Loading summary

Transcript54 lines

[00:01]
A
Hey everyone. This is an urgent episode that we are recording in relation to what's happening with Coldcard. So here with me is Rob Hamilton. He is the co founder and CEO of Anchor Watch. He's been following this extremely closely and he's going to help break it down for all of us non technical folks. So Rob, thank you for joining me. Let's just get right into it, what happened here?
[00:23]
B
Yes. So it was yesterday morning. There was some suspicious activity of Bitcoin moving across the network very quickly. The initial reports were coming from people who used a cold card and had never connected it to the Internet. And that was where the investigation began across many people within the industry to find out if there was something wrong. Ultimately it was found out in the Cold Card MK3 version and onward. There are issues with how the device secures your Bitcoin. Ultimately this is something that even if you've never had it on the Internet, the nature of this bug is such that someone remotely who's never met you, who's never touched your hardware wallets, never even looked at it, is able to possibly reverse engineer your Bitcoin.
[01:20]
A
Okay, so let's just break it down and zoom out a little bit. ColdCard is a hardware wallet. It is cold storage. It's been known as like among the gold standard of these wallets. I have used it and so I had to move funds yesterday. I just want everyone to know that a lot of us, you know, we followed what we thought were the proper protocols and you could still be at risk. So this doesn't just impact one model. Right. Can you make it clear exactly how many models there are and, and who could be at risk with their funds? Because this is active and ongoing.
[01:50]
B
This is active and ongoing. Every hour more Bitcoin are moving. So time is of the essence. If you have what is called the MK3 model, it came out in 2021 through 2023, your priority is to move that as soon as possible if the funds have not already moved. The MK4 and MK5 are the later models. They have an issue related to this, but it is not as severe. If you have an MK4 or MK5 cold card, I would urge you as soon as possible to make a move because funds are moving every hour. There is more security, but not sufficient security to keep it safe for long term. And this is also for the cold card Q as well, is in the same bucket of. At the moment it may be safe, but I would urge you urgently to move your funds.
[02:45]
A
When you start with one of these wallets Right. I mean, it generates a seed phrase. Can you maybe talk about what's behind that and what the breach was here?
[02:55]
B
Yeah, maybe the best way to start is let's talk about a deck of cards. Right. Deck of a card. Deck is a really great way, great way to play games, because if you have 52 cards in a deck, every time you shuffle them, there are more possible ways you can arrange the cards in the deck of cards than there are atoms in the observable universe. Right. There is just so many cards. Yeah, yeah. So this is really kind of the beautiful part of cryptography, when it works correctly, is that you can take very simple things and make abundantly complicated things. And the job of a hardware wallet, and the job even just in the Bitcoin layer, the way Bitcoin works ultimately, is I have a very large number that you will never be able to guess. You can. That is the simplest way to break down how Bitcoin security works. Someone has a number and you are unable to do it. Another metaphor I like using is if, let's say if you've ever walked into a post office and you see that wall of post PO Boxes, the PO Boxes are kind of like your addresses. Yep. You're anyone, they're public. Anyone can send envelopes to them. If you have the mail key, though, you're the only one who can open up the mail key and take the letters out of the mailbox. The issue, what we have here is that instead of dealing with, say, a full deck of cards, we are only dealing with 20 deck. 20 cards in the deck. And the thing is, is 52, 20 still sounds like a large number, but it greatly reduces the possible number of ways you can arrange that deck of cards. And that allows you to basically, without ever talking to the hardware wallet, know that instead of looking at the universe of the full deck of cards, you're looking at a subset. And it allows you to aggressively, very quickly guess all of the random combinations. If your Bitcoin is basically a needle in a cosmic level haystack, what's happening here is someone found the exact area of the pile of hay and is just rapidly combing through every single strand to try and find where the Bitcoin sits.
[04:59]
A
So is this a mistake? Literally, at the level of when the device is generating that seed phrase, it didn't choose from enough possibilities. And so everyone who has this wallet, it was only generated from a subset of essentially words. And therefore you have now this device or you have this hacker with AI that's really, really Fast trying all these combinations, and by brute force, they're basically guessing all of these.
[05:26]
B
That is correct. I'll just say one note for those that are listening, this is impacting specifically. If you used your cold card and you did not add a password, you can always add a password on top of the secret. And you did not do things like rolling dice. Right. Providing your own entropy. Basically, the idea, if you roll your own dice, you're kind of creating your own deck of cards and shuffling them and using that custom shuffle deck of cards as the secret, which means you're not part of this subset of possible known Bitcoin keys.
[06:03]
A
I don't think my audience will be that familiar with rolling dice. Can you just kind of break down what that is? Because I think that a lot of people are watching and maybe they didn't even know they should have done that. So what, what is that? And at this point, I mean, it's too late, right?
[06:16]
B
Yeah. So that would be actually my first call to action. If you or a loved one has used a cold card, they should be urgently looking into evaluating how it was set up and very likely upgrading your security. The idea of rolling dice, it's the same thing as a deck of cards, where if you roll a dice 100 times, you basically have more ways you can roll a dice a hundred times than there are atoms in the universe. It's the same exact thing as that full deck of cards. And that is the idea of kind of creating your own secret. You use a hardware wallet to be able to have it create a secret for you securely. And the issue we're seeing now is that with the cold card specifically, it was not able to do that job properly.
[06:59]
A
Now, was ColdCard aware of this? Based on what we know, I know a lot's developing. We're waiting for information, we're waiting for what the company is going to continue to put out. But is this something that was addressable before this happened?
[07:11]
B
It was not known before yesterday when the incident was was disclosed and people began investigating. The ability for them to fix it ahead of time would have been if they had identified this bug earlier and the bug had not been identified. And to your point earlier about AI and these LLMs, it's very likely one of them started poking around the code base and found this issue. And that's why maybe it's that dormant for so long, because it was a very, very narrow, very specific thing. It was one line of code. One line of code resulted in this bug.
[07:48]
A
But essentially an AI found this and exploited it so like someone out there somewhere, we don't know who has an LLM, like all of us are probably using ChatGPT, Claude, all of these. And they basically said, hey, find a bug. And then now they're saying, now that you found the bug, send it to this wallet. Like what, what's actually happening?
[08:08]
B
Yeah, yeah. So my understanding and my guess of it is on Monday, Kimik 3, which is an open source open weight model that came out of China, which is near the level of Anthropics, Fable and Mythos model, and ChatGPT's latest 5.6 model became available and that model is less restrictive in. Whereas if you use OpenAI or Anthropic, you will more likely get nudged if you start asking security questions where it will refuse to respond. And so having investigated this firsthand, when the incident started breaking.
[08:50]
A
Oh, you posted about this.
[08:52]
B
Yeah. I attempted to use Anthropic's Fable model, their most advanced model, and it immediately downgraded me to a lower tier model for cyber protection. And then I used ChatGPT 5.6, the OpenAI's latest model, and it was kind of helpful, but it was kind of, it was being a little coy, but like it knew it was pointing me in the right direction. And then I used Kimmy K3 and it just, in one response just printed out the entire issue.
[09:17]
A
So you literally prompted it and it found the issue in a matter of seconds.
[09:22]
B
Yeah, about a minute or two. Yeah, once. Once it got to the bottom of this. Yeah. And this model only came out for open weights on Friday. Sorry, not Friday, this past Monday.
[09:33]
A
This is crazy. I mean a lot of people are probably like, well can't this happen to another device? Are other devices safe? Because a lot of people who have done self custody have generated seed phrases through these devices.
[09:45]
B
Yeah, I think this is part of the starting gun of the new era of cybersecurity. Maybe you remember a couple months ago where a couple of websites started getting hacked and there was kind of information going around. It's just very natural that this software, with Bitcoin, the code is the money and the money is the code in a very real way. And it's the most direct way for someone to be able to monetize black hat hacking. Black hat being I am trying to do it for nefarious means, whereas a white hat hacker would be someone who tries to hack, to try and raise issues and disclose vulnerabilities.
[10:21]
A
I mean, is there any chance that we could track down who's doing this and then People could get their funds back.
[10:30]
B
It's not impossible, but I don't want to provide a false sense of hope in that the funds from the last time I looked haven't moved. The other thing too now is they're now very likely multiple hackers that once this initial sweep happened, that a lot of other people now are focusing their resources to be able to see if they can find more. And funds are moving regularly all the time from what I've been able to look at casually on the Bitcoin blockchain, because every transaction is public.
[11:00]
A
Yeah.
[11:01]
B
They look like different people. Different people are doing these attacks. So they're not. There's not just one person who did all of this. There may have been one person who did the initial sweep.
[11:12]
A
Yeah.
[11:12]
B
For the initial loss of funds, but there's very likely multiple actors going on.
[11:18]
A
Well, I mean, last night we heard potentially around 600 bitcoin, but do you think it's more than that?
[11:24]
B
It's over a thousand at this point. Confirmed. The 600 that I initially found was part of the initial analysis that I found. The team over at Block found this issue as well, and they were able to find an additional cluster of over 500 bit. Over 500 bitcoins. So we're over a thousand Bitcoin at this point that I've moved.
[11:44]
A
I just want to reiterate again, if you have one of these devices, any of them go directly to where you have that device and move the funds. And. And I hope that most people had multisig custody because multisig is kind of. It's preventing some of this from being lost. Right. Can you explain that?
[12:01]
B
Yeah, absolutely. So with Bitcoin, you're able to have rules on how you can spend it. The simplest way is what we call a single signature, single sig, where you have one wallet. That one wallet controls things. You are also able to do what's called multi signature or multi sig. And what that is, is you can set rules and say maybe have three devices and. And two of the three are required to sign it. I want to caution, if you have a two of three and two of those are these cold cards. Right. Your funds are also at risk. And these are things to be aware of. I've been. I've probably talked. Well, I've definitely talked to dozens of people over the past 12, 24 hours and helping them try and triage their individual situations. And it's something that I'm cautioning. And as of right now, it looks like the later models of the Cold card are a bit more safe. But I understand it's Friday afternoon. I would be canceling weekend plans and getting on a plane if I had to. This is not. If it were my life savings that were at risk in this situation, that's what I would be doing. So I only feel it's responsible to share that level of urgency to everyone else.
[13:10]
A
Yeah. So again, if you are using a multi sig custodian, like an unchained, like a CASA, if the two keys that you have are cold cards, MK3s, you are impacted, even though you still did self multisig custody. And also I saw a note that if you originally generated your seed phrase from coldcard but then moved it to another device, a different manufacturer, you're still at risk. Can you break that down as well? That's really important because you could have a tracer out there, a ledger, a jade, something else. But if you shifted the bitcoin from a cold card, you at risk.
[13:46]
B
That's absolutely right. So the nature of the compromise is at the moment your secret is made. So if you make it on a cold card and move it to a different device and you took those words and you put them onto a different device, you're still impacted. The, the. Because even if it's sitting on a different device, the secret has already been compromised by the attacker and you're running against the clock now.
[14:12]
A
Okay. So I mean just to lay out the steps like you're a cold card user or you have been in the past, what do you do?
[14:20]
B
So I always want to caution this with what each person has a level of comfort. If you do not feel safe and comfortable. And if you've used an exchange previously, if you've used river, if you've used Swan, if you've used Strike, you should be able to send wherever you got that money from and send it back. And I want to especially I want to be mindful of your audience. If they are not comfortable and they are not technical, that is a much better spot to be at the moment than leaving your funds on these compromised devices.
[14:52]
A
Yeah. And always do test transactions again, because right now I feel like a lot of people are panicked, they're stressed out. Let's say you're sending to your river account or the exchange that you use before you figure out your next self custody setup. Send a little bit, test it out and then send, you know, the full amount. Because again, people are stressed out right now. They're maybe not checking everything. And I just want to make sure that nobody.
[15:15]
B
Yeah.
[15:16]
A
Makes A silly mistake that they can prevent. Right? Yeah.
[15:19]
B
There's a saying my friend taught me who was in the military, which is slow is smooth and smooth is fast. And you want to be very deliberate, indecisive. I understand this is a high stress situation and that, uh, nerves are high. You do not want to be in a position where you rush to make a mistake. And I would encourage those who know someone who's able to help them, someone that you trust. Uh, I would not share words with them, but being able to try and help them shepherd you through the process would be something I would advise for everyone to do.
[15:51]
A
Um, I think there are just a lot of words floating out there that maybe my audience needs a little bit help breaking down. Entropy is one of them. Can you talk about what that means, um, and why it's. It's so, so critical to. When you're generating a seed phrase?
[16:05]
B
Entropy is the heart of all cryptography. The idea going back to that deck of cards is that no attacker, and if you even had all of the computers in the world and all of the AI data centers in the world, trying to guess what are all the possible ways and enumerate all the possible ways you can arrange a deck of cards, we are waiting until the heat death of the universe to be able to do that. That's the idea. And that is you need that level of security to keep your password safe. Right? This would be another example of maybe outside of Bitcoin, when you create a password, if you use the password, password, that's very low entropy, everyone's going to immediately guess that, right? But if you have a longer password, oftentimes now your phone or your computer, when you go to make a password, it'll provide you an automatically generated password. That password has sufficient entropy to be safe. And that's the idea, is you want to be able to have a plausibly long and complicated enough password so that someone who's never met you, someone who knows nothing about you, can't randomly guess what your password is. And that's what we're ultimately talking about with entropy.
[17:19]
A
If someone's listening to this and they're thinking about the world of AIs and these very, very fast computers, and they're like, well, it's only 12 words and 24 words. I mean, can't a computer just brute force guess trillions of times per second and eventually land at pretty much everyone's the phrase, what do you say to them?
[17:37]
B
So normally, no, that's not the case. But what we're Seeing right now is that issue. And that isn't an issue with the cryptography of Bitcoin. Right. Like Bitcoin was not hacked. A specific vendor had a bug. And related to that, what you described about being able to guess every possible combination, that is what's happening right now. Because it did not use enough complexity. Right. It's like if I had to have you guess every five character password in existence, you'd be able to do that in a, in a moment. You could have a computer write a script and it could be a Cure. All the five character passwords. If you had a 25 character password though, that you're not going to be able to trivially guess all of the combinations. Right.
[18:20]
A
Okay. We're also seeing some posts saying that all the mnemonics are going to be made public. So a mnemonic is the seed phrase, essentially. Is this true that suddenly like all this extra data is going to be exposed?
[18:34]
B
Very likely, yes. That may not happen immediately. And the reason why it won't happen immediately is because that list of all of those mnemonics, all of those seed phrases are worth money at the moment. So right away it's not going to happen. But maybe eventually, once attackers feel like they have been able to get all the bitcoin they can, they may very well release it. What's more likely is that someone's going to try and sell it. It'll go on the darknet market and say just like if someone hacks your password or your email account at a company or a business, they would do that.
[19:08]
A
Well, but the one thing about cold card is that they don't collect customer data when, when they're buying one of these cold cards and they, they destroy everything. So I saw someone post like it's kind of a double edged sword, right? Because now it's not like they can reach out to all their customers and alert them very easily. They took an extra step for privacy. They removed everybody's information. So it's kind of another reason why we're trying to get this information out. Because some people, they're probably out there and don't even know that their cold card is impacted.
[19:38]
B
That's right. That's absolutely right. And so that's why everyone right now is doing conversations like the one we're having right now, trying to get the word out across all social media channels and all possible ways to be able to get a hold of people. I have several more conversations I'm going to be happening today to try and help expand that message and this is, this is a very, this is a very rough time to be able to try and figure this out. And as you correctly called out, ColdCard does not retain their customer list out of privacy. And at the moment now that means that they're not able to actually directly communicate to the effective customers.
[20:15]
A
Right. And again, okay, I wanna stress again, for people out there who aren't using ColdCart, they're still feeling the stress. They're using one of these other devices. They thought self custody was the right thing. Are they at risk?
[20:27]
B
If you did not create your seed phrase on a cold card, then at the moment this identified issue is not a concern for you.
[20:38]
A
But do we know that all these other devices used a seed phrase generator that's safe from all of.
[20:46]
B
All of the major hardware wallet vendors since this incident have come out, have done their own independent security reviews and have all confirmed that there is not an issue but the nature of cybersecurity in general. It's a cat and mouse game. Yeah, right. And so we mentioned earlier, multi signature. I'm personally a fan of a multi signature where you don't use all of the same things. You don't have all of your eggs in one basket. You know, we had Anchorage thinking about it from like risk distribution and not having all your eggs in one basket. You know, Anchorage, we're like our systems like our infrastructure not impacted by this. And so thinking about this through the lens of having ways of being able to not have all of your eggs in that one basket, it really is the best way to describe it. And you want to be safe.
[21:34]
A
No, I'm glad you said that because again, you want to decentralize your own risk. Don't do single sig. I've advocated so many times on my show multi sig custody. I just think any extra step you can take this is potentially your life savings. Right. So you do not want to be flippant about this. Any final thoughts? We're going to turn this around and get this out very, very quickly so people hear this message.
[21:55]
B
No, no, nothing else. For me, I think this has been sufficient of a public service announcement to try and get the word out. If you have questions, my DMS are open on Twitter ob1ham. I have talked to, like I said, dozens of people in the past 12 or 24 hours. I will do what I can through my priorities to try to be able to help you. I wish everyone the best of luck and I'm hoping that this is able to help people save their bitcoin. And yeah, thank you for having me on to talk about this.
[22:26]
A
Yeah, Rob, thank you so much. Again, his DMs are open. I will try to point you guys in the right direction. Make sure that you're following ColdCard as well as us to get the latest information on this. And please, if you have a friend or you know someone who's used Coldcard, please send them this video or the security advisories. Make sure that they're doing the updates. Make sure they're moving their funds, because we really don't know how. How extensive this whole breach is going to be. Rob, thank you so much. Appreciate your time.
[22:54]
B
Thank you for having me.

Summary6 min read

Podcast Summary: Coin Stories with Natalie Brunell

"Urgent Warning for ColdCard Users, with Rob Hamilton"

Date: July 31, 2026

Guest: Rob Hamilton (Co-Founder and CEO of Anchor Watch)

Episode Overview

This urgent episode responds to an unfolding security crisis impacting ColdCard hardware wallets, devices widely regarded as a gold standard for Bitcoin cold storage. Host Natalie Brunell and cybersecurity expert Rob Hamilton dig into what's happening, who is at risk, the technical roots of the vulnerability, and—most importantly—what listeners should do right now to protect their Bitcoin. The conversation balances technical explanations with straightforward advice for non-experts, emphasizing immediate action for ColdCard users.

Key Discussion Points & Insights

1. What Happened? (00:22–02:45)

Unexplained Bitcoin Movements:
Bitcoin was seen moving quickly from ColdCard hardware wallets, even those never connected to the internet. This unprecedented behavior triggered investigation.
Discovery of Major Vulnerability:
The flaw was found in ColdCard’s MK3, MK4, MK5, and Q models. The vulnerability allows remote attackers to reconstruct wallet seed phrases without physical access if certain setup procedures were followed.
Severity and Urgency:
Funds are actively being stolen “every hour.” Immediate action is needed for those at risk, especially with MK3 models (2021–2023). Later models (MK4, MK5, Q) are also not safe for long-term storage.

"If you have what is called the MK3 model, ... your priority is to move that as soon as possible if the funds have not already moved."
— Rob Hamilton (01:51)

2. The Technical Root: Cryptography & Entropy (02:45–07:47)

Seed Generation Explained via Metaphor:
Normally, a seed phrase is chosen from an almost unimaginable number of possible combinations—akin to shuffling a full deck of cards. The bug reduced this complexity drastically, making brute-force attacks feasible.
Insufficient Randomness:
Instead of using the ‘full deck,’ affected ColdCards produced seeds from a much smaller set (roughly "20 cards"), making it computationally feasible—especially with AI assistance—to guess the correct seed.

"Instead of dealing with, say, a full deck of cards, we are only dealing with 20 deck. 20 cards in the deck. ... It greatly reduces the possible number of ways you can arrange that deck."
— Rob Hamilton (03:48)

Importance of Adding Your Own Randomness (Entropy):
Users who manually added entropy (like rolling dice) or set up a passphrase are less likely to be affected.

3. Vulnerability Discovery & The Role of AI (07:47–09:32)

Discovered via AI:
The vulnerability was likely discovered by a new open-source AI model (“Kimik 3”), which realized in moments what human code reviewers missed for years.

"I used Kimmy K3 and it just, in one response just printed out the entire issue."
— Rob Hamilton (08:51)

AI Accelerating Vulnerability Discovery:
Commercial AIs like ChatGPT and Anthropic’s Claude have safeguards, but open AIs with fewer controls uncovered the issue rapidly.

4. Who Is at Risk? (09:32–13:45)

All ColdCard Users May Be Vulnerable:
MK3 users most critically, but MK4, MK5, and Q models are also at risk.
Setup Approach Matters:
If you used ColdCard’s default seed phrase generation, you are vulnerable. If you added a passphrase or provided your own entropy, your risk is lower.
Multi-signature Setups:
Using multiple ColdCard devices in a multi-sig setup? If two of your keys are ColdCard MK3s, your funds are still at risk.
Transferring Seeds Isn’t Enough:
Moving your seed phrase from ColdCard to another wallet brand (e.g., Trezor, Ledger) doesn’t fix the vulnerability.

"If you make it on a cold card and move it to a different device... you're still impacted. ... The secret has already been compromised."
— Rob Hamilton (13:45)

5. Action Steps for ColdCard Users (14:11–15:51)

Immediate Recommendations:
1. Move your Bitcoin from affected wallets as soon as possible.
2. If unsure or non-technical, send funds back to a trusted exchange for now.
3. Always do a small test transaction before moving full amounts.
4. Seek help from trusted, knowledgeable contacts.
Maintain Caution:
Move deliberately under pressure; avoid panic and mistakes.

"Slow is smooth and smooth is fast. ... You want to be very deliberate, indecisive. I understand this is a high-stress situation ... you do not want to be in a position where you rush to make a mistake."
— Rob Hamilton (15:18)

6. Explaining Critical Concepts (15:51–17:36)

What is Entropy?
Entropy refers to randomness; high entropy protects against brute-force attacks.
Simple, common passwords—and poorly generated seeds—lack it.

"Entropy is the heart of all cryptography ... you need that level of security to keep your password safe."
— Rob Hamilton (16:05)

7. Broader Implications & What Comes Next (17:36–22:26)

Brute-force is Feasible Only With the Bug:
Normally, 12 or 24-word seed phrases are safe from brute-force attacks. The bug reduced combinations so dramatically that AI can search the entire set.
Leaked Seed Phrases May Become Public:
Attackers may try to profit by selling or eventually leaking the database of vulnerable seed phrases.
ColdCard’s Privacy Policy Hampers Notifications:
Because ColdCard does not keep user data, they cannot directly alert affected users, making community-driven information sharing critical.

"ColdCard does not retain their customer list out of privacy ... they're not able to directly communicate to the affected customers."
— Rob Hamilton (19:38)

Other Wallet Brands:
As of this broadcast, no similar vulnerability has been found in other major hardware wallets. All vendors performed rapid security reviews.
Decentralize Your Risk:
Multi-sig using more than one wallet brand adds resilience.

Notable Quotes & Memorable Moments

On the scale of theft:

"It's over a thousand [bitcoin] at this point. Confirmed."
— Rob Hamilton (11:23)
On urgency:

"I would be canceling weekend plans and getting on a plane if I had to. ... that's what I would be doing. So I only feel it's responsible to share that level of urgency to everyone else."
— Rob Hamilton (12:49)
On information sharing:

"If you have a friend or you know someone who's used Coldcard, please send them this video or the security advisories. Make sure that they're doing the updates. Make sure they're moving their funds, because we really don't know how extensive this whole breach is going to be."
— Natalie Brunell (22:36)
Offer for help:

"If you have questions, my DMs are open on Twitter ob1ham. ... I wish everyone the best of luck and I'm hoping that this is able to help people save their bitcoin."
— Rob Hamilton (21:55)

Important Timestamps

00:22 — First reports of suspicious activity
01:50 — Which models are affected; urgency of the situation
03:48 — Technical breakdown: seed entropy and cryptography analogy
05:26 — Protection if you used a passphrase or provided your own entropy
07:47 — AI discovers critical bug
11:23 — Confirmed bitcoin losses exceed 1,000 BTC
13:45 — Risk persists even after transferring your seed to another device
14:20 — What you should do now
19:38 — ColdCard’s lack of customer data and implications for user notification

Final Thoughts

This episode rings alarm bells for the Bitcoin self-custody community. ColdCard wallet users are in immediate danger of losing their funds due to a newly discovered vulnerability. The hosts offer both technical clarity and practical, step-by-step responses, stressing that fast, cautious action can potentially save life-changing sums. The incident signals a new era in cybersecurity, accelerated by AI, and underscores the importance of diversified custody and security education.

If you or someone you know uses a ColdCard hardware wallet, share this information immediately. Move your funds now and consult trusted advisors or services if you are unsure.
— Recommended by both Natalie Brunell & Rob Hamilton

For further guidance, reach out to Rob Hamilton (“ob1ham” on Twitter) and continue following security advisories.

Loading summary

Transcript54 lines

[00:01]
A
Hey everyone. This is an urgent episode that we are recording in relation to what's happening with Coldcard. So here with me is Rob Hamilton. He is the co founder and CEO of Anchor Watch. He's been following this extremely closely and he's going to help break it down for all of us non technical folks. So Rob, thank you for joining me. Let's just get right into it, what happened here?
[00:23]
B
Yes. So it was yesterday morning. There was some suspicious activity of Bitcoin moving across the network very quickly. The initial reports were coming from people who used a cold card and had never connected it to the Internet. And that was where the investigation began across many people within the industry to find out if there was something wrong. Ultimately it was found out in the Cold Card MK3 version and onward. There are issues with how the device secures your Bitcoin. Ultimately this is something that even if you've never had it on the Internet, the nature of this bug is such that someone remotely who's never met you, who's never touched your hardware wallets, never even looked at it, is able to possibly reverse engineer your Bitcoin.
[01:20]
A
Okay, so let's just break it down and zoom out a little bit. ColdCard is a hardware wallet. It is cold storage. It's been known as like among the gold standard of these wallets. I have used it and so I had to move funds yesterday. I just want everyone to know that a lot of us, you know, we followed what we thought were the proper protocols and you could still be at risk. So this doesn't just impact one model. Right. Can you make it clear exactly how many models there are and, and who could be at risk with their funds? Because this is active and ongoing.
[01:50]
B
This is active and ongoing. Every hour more Bitcoin are moving. So time is of the essence. If you have what is called the MK3 model, it came out in 2021 through 2023, your priority is to move that as soon as possible if the funds have not already moved. The MK4 and MK5 are the later models. They have an issue related to this, but it is not as severe. If you have an MK4 or MK5 cold card, I would urge you as soon as possible to make a move because funds are moving every hour. There is more security, but not sufficient security to keep it safe for long term. And this is also for the cold card Q as well, is in the same bucket of. At the moment it may be safe, but I would urge you urgently to move your funds.
[02:45]
A
When you start with one of these wallets Right. I mean, it generates a seed phrase. Can you maybe talk about what's behind that and what the breach was here?
[02:55]
B
Yeah, maybe the best way to start is let's talk about a deck of cards. Right. Deck of a card. Deck is a really great way, great way to play games, because if you have 52 cards in a deck, every time you shuffle them, there are more possible ways you can arrange the cards in the deck of cards than there are atoms in the observable universe. Right. There is just so many cards. Yeah, yeah. So this is really kind of the beautiful part of cryptography, when it works correctly, is that you can take very simple things and make abundantly complicated things. And the job of a hardware wallet, and the job even just in the Bitcoin layer, the way Bitcoin works ultimately, is I have a very large number that you will never be able to guess. You can. That is the simplest way to break down how Bitcoin security works. Someone has a number and you are unable to do it. Another metaphor I like using is if, let's say if you've ever walked into a post office and you see that wall of post PO Boxes, the PO Boxes are kind of like your addresses. Yep. You're anyone, they're public. Anyone can send envelopes to them. If you have the mail key, though, you're the only one who can open up the mail key and take the letters out of the mailbox. The issue, what we have here is that instead of dealing with, say, a full deck of cards, we are only dealing with 20 deck. 20 cards in the deck. And the thing is, is 52, 20 still sounds like a large number, but it greatly reduces the possible number of ways you can arrange that deck of cards. And that allows you to basically, without ever talking to the hardware wallet, know that instead of looking at the universe of the full deck of cards, you're looking at a subset. And it allows you to aggressively, very quickly guess all of the random combinations. If your Bitcoin is basically a needle in a cosmic level haystack, what's happening here is someone found the exact area of the pile of hay and is just rapidly combing through every single strand to try and find where the Bitcoin sits.
[04:59]
A
So is this a mistake? Literally, at the level of when the device is generating that seed phrase, it didn't choose from enough possibilities. And so everyone who has this wallet, it was only generated from a subset of essentially words. And therefore you have now this device or you have this hacker with AI that's really, really Fast trying all these combinations, and by brute force, they're basically guessing all of these.
[05:26]
B
That is correct. I'll just say one note for those that are listening, this is impacting specifically. If you used your cold card and you did not add a password, you can always add a password on top of the secret. And you did not do things like rolling dice. Right. Providing your own entropy. Basically, the idea, if you roll your own dice, you're kind of creating your own deck of cards and shuffling them and using that custom shuffle deck of cards as the secret, which means you're not part of this subset of possible known Bitcoin keys.
[06:03]
A
I don't think my audience will be that familiar with rolling dice. Can you just kind of break down what that is? Because I think that a lot of people are watching and maybe they didn't even know they should have done that. So what, what is that? And at this point, I mean, it's too late, right?
[06:16]
B
Yeah. So that would be actually my first call to action. If you or a loved one has used a cold card, they should be urgently looking into evaluating how it was set up and very likely upgrading your security. The idea of rolling dice, it's the same thing as a deck of cards, where if you roll a dice 100 times, you basically have more ways you can roll a dice a hundred times than there are atoms in the universe. It's the same exact thing as that full deck of cards. And that is the idea of kind of creating your own secret. You use a hardware wallet to be able to have it create a secret for you securely. And the issue we're seeing now is that with the cold card specifically, it was not able to do that job properly.
[06:59]
A
Now, was ColdCard aware of this? Based on what we know, I know a lot's developing. We're waiting for information, we're waiting for what the company is going to continue to put out. But is this something that was addressable before this happened?
[07:11]
B
It was not known before yesterday when the incident was was disclosed and people began investigating. The ability for them to fix it ahead of time would have been if they had identified this bug earlier and the bug had not been identified. And to your point earlier about AI and these LLMs, it's very likely one of them started poking around the code base and found this issue. And that's why maybe it's that dormant for so long, because it was a very, very narrow, very specific thing. It was one line of code. One line of code resulted in this bug.
[07:48]
A
But essentially an AI found this and exploited it so like someone out there somewhere, we don't know who has an LLM, like all of us are probably using ChatGPT, Claude, all of these. And they basically said, hey, find a bug. And then now they're saying, now that you found the bug, send it to this wallet. Like what, what's actually happening?
[08:08]
B
Yeah, yeah. So my understanding and my guess of it is on Monday, Kimik 3, which is an open source open weight model that came out of China, which is near the level of Anthropics, Fable and Mythos model, and ChatGPT's latest 5.6 model became available and that model is less restrictive in. Whereas if you use OpenAI or Anthropic, you will more likely get nudged if you start asking security questions where it will refuse to respond. And so having investigated this firsthand, when the incident started breaking.
[08:50]
A
Oh, you posted about this.
[08:52]
B
Yeah. I attempted to use Anthropic's Fable model, their most advanced model, and it immediately downgraded me to a lower tier model for cyber protection. And then I used ChatGPT 5.6, the OpenAI's latest model, and it was kind of helpful, but it was kind of, it was being a little coy, but like it knew it was pointing me in the right direction. And then I used Kimmy K3 and it just, in one response just printed out the entire issue.
[09:17]
A
So you literally prompted it and it found the issue in a matter of seconds.
[09:22]
B
Yeah, about a minute or two. Yeah, once. Once it got to the bottom of this. Yeah. And this model only came out for open weights on Friday. Sorry, not Friday, this past Monday.
[09:33]
A
This is crazy. I mean a lot of people are probably like, well can't this happen to another device? Are other devices safe? Because a lot of people who have done self custody have generated seed phrases through these devices.
[09:45]
B
Yeah, I think this is part of the starting gun of the new era of cybersecurity. Maybe you remember a couple months ago where a couple of websites started getting hacked and there was kind of information going around. It's just very natural that this software, with Bitcoin, the code is the money and the money is the code in a very real way. And it's the most direct way for someone to be able to monetize black hat hacking. Black hat being I am trying to do it for nefarious means, whereas a white hat hacker would be someone who tries to hack, to try and raise issues and disclose vulnerabilities.
[10:21]
A
I mean, is there any chance that we could track down who's doing this and then People could get their funds back.
[10:30]
B
It's not impossible, but I don't want to provide a false sense of hope in that the funds from the last time I looked haven't moved. The other thing too now is they're now very likely multiple hackers that once this initial sweep happened, that a lot of other people now are focusing their resources to be able to see if they can find more. And funds are moving regularly all the time from what I've been able to look at casually on the Bitcoin blockchain, because every transaction is public.
[11:00]
A
Yeah.
[11:01]
B
They look like different people. Different people are doing these attacks. So they're not. There's not just one person who did all of this. There may have been one person who did the initial sweep.
[11:12]
A
Yeah.
[11:12]
B
For the initial loss of funds, but there's very likely multiple actors going on.
[11:18]
A
Well, I mean, last night we heard potentially around 600 bitcoin, but do you think it's more than that?
[11:24]
B
It's over a thousand at this point. Confirmed. The 600 that I initially found was part of the initial analysis that I found. The team over at Block found this issue as well, and they were able to find an additional cluster of over 500 bit. Over 500 bitcoins. So we're over a thousand Bitcoin at this point that I've moved.
[11:44]
A
I just want to reiterate again, if you have one of these devices, any of them go directly to where you have that device and move the funds. And. And I hope that most people had multisig custody because multisig is kind of. It's preventing some of this from being lost. Right. Can you explain that?
[12:01]
B
Yeah, absolutely. So with Bitcoin, you're able to have rules on how you can spend it. The simplest way is what we call a single signature, single sig, where you have one wallet. That one wallet controls things. You are also able to do what's called multi signature or multi sig. And what that is, is you can set rules and say maybe have three devices and. And two of the three are required to sign it. I want to caution, if you have a two of three and two of those are these cold cards. Right. Your funds are also at risk. And these are things to be aware of. I've been. I've probably talked. Well, I've definitely talked to dozens of people over the past 12, 24 hours and helping them try and triage their individual situations. And it's something that I'm cautioning. And as of right now, it looks like the later models of the Cold card are a bit more safe. But I understand it's Friday afternoon. I would be canceling weekend plans and getting on a plane if I had to. This is not. If it were my life savings that were at risk in this situation, that's what I would be doing. So I only feel it's responsible to share that level of urgency to everyone else.
[13:10]
A
Yeah. So again, if you are using a multi sig custodian, like an unchained, like a CASA, if the two keys that you have are cold cards, MK3s, you are impacted, even though you still did self multisig custody. And also I saw a note that if you originally generated your seed phrase from coldcard but then moved it to another device, a different manufacturer, you're still at risk. Can you break that down as well? That's really important because you could have a tracer out there, a ledger, a jade, something else. But if you shifted the bitcoin from a cold card, you at risk.
[13:46]
B
That's absolutely right. So the nature of the compromise is at the moment your secret is made. So if you make it on a cold card and move it to a different device and you took those words and you put them onto a different device, you're still impacted. The, the. Because even if it's sitting on a different device, the secret has already been compromised by the attacker and you're running against the clock now.
[14:12]
A
Okay. So I mean just to lay out the steps like you're a cold card user or you have been in the past, what do you do?
[14:20]
B
So I always want to caution this with what each person has a level of comfort. If you do not feel safe and comfortable. And if you've used an exchange previously, if you've used river, if you've used Swan, if you've used Strike, you should be able to send wherever you got that money from and send it back. And I want to especially I want to be mindful of your audience. If they are not comfortable and they are not technical, that is a much better spot to be at the moment than leaving your funds on these compromised devices.
[14:52]
A
Yeah. And always do test transactions again, because right now I feel like a lot of people are panicked, they're stressed out. Let's say you're sending to your river account or the exchange that you use before you figure out your next self custody setup. Send a little bit, test it out and then send, you know, the full amount. Because again, people are stressed out right now. They're maybe not checking everything. And I just want to make sure that nobody.
[15:15]
B
Yeah.
[15:16]
A
Makes A silly mistake that they can prevent. Right? Yeah.
[15:19]
B
There's a saying my friend taught me who was in the military, which is slow is smooth and smooth is fast. And you want to be very deliberate, indecisive. I understand this is a high stress situation and that, uh, nerves are high. You do not want to be in a position where you rush to make a mistake. And I would encourage those who know someone who's able to help them, someone that you trust. Uh, I would not share words with them, but being able to try and help them shepherd you through the process would be something I would advise for everyone to do.
[15:51]
A
Um, I think there are just a lot of words floating out there that maybe my audience needs a little bit help breaking down. Entropy is one of them. Can you talk about what that means, um, and why it's. It's so, so critical to. When you're generating a seed phrase?
[16:05]
B
Entropy is the heart of all cryptography. The idea going back to that deck of cards is that no attacker, and if you even had all of the computers in the world and all of the AI data centers in the world, trying to guess what are all the possible ways and enumerate all the possible ways you can arrange a deck of cards, we are waiting until the heat death of the universe to be able to do that. That's the idea. And that is you need that level of security to keep your password safe. Right? This would be another example of maybe outside of Bitcoin, when you create a password, if you use the password, password, that's very low entropy, everyone's going to immediately guess that, right? But if you have a longer password, oftentimes now your phone or your computer, when you go to make a password, it'll provide you an automatically generated password. That password has sufficient entropy to be safe. And that's the idea, is you want to be able to have a plausibly long and complicated enough password so that someone who's never met you, someone who knows nothing about you, can't randomly guess what your password is. And that's what we're ultimately talking about with entropy.
[17:19]
A
If someone's listening to this and they're thinking about the world of AIs and these very, very fast computers, and they're like, well, it's only 12 words and 24 words. I mean, can't a computer just brute force guess trillions of times per second and eventually land at pretty much everyone's the phrase, what do you say to them?
[17:37]
B
So normally, no, that's not the case. But what we're Seeing right now is that issue. And that isn't an issue with the cryptography of Bitcoin. Right. Like Bitcoin was not hacked. A specific vendor had a bug. And related to that, what you described about being able to guess every possible combination, that is what's happening right now. Because it did not use enough complexity. Right. It's like if I had to have you guess every five character password in existence, you'd be able to do that in a, in a moment. You could have a computer write a script and it could be a Cure. All the five character passwords. If you had a 25 character password though, that you're not going to be able to trivially guess all of the combinations. Right.
[18:20]
A
Okay. We're also seeing some posts saying that all the mnemonics are going to be made public. So a mnemonic is the seed phrase, essentially. Is this true that suddenly like all this extra data is going to be exposed?
[18:34]
B
Very likely, yes. That may not happen immediately. And the reason why it won't happen immediately is because that list of all of those mnemonics, all of those seed phrases are worth money at the moment. So right away it's not going to happen. But maybe eventually, once attackers feel like they have been able to get all the bitcoin they can, they may very well release it. What's more likely is that someone's going to try and sell it. It'll go on the darknet market and say just like if someone hacks your password or your email account at a company or a business, they would do that.
[19:08]
A
Well, but the one thing about cold card is that they don't collect customer data when, when they're buying one of these cold cards and they, they destroy everything. So I saw someone post like it's kind of a double edged sword, right? Because now it's not like they can reach out to all their customers and alert them very easily. They took an extra step for privacy. They removed everybody's information. So it's kind of another reason why we're trying to get this information out. Because some people, they're probably out there and don't even know that their cold card is impacted.
[19:38]
B
That's right. That's absolutely right. And so that's why everyone right now is doing conversations like the one we're having right now, trying to get the word out across all social media channels and all possible ways to be able to get a hold of people. I have several more conversations I'm going to be happening today to try and help expand that message and this is, this is a very, this is a very rough time to be able to try and figure this out. And as you correctly called out, ColdCard does not retain their customer list out of privacy. And at the moment now that means that they're not able to actually directly communicate to the effective customers.
[20:15]
A
Right. And again, okay, I wanna stress again, for people out there who aren't using ColdCart, they're still feeling the stress. They're using one of these other devices. They thought self custody was the right thing. Are they at risk?
[20:27]
B
If you did not create your seed phrase on a cold card, then at the moment this identified issue is not a concern for you.
[20:38]
A
But do we know that all these other devices used a seed phrase generator that's safe from all of.
[20:46]
B
All of the major hardware wallet vendors since this incident have come out, have done their own independent security reviews and have all confirmed that there is not an issue but the nature of cybersecurity in general. It's a cat and mouse game. Yeah, right. And so we mentioned earlier, multi signature. I'm personally a fan of a multi signature where you don't use all of the same things. You don't have all of your eggs in one basket. You know, we had Anchorage thinking about it from like risk distribution and not having all your eggs in one basket. You know, Anchorage, we're like our systems like our infrastructure not impacted by this. And so thinking about this through the lens of having ways of being able to not have all of your eggs in that one basket, it really is the best way to describe it. And you want to be safe.
[21:34]
A
No, I'm glad you said that because again, you want to decentralize your own risk. Don't do single sig. I've advocated so many times on my show multi sig custody. I just think any extra step you can take this is potentially your life savings. Right. So you do not want to be flippant about this. Any final thoughts? We're going to turn this around and get this out very, very quickly so people hear this message.
[21:55]
B
No, no, nothing else. For me, I think this has been sufficient of a public service announcement to try and get the word out. If you have questions, my DMS are open on Twitter ob1ham. I have talked to, like I said, dozens of people in the past 12 or 24 hours. I will do what I can through my priorities to try to be able to help you. I wish everyone the best of luck and I'm hoping that this is able to help people save their bitcoin. And yeah, thank you for having me on to talk about this.
[22:26]
A
Yeah, Rob, thank you so much. Again, his DMs are open. I will try to point you guys in the right direction. Make sure that you're following ColdCard as well as us to get the latest information on this. And please, if you have a friend or you know someone who's used Coldcard, please send them this video or the security advisories. Make sure that they're doing the updates. Make sure they're moving their funds, because we really don't know how. How extensive this whole breach is going to be. Rob, thank you so much. Appreciate your time.
[22:54]
B
Thank you for having me.