The Coldcard entropy bug has delivered another blow to cryptocurrency security confidence, revealing a critical flaw in one of the most established hardware wallets on the market — a device long favored by Bitcoin self-custody advocates for its air-gapped design and open-source firmware.

The vulnerability, disclosed on July 31 by Coldcard manufacturer Coinkite, affects multiple Coldcard devices. According to researchers at Galaxy Digital, attackers have exploited the flaw to steal over 1,596 Bitcoin — valued at no less than $100 million — through a series of coordinated attacks.

The incident has forced hardware wallet manufacturers to publicly explain a process that most users rarely consider: how their devices generate the private keys that safeguard their Bitcoin. The scrutiny comes at a time of growing emphasis on self-custody, accelerated by high-profile exchange collapses such as FTX in 2022, which drove many users to take direct control of their private keys rather than entrusting them to third-party platforms.

Michael Tanguma, head of product at Bitcoin custody firm Onramp Bitcoin, told Cointelegraph Magazine:

"The whole model rests on trust that the vendor got it right […] Almost no individual can audit the hardware, the firmware and the entropy generation underneath their device."

Coinkite has issued firmware patches and instructed affected users to migrate their funds. Nevertheless, the breach has deeply unsettled Bitcoin holders and raised a pressing question: if Coldcard wallets can be compromised, are all hardware wallets potentially vulnerable?

A flaw at the foundation: randomness

The Coldcard vulnerability did not attack Bitcoin's protocol or break modern cryptography. Instead, it targeted something far more fundamental: randomness.

Every Bitcoin wallet begins by generating a seed phrase from a pool of random data. That randomness must be sufficiently unpredictable to make the resulting private keys practically impossible to guess. Entropy is the measure of that unpredictability.

When randomness is weakened for any reason, attackers can narrow down the number of possible keys and eventually reproduce them.

Coinkite first warned users on July 31 that wallets created on affected firmware should be considered at risk and advised customers to move funds to newly generated wallets. As researchers investigated the bug in the days that followed, questions mounted about how such a critical flaw could go undetected for more than five years.

Core Lightning developer Dustin Dettmer suggested the bug may have originated during firmware changes made in 2021. He believes that code intended to interface with the hardware random number generator inadvertently disabled it, causing wallet creation to fall back to MicroPython's weaker Yasmarang pseudo-random number generator.

This theory has emerged as one of the leading explanations for how the bug entered production firmware, though Coinkite has not confirmed the exact sequence of events. The company says it will publish a full technical postmortem "soon."

A Coinkite spokesperson told Cointelegraph Magazine:

"Certain firmware versions had a fallback path in seed generation that could produce weak entropy when generated on the device firmware itself."

Devices where users generated their own entropy through dice rolls or similar manual methods "were not affected by this specific fallback path," the spokesperson added.

Weak random number generation (RNG) is not unprecedented, but unlike many other security flaws, it is notoriously difficult to detect. Bitcoin security expert Jameson Lopp noted that RNG vulnerabilities have previously affected numerous cryptocurrency wallets and libraries, including Blockchain.com's Android wallet and Trust Wallet.

Ledger's director of product security, Vincent Bouzon, told Cointelegraph Magazine that "weak randomness passes output tests," meaning compromised random number generators can still produce values that appear random, making flaws exceedingly difficult to identify.

Different wallets, different approaches to randomness

Hardware wallet manufacturers agree that secure entropy generation is non-negotiable, but they employ markedly different strategies to achieve it.

Ledger's philosophy centers on dedicated security hardware. Bouzon explained that Ledger devices generate seeds using a true random number generator embedded in a certified Secure Element. The entropy source is certified under the AIS-31 PTG.2 standard, and the Secure Element undergoes Common Criteria certification. He stated:

"This Coldcard incident was a failure in one specific implementation, not a verdict on secure self-custody […] The generation of that entropy must be anchored in secure hardware, with an architecture that cannot silently downgrade to an untrusted software-based source."

Trezor takes a different approach, combining randomness generated inside the device with randomness supplied by the host computer, rather than relying on a single entropy source. Newer Trezor models also incorporate additional hardware entropy sources. The company performs entropy checks to confirm that the device actually contributed unpredictable randomness during wallet creation.

Tomáš Sušánka, Trezor's chief technical officer, told Cointelegraph Magazine:

"The takeaway for the whole industry is that randomness cannot depend on a single source or a single line of code being correct."

Foundation's Passport wallet similarly relies on multiple entropy sources while placing strong emphasis on transparency. Chief executive Zach Herbert said Passport combines randomness generated by separate hardware components before creating a wallet. The firmware is published as free and open-source software with reproducible builds, enabling independent researchers to verify that the software running on the device matches the published code.

Herbert stated:

"The bug itself was specific to Coldcard [...] The larger warning is that this went unnoticed for more than five years while people trusted the product with life-changing amounts of money."

Trust, transparency, and verification

The divide between Ledger, Trezor, and Foundation is not over the importance of randomness but over how users can be assured that entropy generation is functioning correctly.

Ledger contends that independent certification provides the strongest assurance. Foundation relies on open-source development, reproducible builds, and active engagement with external researchers. Trezor combines open firmware with layered entropy sources to avoid dependence on any single component.

Coinkite's approach to security disclosures has also drawn criticism. Several Bitcoin developers have taken the company to task over its past responses to vulnerability reports and the absence of a traditional bug bounty program.

Herbert argued that welcoming external researchers is an integral part of building secure products, alongside open-source development and independent audits.

Nick Percoco, chief security officer at Kraken and former chief security officer at Uptake, views the Coldcard incident as a catalyst for the industry to adopt stronger standards, regardless of which design philosophy manufacturers adopt.

"The Coldcard entropy failure should be a wake-up call for the entire hardware wallet industry," he said, arguing that existing certification schemes often validate individual components without confirming that production firmware is actually using them correctly.

Percoco proposed an industry-specific assurance standard that would require independent validation of entropy sources, verification that firmware calls the intended hardware random number generator, and certification tied to specific hardware and firmware versions.

The debate extends beyond technical implementation. Voices like Herbert's argue that open-source development also shapes security culture, pointing to bug bounty programs and constructive engagement with independent researchers as essential elements of secure product development.

What should Bitcoin holders do now?

For Coldcard users, the immediate priority is to follow Coinkite's migration guidance if they believe their wallets were created using affected firmware.

Looking ahead, experts like Tanguma stress that Bitcoin holders should treat this episode as a learning opportunity — particularly the need to avoid architectural designs in which a single failure can compromise funds.

"Today, realistically, you want multisig and independently generated entropy [...] The mitigation that actually scales is architectural: setups where no single device, vendor or institution being wrong can lose the funds," he said. Multisignature, or multisig, is a configuration that requires multiple independent approvals — from separate devices or parties — to authorize a Bitcoin transaction, so that no single point of failure can unlock the funds.

For now, the answer appears to be no — not all hardware wallets are insecure. The Coldcard incident exposed a failure in one specific implementation, but it has also compelled manufacturers to lift the veil on the process at the heart of self-custody: generating a secret that nobody else can predict.