Coldcard Flaw Exposes Hardware Wallet Testing Blind Spot: Kraken

Coldcard’s five-year seed-generation flaw has exposed a broader weakness in how hardware wallets are independently tested, according to Kraken chief security officer Nick Percoco. 

In an X post on Sunday, Percoco said the incident should be a “wake-up call” for hardware-wallet makers, calling for independent testing to verify that the approved source of randomness is the one actually used by production firmware. 

“Consumers are asked to trust a manufacturer’s implementation of the single most critical function in the system, with no independent verification that the approved entropy path is the one actually executing,” said Percoco. 

His comments follow an ongoing attack that is believed to exploit weak seed phrases generated by affected Coldcard devices. As of Sunday, over 4,500 addresses have been impacted, draining nearly $90 million in Bitcoin. 

Coldcard RNG flaw remained undetected for five years

On Thursday, Coinkite disclosed a software flaw that has existed since March 2021, when Coldcard changed its seed-generation process as it integrated a new cryptographic library. 

The migration inadvertently routed wallet creation to a weaker MicroPython generator that existed in the codebase, rather than Coldcard’s intended true random number generator (TRNG). 

“The bulk of randomness on the COLDCARD was coming from a PRNG that I didn’t know was actually in the source code base,” Coinkite said in its postmortem. “At the same time the carefully crafted TRNG code I wrote was being used, but just by chance, and only for less important things.”

The presence of the intended random number generator allowed the vulnerability to slip through undetected. Code reviews would confirm the existence and functioning of Coldcard’s TRNG code, but there was no check to ensure this was the RNG actually being called. 

Such checks are already standard across the rest of the security industry, said Percoco, referencing NIST SP 800-90B, a US government standard specifying requirements for designing, testing and validating physical true random number generators for cryptographic security and BSI AIS-31, a similar standard created by the German Federal Office for Information Security.

“Hardware wallets have no equivalent process. We have Common Criteria on secure elements, some CSPN certifications, and vendor-sponsored audits. None of them systematically force end-to-end verification that the validated entropy source is what production firmware actually calls,” he said. 

“The payments industry does not let PIN entry devices ship without independent lab testing. The US government does not accept cryptographic modules without entropy source validation. Digital asset self-custody should not be the exception,” said Percoco. 

Related: Suspected 4th Coldcard attack wave sweeps 389 Bitcoin: Galaxy’s Thorn

Coldcard said Sunday it has halted all device shipments since confirming the vulnerability on Thursday, and has destroyed all remaining units at its facilities containing the affected firmware. 

However, Coinkite has advised users with affected devices not to dispose of them as “it may become essential if funds are recovered.”

“Our legal team will coordinate as warranted with law enforcement across multiple jurisdictions to support efforts in identifying those responsible.” 

Related: Coldcard exploit sparks Bitcoin flight, ‘bullish’ crypto consolidation: Hodler’s Digest, August 2