That worry regarding hardware wallet vendor shortcuts (and recently a Coldcard RNG vulnerability) makes perfect sense. A vulnerability that shrinks the 256 bits of entropy of a 2^256 key down to something an attacker can brute force (like 40 bits) throws out the entire basis of what makes hardware wallets safe in the first place.
However when you go from that to a Bitcoin Core on an internet connected computer it comes with its own set of tradeoffs:
1. Risk Of Internet Connected OS vs The Device:
The wallet.dat on an internet-connected computer is at the mercy of malware such as keyloggers, malware capable of memory scraping and a variety of other attacks that could read your private keys from RAM. Even with a strong encryption passphrase the most critical risk of these types of malware attack is the capability of them reading that passphrase as it is being input on a compromised machine and immediately giving access to your Bitcoin keys.
2. Weak Passphrase vs Entropy Rich Passphrase:
A lot of individuals have issues with thinking that they can come up with a passphrase that has both length as well as variability and will not be easily crackable by modern computer power; anything that utilizes a discernible pattern (eg 123, abcdefg) will eventually succumb to an exhaustive attack using tools like Hashcat. When creating encrypted wallets you need to be very, very confident that your passphrases are of truly random character generation either sourced from something akin to a Diceware style generation (
http://en.wikipedia.org/wiki/Diceware) or a long non-patterns based passphrases.
3. Mitigating Single Vendor Flaws without trusting another piece of single-vendor hardware:
As the title describes; if you believe many hardware wallet makers may be taking RNG shortcuts, there's a number of strategies:
• Entropy Supplementation: Utilize wallets and hardware which support inputting random noise from an external source (such as from a true random number generator like bitseed (
https://bitseed.org/) or the output of throwing dice, flip coin).
• Air Gap Bitcoin Core or Electrum: Perform all wallet and key generation on a completely air-gapped computer. Set up bitcoin Core or Electrum on it, ensure it's offline, air gap it securely then proceed to generate the keys in that cold environment. Only take the public keys of what you wish to monitor on an online server.
• Multi Vendor multisig (2-of-3 setup): use three hardware wallets from two different vendors (e.g.,TREZOR/BitBox02, and the air-gapped Electrum/Core system). If an attacker successfully compromises one vendor, the other two wallet pieces will protect your Bitcoin. An attack against the OS of the hardware wallet may occur but unless you utilize all three of your hardware devices at the very moment the OS has become compromised by a malicious piece of software you win regardless of the attempt.
4. Backup Strategy (3-2-1 Rule):
If storing wallet.dat backups or seed phrases, you need at least three copies of your backup data. At least two media are kept at a safe location but are separate and the third is offsite.
