Welcome in to This Week in Bitcoin, episode 116.
My name is Chris, chrislas.com, jupiterbroadcasting.com.
Well, I'm breaking the release cycle because we have a bit of an urgent issue for cold
card wallet users, particularly Mark 3 cold card users, but it could be affecting 4 and
possibly even the Q. This all started seemingly when a Reddit user reported that a long dormant
wallet was suddenly drained. The seed was reportedly generated using a cold card purchased in 2021.
The user said the seed was written down, never photographed, and never entered into a computer.
In January 2025, they restored that seed onto another cold card to verify the backup and create
a watch-only setup. More Bitcoin was then deposited on April and May of 2026, and then the wallet was
completely drained on July 30th. At first, it just seemed like, well, this is probably no big deal.
This is something specific to this user, their setup, something like that. But then just a couple
of hours ago, CoinKite released a pretty serious security advisory for Mark III wallet users.
And I'll read a little bit of this for you. They say, out of an abundance of caution,
CoinKite is warning all users who generated a seed using the Mark III on version 401 in March
of 2021, or any subsequent version, their funds may be at a risk. Now, they write here Mark IV,
Q, and Mark V are not affected based on early analysis of the issue. However, that may not be
true, so stay tuned for that. They note that the investigation is ongoing, and it is an early
analysis. They say if the affected at Mark III seed was used in a BIP39 passphrase, our early
analysis indicates that your funds are at a minimal risk from this issue. This means the BIP39
passphrase is not a cold card pin. So to be clear here, what's happened is attackers using AI tools
have begun generating less than random seed phrases that are getting access to people's funds. They
never need to get access to your computer. They never need access to your cold card. If using the
Mark III, you use the random generator built into the Mark III, you are, well, implicitly
vulnerable to this issue. This issue also seems to be, potentially, if you didn't use a passphrase
with that, and if you didn't use proper dice rolling techniques, each one of those increases
your risk to exposure to this issue. So this is where we're at right now. If you have a cold card,
you probably want to consider moving your funds, even if it's a cold card four. I'll tell you more
on that in a moment. It is a developing situation. Don't panic. But you should, out of abundance of
caution as a cold card user, consider moving your funds. Bugs have been found that are being
exploited actively right now in the AI. People are actively losing their funds. At this juncture,
I would migrate funds off any single SIG or a weak multi-SIG if you're using cold card wallets
and you generated on device without dice or a passphrase If that you you are in the risk zone right now The issue appears to remain present through version 5 of the final Mark III version firmware
and something I would consider for the Mark IV as well.
So here's some information we have.
Bitcoinnews.com is covering Instagibs,
a developer who tweeted this.
Sorry, this is the time to panic.
cold card mark 2 and mark 3 vulnerability the bitcoin core developer instagib says that he
successfully reproduced the reported cold card vulnerability on a freshly initialized mark 3
device using only the number of a button presses made during setup adding sorry quote this is the
time to panic he adds he believes this issue affects mark 2 and mark 3 devices but says he
cannot confirm whether mark 4 is vulnerable all right so that's pretty serious again you know
steady is the method here, but I'm out of abundance of caution, even though I don't have
Mark 3s moving my funds. Nick Newman posted on X, it sounds like the Mark 4 Q and Mark 5 are also
vulnerable, but in a different way than the Mark 3. Slightly less problematic than the Mark 3,
but still not great to keep using. If you're using a single SIG cold card at the moment,
you should move assets to a different wallet, multi-SIG, exchange, other hardware to be safe.
And that is how serious this is, is people are even recommending going to an exchange temporarily if you have one of these setups.
Zero Knowledge posted at 5.41 p.m. Pacific time on July 30th.
Mark 4s are vulnerable but millions of times harder to steal from.
Mark 3s can be stolen from a decent laptop.
Mark 4s, 5s, and Qs would need much more compute.
Here's the model.
The attacker has roughly 2 to the 20th UUID range that it knows cold cards fall within.
It checks a 16-button press variancer in user behavior before generating the seed.
He recommends you still promptly remove funds from Mark IV, Mark V, and Q cards.
So in other words, the situation is significantly harder with the Mark IV and the Mark V in the Q.
but with the advances in model technology it probably makes sense to start planning for this
right now not the news i wanted to come back from my break and tell you about so if you generated a
seed a seed phrase and a wallet using a mark 3 you are in the target zone if you're in the mark 4 or
5 or q category you're in the risk zone so i say take it easy slow and steady is the mode don't rush
this and don't dox yourself if you don't need to. And remember the Liquid Network and Blockstream
Block are your friends. So far, there does not appear to be an issue with the Jade or the Bitbox.
Those are also really great hardware wallets. And I think to make it clear to you, this is
independent of if you've used your cold card or used your computer or whatever. This is based on
how the seed phrase was generated, which can be predicted by some of these AI tools. It also
It also reminds us
key generation and key isolation
are two separate things Keeping your private key safe and private is not the same thing as generating it safely It also reminds us that firmware and provenance matters years later
These are wallets.
Some of these that were created in 2021
are now vulnerable in 2026.
And I suspect this is going to be a growing problem.
Here's my thinking.
Multi-vendor, multi-sig is the way
of self-custody for the future.
I think this is going to be just the start.
Cold card is a big target, but there's a lot of incentives to go after Bitcoin wallets in general.
And with AI cybersecurity tooling getting better and better, there's going to be real incentive to focus on Bitcoin because you can get real money.
And I think the plebs that are serious about self-custody, you're going to have to consider multiple hardware vendors, like a Bitbox, like a Jade, and maybe a Q or something like that in a chain like that.
so we have a bit of um picture of the impact so far it's not just theoretical like i mentioned
earlier this is in the wild and people are unfortunately losing a significant amount of
bitcoin due to this and you hate to see it but here's what i know so far rob hamilton posted at
11 30 a.m on july 30th i've oh and i should mention that rob for those that don't know works
at anchor watch uh i have conducted some preliminary analysis of the uh 600 bitcoin
which have moved in a 15 minute period this morning what we know 1 324 utxos were swept
across 500 transactions all within a three block window from these 562 bitcoin was swept again to
a new address which has not moved since. The UTXOs that were swept spanned from 2021 to 2026.
And here's the big one that Rob shares. 100% of the addresses swept were single SIG. None of the
addresses were stolen from Taproot. At a glance, this looks like there was a flaw in an entropy
wallet generation somewhere along the way. Now, Rob posted that before we knew about the CoinKite
situation. It looks like an ocean wallet also may have gotten drained. And then Gary, Gary Garrett,
or I'm sorry, Clay. Sorry, it's live, guys. I'm just doing this live. But he works at Blox as an
engineering lead for BitKey. So Clay Garrett, sorry, Clay. He also added to this, and I think
this is important to note. Blox engineering and security team found another set of transactions
that could be part of the cold card drain.
We're still looking to vet these completely,
but given the situation,
we feel it's important to share early.
There are 695 earlier transactions
with the same full fingerprint
that transactions of the known set had.
These transactions moved another 488.1 Bitcoin.
If this is part of the same attack,
it brings the total to 1,082,500,
and well, it's a lot of Bitcoin.
Let me see if I can find, oh, I'm sorry.
Nope, not that much.
The decimal point's right here.
1,082 Bitcoin.
That's a lot of Bitcoin, actually.
Wow that a treasury company right there They moved a treasury company There were 500 sweeps into this collector across blocks 960188 and 960191 And he has a mempool space link for this I put a link to this in the
show notes too if you want to go through this on your own. He continues through multiple posts
detailing the multiple sweeps. He says, we scanned all 888,661 transactions in block 96050
through block 960, 230.
Each match in the original wave
had these shared properties.
Version 2, lock time 0,
final sequence on every input,
one output and inputs
from one source address,
a PTW PKH hash destination,
one homogenous supported input type,
and a 30SAT, whoa,
V-byte pre-signing fee estimate.
Hmm, they overspent on that.
Again, these patterns here are strong,
but we have not confirmed
that they are related to the drain.
please reach out if you spot anything and he posted that as of an hour ago as i go live
so um over a thousand bitcoin so far
and essentially a treasury worth a dat worth of bitcoin uh it's serious and so i i i guess i have
to recommend that you move your coins even though i don't want you to do it in a panic and i don't
want you to have to dox yourself if you've been able to avoid that so far. So be considerate.
If you have a Mark IV, you probably have a little bit of time, but probably don't want to wait too
long because now that this is known, this is only going to accelerate. So that's why I wanted to get
on here early and let you know. Just a short show, no boosts, no updates, nothing like that. I just
wanted to get this message out there so you guys know what's going on. I should get out of here,
but that's the update for me. If I have anything else significant, I'll try to break in. Otherwise,
I'll give you a complete update with everything I do know and anything else that's developed
on Wednesday's regular episode. But I do appreciate the support. If you would like to
support this here emergency pod, as they say, or keep the show going, boost.jupiterbroadcasting.com.
I think we're kind of in a summer lull looking back over the summer episodes. So this could be
a good chance to step up and make episode 117 a banger. Thanks for joining me and I'll see you then.
Thank you.
you