Binance founder Changpeng "CZ" Zhao reignited discussion over cryptocurrency wallet security after a flaw in Coldcard hardware wallets demonstrated that devices can fail before a transaction is ever initiated. The vulnerability allowed affected devices to produce weak recovery seeds, leaving user funds exposed without any phishing, malware, or theft.

Zhao stated that no crypto wallet is fully secure and recommended dividing holdings across multiple wallets to limit losses from a single failure. He cautioned, however, that spreading assets introduces its own risks, including lost backups, inadequate recovery planning, and operational mistakes across devices.

Even hardware wallets can have bugs. Even old wallets (with long history) can have bugs.

How to mitigate? Split your funds in a few wallets maybe? This has a different set of risks. Nothing is 100%.

Stay informed. Stay SAFU!

— CZ BNB (@cz_binance) August 1, 2026

Coldcard Seed Flaw Exposed Weakness at Key Creation

Coldcard, manufactured by Coinkite, is a widely used Bitcoin-only hardware wallet known for its air-gapped design and open-source firmware. The device is popular among Bitcoin self-custody advocates who prioritize offline key storage, making the discovery of a seed-generation flaw especially significant for a community that relies on hardware wallets as a foundation of security.

Galaxy Research linked three Coldcard attack waves to 1,367.05 BTC across 4,585 total affected addresses, valued at approximately $88.6 million. An earlier analysis from the firm traced 1,082.65 BTC from 1,196 addresses during a 41-minute sweep on July 30.

Block's Bitcoin engineering and security teams traced the weakness to a firmware integration error introduced in March 2021. The affected software could use a deterministic fallback instead of consistently relying on the hardware random-number generator for unpredictable recovery seeds, according to their detailed analysis at

That fallback relied on chip identifiers and timing data, enabling an attacker to narrow possible inputs and generate candidate seeds offline. The attacker could then derive public addresses and compare them against funded addresses visible on the Bitcoin blockchain. Once a match was found, the corresponding private keys could be used to transfer the funds. The flaw went undetected for years, meaning seeds generated during the affected window remained vulnerable the entire time.

Coinkite said that Mk2 and Mk3 seeds created on firmware versions 4.0.1 through 4.1.9 may contain critically weak entropy. The company also warned that seeds generated on Mk4, Mk5, and Q devices before emergency updates could contain approximately 72 bits of entropy—well below the 128 bits those devices were designed to provide, making the affected seed space significantly easier to search.

Coinkite issued firmware patches, but an update cannot retroactively strengthen a seed already created by vulnerable software. Users must update the device, generate a new seed, and move funds to addresses controlled by replacement keys.

Multi-Wallet Security Limits Risk but Adds Complexity

CZ's proposed multi-wallet approach shifts the security objective from finding a single flawless device to limiting damage when any one system fails. Wallets with independently generated seeds can prevent one compromised recovery phrase from exposing an entire portfolio. Using products from different manufacturers can further reduce dependence on a single codebase, firmware design, or random-number generation process.

A multi-wallet setup is safer only when each seed is created independently and every backup remains protected. Splitting funds across several wallets derived from the same vulnerable root seed would not eliminate the underlying exposure.

Multisignature custody adds another layer of protection by requiring multiple keys before funds can move. However, Block warned that arrangements built entirely from vulnerable devices may still fail if compromised keys control the required quorum. A stronger structure demands independently generated keys, tested recovery procedures, and regular attention to vendor security notices.

The Coldcard case illustrates that a cryptocurrency wallet can protect keys offline yet still fail during key creation. Hardware wallets remain useful, but the incident underscores that self-custody depends on secure key generation, careful diversification, and rapid user response to vulnerabilities. For users, multi-wallet security may reduce concentration risk, though it increases the burden of protecting and recovering every key.