Short-term impact of the Coldcard incident on Self-Custody

[avp2306]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how would this affect the self-custodial industry?
~snip~

Buying hardware wallets is not self-custody as some people think, it is much more than buying and generating seeds. Anyone who because of this, starts to believe that it is better to store their coins on CEXs or something similar is one of those who still hasn't understood what it means to be your own bank.

If you want security then choose an air-gapped setup, add a strong enough passphrase or make multi-sig setup and don't just depend on the entropy you get through the seed. Of course, in most cases this is enough, but if the manufacturer messes things up (as in the case of coldcard), then it happens that people get hacked.

The problem with other people is they blindly trust he wallet or the owner for setting up default security.

That situation happened on Coldcard indicate that they must do other things to make their wallet more secure. Since buying a hardware wallet is just first step and they must understand the other layers of defense like air gapped signing, passphrase and multisig then also they know how to handle well their wallets.

If they don't do any other thing because they are lazy and just trust to company who owns that wallet, they are making themselves exposed with same risk happened to Coldcard.

[YOSHIE]

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

Victims of the security incident that occurred yesterday are still feeling severe shock and trauma, the incident had an immediate impact on crypto users, where short-term trust for hardware wallets became wary.

I once read in one of the information on X an incident that occurred with a Coldcard wallet, Many investors or crypto users are switching and looking at Bitcoin ETFs at this time, even though the relevant parties are taking steps to tighten supervision and security verification, a sense of trauma still surrounds crypto users as a whole.

I think it will take a long time to restore the positive impact on investors to use hardware wallets to store Bitcoin today.

[Rikafip]

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

From everything that I have seen so far in all these years in crypto, I think that impact of the Coldcard hack will be a very short lived one.

People tend to have a very short term memory and everything that has happened regarding Coldcard will be soon forgotten, except maybe among the those who closely follow HW market and are generally interested in the subject.

[Jaycoinz]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how this would affect the self-custodial industry. I mean, will the impact be such that people will avoid hardware wallets forever? After what happened with Coldcard, many decided it was safer to move to a CEX instead. Others went ahead and bought Bitcoin ETFs. This is bad because it gives centralized entities more leverage over Bitcoin.

There is no doubt that this has caused a lot of people to even think twice about Bitcoin in general, and some have changed their mindsets on means of keeping their Bitcoin, but moving them to a CEX is not the better option because security issues with CEX are almost certain all the time. There is a case of Bitmart shutting down without properly notifying its users of the suspension time for deposits, and now they have even restricted withdrawals, and so many people have their coins worth hundreds and thousands of dollars stuck in that exchange and same goes with the FTX fall that affected lots of customers.

I just think, this whole issue will create more awareness for the self custody industry to stay more security conscious and add more layers to their security level if it's possible. And for the effects being long term or short term, I think humans are designed to let go quickly and the incident wasn't of global scale that affects all self-custody wallets, so it will be short-term and improvements will be done in this field to prevent it from happening again.

[Localhostspeed]

The problem with other people is they blindly trust he wallet or the owner for setting up default security.

That situation happened on Coldcard indicate that they must do other things to make their wallet more secure. Since buying a hardware wallet is just first step and they must understand the other layers of defense like air gapped signing, passphrase and multisig then also they know how to handle well their wallets.

If they don't do any other thing because they are lazy and just trust to company who owns that wallet, they are making themselves exposed with same risk happened to Coldcard.

I don't think it make sense to blame the victims, if not that this cold card attackers stole Bitcoin from their wallet, many does not understand how entropy work as there seed phrase foundation, they save what they get as seed phrase which is what has been saving them for long now but this is an eye opening for everyone to take their entropy very serious. My fear is that some people might generate the worse entropy if allowed to get generate for their wallet.

I think wallet need to add way for people to know if the bits they generated is secure enough, if the bit is not secure it will give some signal form the wallet and if the wallet is secure, it need to show green, that is not something hard for hardware wallet to use. I am just imagining that if attack like this can be this dangerous, by the time Quantum computers are done and ready, the damage will not be good for everyone, we need to move before they move.

[Sim_card]

Hardware wallet is still the best wallet to store your bitcoin regardless of the Coldcard incident. I don't think this will make people no longer rely on hardware wallet because exchanges have crashed and people are still storing their bitcoin in centralized exchange. What I believe will happen is that hardware wallet users will be more careful and wouldn't rely totally on the wallet producer for maximum security.

[Z-tight]

I have had to reply to many similar topics like this one since the Coldcard incident, i knew many people would think in this way and ask questions like this, but i didn't expect it to be this much. The truth is that it would surely have an impact, i believe there are people who have already moved their coins to centralized systems, but i don't think the number would be so great.

Bitcoiners who understand exactly what happened know exactly whose fault it is, and they know that not every manufacturer would allow such a critical vulnerability in their system. There are also extra layers of security that could mitigate the risks, but there is no way you're going to blame the victims for not implementing that, hell no, because just storing your hardware wallet seed is usually enough.

[Hamza2424]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how would this affect the self-custodial industry? I mean, will the impact be such that people will avoid hardware wallets forever? After what happened with Coldcard, many decided it was safer to move to a CEX instead. Others went ahead and bought Bitcoin ETFs. This is bad because it gives centralized entities more leverage over Bitcoin.

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

Your input would be greatly appreciated. Thank you.

I would not say "millions in BTC losses" instead, "BTC worth millions of dollars" is much better because the first line could make someone new to this incident think that the Coldcard hack caused people to lose millions of BTC.

No, people won't avoid HW wallets just because of this single incident. Most hardware wallets are still safe, like Trezor, because the community is already discussing flaws or vulnerabilities, so I don't think you have to worry about it that much.

I wouldn't use an exchange unless I knew enough about it. I am sure you haven't heard about BitMart exchange. They have halted withdrawals and given users an August 26 deadline to withdraw, which looks suspicious. Have you heard about it? I am sure you haven't, because if you had, exchanges wouldn't be your choice, but maybe only top exchanges would be your choice.

But exchanges, especially under political pressure, can cause a lot of trouble. Therefore, self-custody should not be abandoned so quickly just because of one drawback.

[Ambatman]

After what happened with Coldcard, many decided it was safer to move to a CEX instead. Others went ahead and bought Bitcoin ETFs.

I'm curious about the stats backing this because from what I have seen the impact wasn't that deep.
It's now more like a wake up call that nothing is perfectly secured.
People that chose self custody over convenience did for a reason
This wouldn't push them too far to try CEX. 

My question is, will the impact be short-lived or a long-lasting one?

Short lived but I expect more vulnerabilities been found across open sourced projects.

[Rruchi man]

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

What it just opens up is a new door of inquiry on how self-custody can be made safer and better because sometimes it takes some loopholes and exposure of this sort for growth to take place, and what I just see happening is self-custody taking on that level because this opens up a new door of consciousness and awareness for people that just having their Bitcoin kept offline in a wallet is not enough.

With this new development, there will be a lot of intentionality on the model firmware version of your hardware wallet because you now have the understanding that not just any wallet is enough.

[Asiska02]

I think we should look at it this way; just because you bought a vault and there was some defects from the manufacturer which puts your funds at risk and can potentially affects some vaults from the company, you won’t because of that rush to remove your money from the vault and give it to a stranger to help you and hold it.

The best you should do at that time is to ask, how you can get it fixed, how do I make the security more strengthened and also what other methods can I use to have a safer security system. Just because ColdCard failed due to compromise doesn’t mean self custody has failed.

[Jammy01]

Someone make a similar post in a different board and my reply was that you will be the one to decide which risk you can manage
Exchanges can never take over from self custody
If we look at the ratio at which hacks, freezing of accounts and shutdown on exchanges to that of self custody
Self custody is still the best option
The coldcard fear caused won't last long

[Dreadboost]

After what happened with Coldcard, many decided it was safer to move to a CEX instead. Others went ahead and bought Bitcoin ETFs. This is bad because it gives centralized entities more leverage over Bitcoin.

I rather move to a CEX than to buy Bitcoin ETFs. CEX has partial custody as the coin can be withrawn anytime, provided that it is not stolen yet or seized by the exchange.

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

Your input would be greatly appreciated. Thank you.

Fear is a common thing. It takes another CEX or ETFs to lose the people's money for them to return back to self-custody. Irrespective of the chaos Coldcard vulnerability caused, self custody remains the best.

[Haunebu]

No point living in fear like this to be honest with you. So many people advise avoiding centralised exchanges like Binance etc for storing your assets when many of them actually store them there themselves even though it's not the most secure way logically.

Why? Convenience! More secure ways like hardware wallets etc definitely offer more peace of mind etc, but they lag behind in the convenience department especially when dealing with transactions regularly. The coldcard incident will probably push more users to reputed cexs IMO.

[Abu-Naim]

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

Your input would be greatly appreciated. Thank you.

Just as some investors will be afraid to leave their Bitcoin in self custody wallets like hardware wallets because of this incident that happened to the coldcard wallet, then leaving your Bitcoin in CEX is also not safe because you will even risk your identity to the centralized exchanges before having access to their wallet to save your Bitcoin.

Definitely some investors will be afraid, and some of these companies that created these hardware wallets will have been on improvement mode because this is something very serious that will affect their reputation, but that doesn’t warrant using exchange to hold your Bitcoin.
Since many of us are used to Electrum wallets and others that are not hardware wallets, we should keep using them and avoiding exposing our seed phrases online for more security.

[Cheema02]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how would this affect the self-custodial industry? I mean, will the impact be such that people will avoid hardware wallets forever? After what happened with Coldcard, many decided it was safer to move to a CEX instead. Others went ahead and bought Bitcoin ETFs. This is bad because it gives centralized entities more leverage over Bitcoin.

My question is, will the impact be short-lived or a long-lasting one? What would it take for people to trust doing self-custody of their BTC again (via HWs)?

Your input would be greatly appreciated. Thank you.

Well, the impact will surely not be permanent because people forget things over time. It is true that it is probably one of the worst incidents that has happened within the Bitcoin ecosystem where a wallet manufacturer became the reason for people to lose so much money, and what makes it worse is that it's a hardware wallet and not a software wallet or custodial wallet where users are usually at the risk of getting compromised. However, people will move on, the market will move on, and over time, using hardware wallets will be normalized again.

There has been so many incidents in the history of this industry where people lost so much money in hacks or other incidents, especially with centralized exchanges where exchanges either got hacked, or bankrupt or scammed people, but we can see that centralized exchanges are still largely used today, which proves that people move on over time and the effects of such hacks or exploits are only temporary and not permanent.

[Danish Ali]

will the impact be such that people will avoid hardware wallets forever?

Unlikely. Mt. Gox has already removed 850,000 BTC and there are still plenty of exchanges with users. People have short memories and hardware wallets as whole are not going anywhere.

many decided it was safer to move to a CEX instead.

Changing from a software risk to a third party risk is not an upgrade. FTX users had the same idea.

What would it take for people to trust doing self-custody of their BTC again?

Clear outside checks and open code software would be a good start. This is what SeedSigner already offered, the funny part is that perhaps now people will listen.

[macson]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how would this affect the self-custodial industry? I mean, will the impact be such that people will avoid hardware wallets forever?
-.-

My question is, do all self-custody wallets have this problem? Because in this case, Coldcard actually has security issues like this, while other self-custody wallets don't have this problem. Well, I don't deny that some people panic easily and immediately choose to store their assets on exchanges and ETFs, but they're just handing their assets over to the lion's den --- which only makes them more vulnerable because they're trusting a third party to manage their assets.

[Stalker22]

My question is, do all self-custody wallets have this problem?
~

No. But the real question on everyones mind is: could other self-custody wallets have this kind of flaw hidden in their code right now.  Or in the future?

Most of us here get that this was a specific, isolated incident and that there are ways to prevent such attacks.  But the everyday user does not care about the technical details.  They just see thousands of people losing their assets and millions of dollars vanishing into thin air, and they are naturally scared to death that its going to happen to them as well.

[Alphakilo]

Now that the Coldcard incident has caused millions in BTC losses, I am beginning to wonder how would this affect the self-custodial industry? I mean, will the impact be such that people will avoid hardware wallets forever?
-.-

My question is, do all self-custody wallets have this problem? Because in this case, Coldcard actually has security issues like this, while other self-custody wallets don't have this problem. Well, I don't deny that some people panic easily and immediately choose to store their assets on exchanges and ETFs, but they're just handing their assets over to the lion's den --- which only makes them more vulnerable because they're trusting a third party to manage their assets.

This coldcard incident is just one of the lessons that we have learned over the years and that is anything can happen even while being extra security conscious as long as it concerns Bitcoin holdings and investment.  Who's to say that such an incident can't happen to those running to ETF or CEX for safety. It's just one of those things that makes the network grow stronger and self custodians seek out better ways like using multi sig or dice rolls or coin flip mechanics or vaults to secure their asset.

In my opinion, self custody is getting more matured and shows that even trusting devices to hold your asset isn't as secure as you think. You just got to know that and know peace and be rest assured to find a better means to be ahead and secured.