Lloyd Fournier exposes Coldcard bug cutting key security
- CoinKite bypassed cryptographic standards, shrinking Coldcard key security from 256 bits down to roughly 20 bits.
- Attackers used LLMs to map vulnerable firmware and sweep 2,000 Bitcoin across 1,200 individual wallets.
- Block engineers matched search logs at a commercial data vendor to supply federal law enforcement with suspect records.
A toy algorithm wrote the epitaph for 2,000 Bitcoin.
Speaking on What Bitcoin Did, Frostsnap developers Lloyd Fournier and Nick Farrow revealed how manufacturer CoinKite bypassed standard cryptographic protocols on Coldcard Mark III devices. Coldcard routed randomness through "Yasmerang," a toy algorithm written in MicroPython, instead of pulling true entropy directly from the hardware chip. The shortcut reduced key security from 256 bits to roughly 20 bits, collapsing the search space to a few hundred million possibilities.
Thieves used LLM tools like Kimi K3 to map the code and automate sweeps across 1,200 wallets.
The technical breakdown explains the catastrophic balance drains that surfaced in August 2026. On Bitcoin And, Block engineering lead Clay Garrett disclosed that investigators traced the thief through a paid subscription at a commercial data vendor. The attacker queried target wallet addresses in a sequence that matched on-chain sweeps, prompting Block to hand subscriber records over to federal law enforcement.
When hardware teams first assembled on BTC Sessions on Aug 18, 2026, developers were already wrestling with the fallout. Zach Herbert of Foundation Devices reported that AI-generated bug submissions were flooding wallet makers, forcing teams to integrate automated AI audits into firmware release pipelines. SeedSigner creators urged mandatory physical dice rolls to guarantee user entropy, while Trezor and Blockstream engineers warned that added setup friction would drive retail users directly into custodial ETFs.
Fournier and Farrow argued that relying on a single piece of plastic creates an unacceptable single point of failure. Cryptographic solutions like Frostsnap mix randomness between a phone app and the signing chip during key generation, preventing either device from forging key material alone. Multi-vendor multi-signature setups similarly protected users, as keys spread across distinct hardware architectures remained immune to Coldcard's isolated firmware bug.
Blind trust in single-vendor hardware is officially dead.