rely on true random number generators, which create entropy through physical processes. But with the new firmware, the entropy levels dropped drastically. Devices like Mk2 and Mk3 generated seed phrases with only 40 bits of entropy. The more advanced Mk4, Mk5, and Q models managed around 70 bits. Both figures are far below the 128 bits needed for a secure 12-word seed phrase. This weakness made many users vulnerable.
Exploit and Financial Impact
Attackers took advantage of the flaw to guess private keys by brute-force attacks. This led to the theft of over $100 million in Bitcoin. Some people raised questions about whether the vulnerability was an intentional backdoor. However, Coinkite, the company behind Coldcard, denied this claim in a recent X post. Despite the company’s denial, the incident sparked debates about the reliability of hardware wallet manufacturers and their firmware choices.
Users who manually generated their seed phrases using physical methods, such as rolling dice, managed to avoid the exploit. Rolling dice is a straightforward and transparent process. Users can audit the method themselves, which is not possible with opaque firmware generation. Verifying the hardware random number generator would require a deep inspection of the device’s components and firmware, which is not feasible for most individuals.
To stay secure, some Bitcoiners have adopted alternative methods. One approach is to use dice to generate entropy manually. The Bitbox method, for instance, uses a table that partitions the space of BIP-39 seed words. Users can assign words based on dice rolls and a coin flip. This method eliminates the need for electronics entirely. It provides a physical, verifiable way to generate seed phrases.
Community Response and Alternatives
James O’Beirne set up a website called cktripwire to track the exploit’s progress. His honeypot addresses help estimate which types of wallets are being targeted. The data collected from these honeypots offer insight into the scale and patterns of the attacks. The incident has also led many to question the future of self-custody. Some argue that hardware wallets may no longer be safe, but others believe there are ways to secure funds through physical entropy generation.
Alternative Methods and Secure Seed Generation
The Bitcoin community is exploring alternative methods to bypass the hardware flaw. Generating a 24-word seed can be achieved by using up to 100 dice throws. Each throw adds entropy, making the seed phrase more secure. This method is gaining popularity because it ensures that the entropy is truly random and not influenced by compromised software.
Tools like Codex32 are being used to neutralize any bias in dice rolls. These methods use a van Neumann extractor, which can be calculated manually. This approach ensures that even biased dice do not affect the final seed phrase. Other physical tools, such as Seedsticks and Entropia, offer convenient and robust methods for creating secure seed phrases. These products make the process easier while maintaining the security of the generated keys.
A new hardware device, Frostsnap, has been introduced to distribute entropy across multiple devices. This approach aims to increase the security of seed generation by spreading the process over several machines. It reduces the risk of a single point of failure, making it harder for attackers to compromise the system. Frostsnap is just one example of how the Bitcoin community is adapting to the Coldcard exploit and exploring new ways to stay secure.