Coldcard Wallet Hack Exposes Vulnerability in Self-Custody

A large-scale scan targeting vulnerable seed phrases led to the theft of 1,082 Bitcoin from 1,196 Coldcard wallets over about 40 minutes on July 30. According to Galaxy Research, the attackers exploited a configuration error in the wallet's firmware that generated specific seed phrases, which they used to derive private keys and match them against the blockchain.

The attack did not compromise wallets through typical exchange hacks or phishing scams but instead utilized the seed phrase flaw to systematically search for vulnerable seeds. Galaxy Research advised users running the affected firmware to move their assets to new wallets to prevent additional losses.

Santiment, an on-chain analytics firm, reported that the Coldcard firmware vulnerability had severely impacted trust in self-custody, pushing Bitcoin market sentiment below levels seen during the FTX and Mt. Gox collapses. Positive commentary on Bitcoin currently stands at 0.58 posts for every negative one, reflecting deeper fear than during earlier periods of major market stress.