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

[Nrcewker]

I think moving towards a centralised exchange isn’t the ideal solution. We all know that hacks and attacks can happen on centralised exchanges as well. On top of that we are also letting the government know about the coins we are holding.

At least for me this isn’t the kind of privacy I was looking for when I became interested in Bitcoin back in 2014–15. I know the Coldcard incident has shaken many Bitcoin holders but going to a CEX, IMO isn’t a good move.

We just need to be more careful with our hardware wallets. That’s all I can say for now.

[Silverstonez]

Those who are sending their Bitcoin to central exchanges are making a very big mistake, and the sooner they realize it, the better for them.  However, the coldcard wallet incident would definitely make people start doubting self custodial industry, which may effect the industry significantly. And there is no way the coldcard wallet incident would make people avoid hardware wallet forever, it is just that people will become more skeptical about hardware wallets.

[Abiky]

If you are scared and send your Bitcoin to CEX, is that a security improvement, hmm?
It just nothing but changes the type of risk.
In self custody, you have to manage your own risk. You have to ensure of your hardware/seed/backup's security.

But in CEX your risk will be on exchange failure, hack, withdrawal freeze, insolvency, account seizure or counterparty risk. If we talk about ETF, you do not control your private key of Bitcoin here. So I don't see any logic in centralizing entire custody model as a response to a vendor failure at Coldcard.

I know, it's stupid. But many people think CEXs are better because they're regulated entities. A scandal like this from a hardware wallet company, scares away noobs. There's a lot of FUD regarding the self-custody industry. Things like "self-custody is dead", and "Bitcoin got hacked" damage the industry's reputation.

Will people trust hardware wallets again? That's an excellent question. Hopefully, this will pass as we unveil a new chapter in crypto security. Only time will tell.

[Pakistani Shaheen]

Those who are sending their Bitcoin to central exchanges are making a very big mistake, and the sooner they realize it, the better for them.  However, the coldcard wallet incident would definitely make people start doubting self custodial industry, which may effect the industry significantly. And there is no way the coldcard wallet incident would make people avoid hardware wallet forever, it is just that people will become more skeptical about hardware wallets.

It is necessary to understand the disbelief of number of people following the Coldcard incident, but we won't have Bitcoin on a centralized exchange fixed. It is simply swapping risks and the trading risk has been much worse over time.
Coldcard issue will be resolved. They will do more research, ask for more transparency from the manufacturer and then they will move on. That has always been the case of the industry following each security incident.

[Dogedegen]

I think moving towards a centralised exchange isn’t the ideal solution. We all know that hacks and attacks can happen on centralised exchanges as well. On top of that we are also letting the government know about the coins we are holding.

At least for me this isn’t the kind of privacy I was looking for when I became interested in Bitcoin back in 2014–15. I know the Coldcard incident has shaken many Bitcoin holders but going to a CEX, IMO isn’t a good move.

We just need to be more careful with our hardware wallets. That’s all I can say for now.

It isn't the ideal solution but there is no solution that is meant for everyone. Many maximalists get these things wrong because they are behaving irrationally about this kind of topic. When we talk about custodial and non custodial solutions we already have to ask the question who is it for? There are many elderly people and there are even people in their 50s who can't even find out who they are following with their TikTok profile. This kind of person is not able to self custody and they should not even try! The chance that they will do something wrong directly or lose their money through some kind of hack or phishing scam is very very high. In comparison to that, using a very reliable and regulated CEX for them is extremely safe. Now this kind of setup is completely different for someone who is good with technology, for him or her the risks are the reverse. They have a higher chance of losing money through the CEX and they miss out on some of the core principles of Bitcoin that relate to self custody.

So while doing self custody is the best, it is not for everyone and we need to be careful who were recommend this stuff for. I think that most coldcard users of the wallet that was hacked are capable of doing most self custody solutions so they should not return to CEX use because of this incident.

[savetheFORUM]

I think moving towards a centralised exchange isn’t the ideal solution. We all know that hacks and attacks can happen on centralised exchanges as well. On top of that we are also letting the government know about the coins we are holding.

At least for me this isn’t the kind of privacy I was looking for when I became interested in Bitcoin back in 2014–15. I know the Coldcard incident has shaken many Bitcoin holders but going to a CEX, IMO isn’t a good move.

We just need to be more careful with our hardware wallets. That’s all I can say for now.

In a world where people are sharing their nude photos literally for 5 bucks, I do not think that privacy is as much cared about by the general public as you might imagine. I mean, of course not everyone does that, but we share our food, our thoughts, our vacations, our trips, our business; basically, everything about us is online. Billions of people, every single day, share everything about themselves.

So you can feel assured that privacy coins will not get any attention at all. CEX, for that matter, is not really that bad, because you are only trading, and if you only trade, then there is nothing to worry about because you do not have to keep your money in there. You could deposit to an exchange, trade, and withdraw all within 10 minutes. If you trust a place enough to be in there for 10 minutes, then you will be fine. Maybe one day something bad will happen, but if you keep holding all your money in a CEX, then you will lose it all. If you only get in and get out within 10 minutes, then there is a big chance that you will not have any money in there when the bad thing happens.

[Ziskinberg]

I think moving towards a centralised exchange isn’t the ideal solution. We all know that hacks and attacks can happen on centralised exchanges as well. On top of that we are also letting the government know about the coins we are holding.

At least for me this isn’t the kind of privacy I was looking for when I became interested in Bitcoin back in 2014–15. I know the Coldcard incident has shaken many Bitcoin holders but going to a CEX, IMO isn’t a good move.

We just need to be more careful with our hardware wallets. That’s all I can say for now.

Clearly it's not the ideal solution but it could be the quickest realization of these bitcoin holders. If self-custody isn't safe anymore, then they might end up risking their bitcoin to a centralized exchange again, most particularly those who are affected with the Coldcard exploit, or they might stop investing in bitcoin for a while until they are fully emotionally recovered.

However, we all know that the last incident was very hard and painful. But isn't the very reason of losing or frustration is to be more careful and cautious the next time you do it, so we should not get carried away with our emotions, shifting into CEX won't be the best solution after what happened to Coldcard.

[blockman]

I am starting to see questions of self custody in the social media influencers that I am following bringing this issue to their followers. They're now questioning if the supposed to be the bad and opposite choice of putting balance on the centralized exchanges and other custodial wallets is the better one these days. I'm not agreeing with them, although this is a big issue from coldcard. I still believe wholly that it's still best to choose the noncustodial type of keeping our coins and split it into several of them if you've got a lot to keep.

[Russlenat]

There are really some incidents that could happen inevitably, but I don't think one huge loss will ruined everything the good reputation of having a hardware wallet. If you are one good investor, and you have witnessed the past lapses and threats of trusting a CEX, then I don't think you will definitely leave the self-custody thing and risk your assets into trusting a centralized exchange.

We all know that CEX are even more risky to put our coins there, so why take the risk and regret after? I still believe this is just temporary, people may learned the hard way but will still trust hardware wallet over CEX.