This article has been jointly prepared by specialists at WeirFoulds LLP (Toronto) and Edmonds Marshall McMahon (London), bringing together UK and Canadian expertise in cryptoasset recovery, blockchain investigations and complex commercial litigation following the Coldcard exploit.
Since 30 July 2026, attackers have exploited a five-year-old firmware defect in Coldcard hardware wallets, devices made by Canadian manufacturer Coinkite. These devices were long marketed as the gold standard in secure Bitcoin self-custody. The threat actors systematically drained funds from thousands of wallets. Across several waves, on-chain analysis has identified losses climbing towards an estimated $116 million, with more than 5,200 individuals affected and roughly 1,816 BTC moved.
What makes this case unusual, is that this incident leaves victims with two entirely separate routes to potential recovery against two distinct defendant groups, improving on their chances of meaningful outcomes.
(i) The first is traditional blockchain tracing and asset recovery targeting the bad actor(s), which can proceed almost anywhere in the world.
(ii) The second is to seek to hold Coinkite liable to its customers, with litigation likely being grounded in Canada, where Coinkite is registered.
How the exploit occurred
The vulnerability originated in a March 2021 firmware update. Coldcard devices are designed to generate their wallet seed (the 12- or 24-word phrase from which a Bitcoin address and private key are derived) using a hardware random number generator drawing on unpredictable physical electrical noise. During a software library migration, two randomness functions with matching interfaces were confused: one drew on the device’s genuine hardware generator; the other was a weak software fallback intended for boards lacking suitable hardware. A misconfigured setting meant the build process checked only whether the hardware path was present, not whether it was switched on; so the build completed successfully while seed generation silently defaulted to the weaker, predictable generator.
The consequence was serious. Rather than drawing on genuine entropy, affected devices produced seeds following a discoverable pattern. While it took several years to happen, once an attacker identified that pattern, they could replicate it on ordinary computers, generate large numbers of candidate seeds, derive the corresponding addresses, and check them against the public blockchain. This allowed the attackers to extract private keys without ever touching a victim’s device.
Anatomy of the theft
The theft unfolded in coordinated waves rather than a single event. The first sweep, in the early hours of Thursday 30 July, drained hundreds of single-signature wallets within minutes. Further waves followed over the succeeding days as the attacker or attackers worked through the pool of vulnerable addresses, shifting toward smaller balances and more complex transaction patterns as scrutiny intensified. A substantial portion of the stolen Bitcoin has since been consolidated into a small number of addresses that remain unspent.
That inactivity is itself notable. A decade ago, funds of this scale would typically have passed through a mixing service within hours. Today, with exchange compliance controls tightened and blockchain intelligence firms monitoring flows in close to real time, converting a nine-figure sum of stolen Bitcoin into usable value is a genuinely complex operational problem, requiring pre-existing channels if perpetrators are to move quickly. Time lags by the attackers where funds are parked for significant periods tends to assist both law enforcement and civil recovery efforts, provided victims act quickly. Analysts have already flagged hundreds of suspected attacker-controlled addresses to investigators and industry compliance teams, and further white-hat interventions of the kind seen in comparable incidents have already emerged to secure stolen assets arising from this fraud.
Two routes to recovery
(i) Blockchain tracing and asset recovery.
The bad actors have consolidated the stolen assets into two BTC addresses. This static, unspent nature of much of the stolen Bitcoin is precisely what makes forensic tracing effective. Experts and lawyers alike are watching the consolidation addresses closely and any attempt to launder these funds or off-ramp them will likely result in rapid fire attempts to blacklist or freeze those assets at the point of entry, following shortly thereafter by proprietary and freezing injunctions and for information disclosure orders against exchanges, custodians or payment processors that later receive the funds. In other words, the fast-paced game of cat and mouse between the bad actors and the claimants (including their investigators and legal representatives) is in motion, as off-ramping routes are pursued and are cut-off in a rapid sequence of moves and counter-moves. Already, claimants and other interest holders and white-hats are tracking movement (or lack thereof, so far) in real time – the beauty of blockchain collaboration in the Web3 community when widespread attacks arise. This route does not depend on identifying the attacker (although the information sought may also seek to uncover their identity and physical location, to assist in some forms or later recovery) and can, under certain circumstances, be pursued in different jurisdictions (including where the victim is based) depending on the jurisdictional analysis.
(ii) Holding Coinkite liable.
Separately, affected users will want to consider a tandem approach as they may have a claim against Coinkite itself, or its directors/controlling mind, most likely framed in breach of contract, negligence or product liability arising from a latent defect that undermined the fundamental security promise of the device. In essence, the claim would be that Coinkite failed in meetings its standard of care and contractual obligations to its customers by permitting such a defect to exist and remain undetected, with foreseeable consequences and losses to its users. As a Canadian-incorporated manufacturer, Coinkite would ordinarily need to be pursued in Canada, to ensure the most efficient and direct recourse for claimants. A useful, if imperfect, comparator is the litigation Coinbase faced following its 2025 data breach: multiple negligence and breach-of-contract claims were filed on behalf of affected customers, though many were ultimately diverted into arbitration under the exchange’s terms of service. Coinkite’s own terms contain similar arbitration clauses, which may also be relied upon in an attempt to constrain victims’ options in a similar manner, making early legal advice on the applicable contractual and jurisdictional framework essential to prospective claimants.
The English courts have already demonstrated in Chechetkin v Payward Ltd & Ors [2022] EWHC 3057 (Ch) that arbitration clauses in standard-form crypto exchange terms will not necessarily be upheld where doing so would offend English public policy and undermine mandatory consumer protections. Similar lines of authority in Canada provide cause for hope in this case, should Coinkite seek to enforce its arbitration clauses.
Why this matters
The Coldcard exploit differs from most crypto losses in ways that make it significant well beyond its size. The defect sat undetected in open-source, publicly auditable code for five years, raising difficult questions about what a manufacturer reasonably ought to have known. The number of affected individuals (which is likely to grow as further waves are identified) creates the conditions for coordinated or group litigation. And because the failure originated in the product itself, rather than in user error or a third-party platform, it offers what may be the clearest test yet of a hardware wallet manufacturer’s liability to its own customers.
Coinkite’s CEO, Rodolfo Novak, has already apologised publicly and said that the company accepts full responsibility for the firmware failure. Coinkite has also stressed that this exploit was likely facilitated by the use of AI, which allows threat actors to identify hidden weaknesses at a rate not seen before. This exemplifies the stark reality of how heightened the risk of exploitation now is, and why these attackers are now able to move at scale and with precision.
Whatever the ultimate outcome, the Coldcard exploit is likely to become an important case for digital asset litigation – redefining the bar for standards of security in the industry. It raises fundamental questions not only about blockchain tracing and recovery, but also about the legal responsibilities of manufacturers of cryptographic security products. For victims, the key message is that there may be more than one route to recovery. For the wider industry, the litigation that follows may help define the standard of care expected of hardware wallet providers for years to come.
This article was jointly prepared by Benjamin Bathgate and Jessica Stansfield, Partners at WeirFoulds LLP (Toronto), and Ashley Fairbrother, (Partner), and Rhys Evans at Edmonds Marshall McMahon Ltd (London), reflecting a coordinated English and Canadian perspective on the legal issues arising from the Coldcard exploit. The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.
