Thousands of diligent, informed Bitcoiners lost their entire stack.
Years of savings, recently due to a randomness bug in a popular Bitcoin hardware wallet.
The most careful lost everything.
So does this mean that self-custody is dead?
That don't trust verify is meaningless?
that hold your own keys and Bitcoin only are failed heuristics?
I've been seeing a lot of people say that.
And I'm going to have to disagree.
And I think it's time for a Guy's Take episode.
So if everyone did the right thing,
and they went with a popular, trusted Bitcoin hardware wallet,
Bitcoin only hardware wallet,
and created their own keys, withdrew to self-custody,
and they still lost their coins,
Doesn't that mean that this is all meaningless and you never should have done any of that in the first place?
Yes, in exactly the same way that building your house out of a steel frame and making a stone exterior so it can survive difficult storms,
but it still gets destroyed by a tornado means that you should have just built your house out of cardboard.
Or in other words, yes, if you're an idiot.
These things are lessons.
They are heuristics.
They don't have magical powers to stop any and all bad things from happening.
And importantly, they cannot be fully and completely realized in any sense.
The idea of don't trust verify is about how to think about a problem.
Obviously, you can't do anything without some degree of trust somewhere.
If you ever thought that that's what it would meant, that you could just never trust anything,
then I'd argue that you don't have a realistic opinion about how anything works.
Literally, can you build the cold card personally?
Do you go to the grocery store and buy food ever?
Do you run and understand the entire firmware stack?
Do you understand the computational stack that goes into your Bitcoin node?
Do you not understand how to design a chip?
Do you understand how chip manufacturing and fabrication even works?
Every single thing that goes into the computational stack that runs your Bitcoin node, can you
write and understand the entirety of the Bitcoin software?
Then obviously you have to trust certain things and there's no escaping it.
But this does not mean that the only option is to blindly trust everything and to never
actually attempt to verify those things that we can. We should attempt to trust as little as
possible. We should design things to verify as much as we can. We should take as much responsibility
and control and our own personal education as makes economic sense. As Thomas Sowell said,
there are no solutions. There are only trade-offs. So in the context of coal card and
is self-custody dead. I think the really important thing to understand is that there's no situation
where you own Bitcoin without keys. Somebody is always managing the keys. Someone is always
generating the seed. The only question involved is whether it's you or somebody else.
A service provider or an exchange could get hit with the exact same bug just as easily,
along with a huge list of additional attack vectors and problems that they could have,
because they just let a whole bunch of arbitrary people connect to them and they have to issue withdrawals.
They have to know who and where people are and how to prove that this is actually the user in order to
execute approval for moving Bitcoin for
thousands hundreds of thousands even millions of people The number of attack vectors that they are vulnerable to pales in comparison to the amount that self has to deal with
Now, I understand why the cold card entropy bug hurts as bad as it does.
It is by far the biggest hit to the people who did the right thing and who actually knew largely what they were doing for protecting their Bitcoin keys.
But a huge part of the reason why this event is actually so significant is because it almost never happens.
I think it's worth a little bit of perspective in order to make sure we don't have amnesia about the last 17 years in Bitcoin and the extremely hard-won lessons that we have learned.
Now, I won't be able to go through all of these because there's just too many,
but we will at least hit the highlights so that the lesson is firmly in place
for anybody who may be traumatized into retardation by this cold card event.
Don't worry, you can be saved.
We will start with Mt. Gox in 2011 with a hack of 2,609 Bitcoin,
Then Bitcoinica in 2012 at 43,500 Bitcoin.
Then the Linode hosted wallet service at 46,000 Bitcoin.
Bitflor also in 2012 at 24,000 Bitcoin.
Then Trade Fortress in 2013 at 4,100 Bitcoin.
Then Pico Stocks 2013, 6,000 Bitcoin.
Then Sheep Marketplace in 2013, 96,000 Bitcoin.
Then, of course, the big Mt. Gox, the apex of failures in 2013 at 850,000 Bitcoin.
Then Global Bond, Limited, Flexcoin, Poloniex, MintPal, all 2014 at another 5,000 Bitcoin.
And Bitstamp, 2015, a major and reputable exchange, one of the biggest at the time, 19,000 Bitcoin.
Kipcoin, Beter, Kripsy, all 2015, 23,000 Bitcoin.
Gatecoin, Shapeshift, Bitfinex at 121,000 Bitcoin to that.
UBit, NiceHash, CoinSecure, Zave from AprilChange at another 12,000.
Up to 2019 now, we got CordrigaCX collapsed at 26,000 Bitcoin loss.
Binance in 2019, another major reputable exchange.
Plenty of budget for security problems.
7,000 Bitcoin loss.
Bitpoint, DragonX, AltsBit, Kasia, Qcoin, LiquidGlobal, AfroCrypt,
All 2019 to 2021 zone at about 71,000 Bitcoin, then DMM Bitcoin in 2024 with 4,500 Bitcoin.
And we are at a cool total, just the highlights of this problem, at 1,360,709 Bitcoin lost due to centralized custodians.
But wait, there is more.
We're just talking about the Bitcoin, not the money in custody owed to customers and the investment capital owed back to customers.
With that, we actually have to include FTX at $10 billion, Celsius at $4.7 billion, Voyager Digital at $1.3 billion, BlockFi, Genesis Capital, Gemini, Three Arrows Capital, together about $7 billion.
So we're going to just tack another cool $23 billion on top of that, just in the custody of Bitcoiners money.
And we would actually have to add a lot more to this list if we wanted to be very precise about our comparison.
Stop! Stop! He's already dead!
These were all massive hacks, failures, fraud, or just internal irresponsibility that hit
sometimes thousands and up to even millions of users who trusted the largest exchange the most reputable institution the one with the most money for security audits the one with the most connections
the ones that had all the crypto stuff and worked with everyone
because they were the real solid guys.
This is the record of custodial Bitcoin.
And this is the record of big reputable companies in the Bitcoin space.
This is exactly where the not your keys, not your coins, where don't trust verify, where these things have come from.
It is not arbitrary.
It has been fucking earned a hundred times over.
Now, a lot of people have been trying to track the rough amount stolen from all of our cold cards.
The best estimate right now on the low end is somewhere around 1,778 Bitcoin.
and maybe on the high end of 2,400 Bitcoin.
Despite the significance of this event,
the perspective, the ability to even compare these
is almost nonsensical.
Now, of course, this isn't the only loss of self-custody
as those major hacks and failures of institutions
weren't the only losses of centralized entities either.
So people lose their keys all the time or they drop their hardware wallet off a boat, right?
But this is similar to someone's email getting hacked and then them withdrawing from a custodial exchange all of their balance.
The cold card bug is more akin to the exchange hack in the sense that it is a systemic failure of the mechanism by which thousands or tens of thousands of people were securing their Bitcoin.
or maybe even millions in the context of a custodian.
That even those who seemed to or attempted to follow the rules
still ended up the victim of shoddy, overcomplicated firmware
and the device that they trusted, that we all trusted.
Now, there's a lot to learn from this.
We luckily actually have a lot of tools to look far more seriously at the code base,
even for people who can't write code now, thanks to AI.
And a lot more people, for better or worse, understand what entropy is
and how it plays a role with the creation of their Bitcoin keys.
And unfortunately, almost every major lesson in Bitcoin's history
came alongside some giant disaster.
You know, that's the nature of anti-fragile things.
It's not that bad things don't happen.
It's that when bad things happen, the system learns and it adjusts and it gets stronger.
The thing is, is if we learn lessons from this, it has to be forward looking and it has to work if applied to the past.
If we just kind of like arbitrarily point at some things like, oh, NBK was snotty on Twitter and then think that that rule is going to work.
Apply that to Bitcoin's history.
If you just didn't listen to everybody who was a little bit snotty or arrogant, you wouldn't have had a very good time.
What we need to learn from this, what I want to learn from this,
is something meaningful that can work in the future and works when applied to the past.
One of the few that I think I can pull from this are that source available and open source aren't the same thing.
There's no incentive for people to look at code that isn't open source if they can't actually do anything with it.
Source Available is trying to get, and I did not appreciate this in hindsight,
that Source Available is trying to get the apparent benefit of open source
without actually getting any of the scrutiny that makes it worthwhile.
Other people building on it and needing to verify is exactly what makes open source stronger.
Now, it's not a silver bullet.
Just because you went with open source, there's plenty of open source things that have had detrimental bugs.
But I do think it a meaningful part of how all this played out and why this failure wasn called Another one independent audits We can just say don trust verify slogans or slogans and they don mean jack if you don actually apply them
And for those who can't actually check the firmware, we need independent audits. We need
people who are contentious, checking the work of other people. We want foundation arguing with cold
card and pointing out bugs on purpose. We want Bitbox and Ledger fighting each other. I think we
need more disagreement or more cooperation for the exact same reason. Doesn't really matter how
we get it. It's great. It's nice to be nice, but I don't really care. Hate each other. If it means
that you're actually going to check and we're going to get independent audits and we're going
to get people aggressively pushing against each other's software, that's great news to me.
And then the third thing that as much as people say it's ridiculous, and I understand,
part of me thinks this too, I think we should walk away with this thinking roll your own
randomness as another slogan in Bitcoin.
We need to understand what entropy is.
Entropy is at the heart of everything that happens here.
And the fact that we did just kind of glaze over it is a failure on us as educators, as people who are trying to point out what is important here. And honestly, just adding that one concept to the stack makes a massive difference when you apply it to the past and you apply it to this cold card situation. And it ain't a hard thing to understand.
And that's not too difficult.
That's not asking too much to just recognize what randomness is and how it is being applied
to the creation of your Bitcoin keys.
If we're going to worry so much about holding your keys, we should at least talk a little
bit about what it means to create keys.
Right now, those are the only three really good ones that I think I can pull from this.
But if we just ignore everything that we've learned so far in Bitcoin, if we're just
going to go with the big company because they have more resources? If that ever works, why is
Bitcoin history just riddled with failures of the absolute biggest institutions? Why are all the
crypto people who have the most money to do the most security audits and checks, why are they the
ones with the most spectacular failures? If self-custody is somehow dead, then why is it by
multiple orders of magnitude still the safest way to own your Bitcoin? I think the answer is quite
simple. Those are the wrong lessons to learn. Now I'll be doing a longer and more in-depth Q&A on
the cold card situation. We'll probably be recording it tomorrow morning, so hopefully it'll be out
soon. But I just wanted to knock this one out first because this one was just getting to me.
If you have any questions though, let me know. Check out the Bitbox hardware wallet. Obviously,
this is fully open source. I've also been keeping a very close eye on the red teaming,
not only against all the other hardware wallets, but Bitbox more specifically,
since I am promoting them and I use them quite a bit. So if there are any uncovered vulnerabilities
or anything worth reporting or sharing with you, I will share it here on the show as fast as I can.
But so far, everything looks really good. There is some interesting little like cork edge cases
that I think I might actually be fun to dig into
and we might get at it on the show.
But stay tuned for that.
Don't forget to subscribe to the Guys Take channel on YouTube.
That is our new channel.
So if you're seeing this, please, it's a huge help
because we're still trying to bootstrap that network over there.
And I will catch you guys on the next episode.
Until then, everybody, that's my two sats.
you