Cold Storage of Bitcoins in 2026: Why Hardware Wallets No Longer Seem Invulnerable

Cold storage of bitcoins has long been considered the safest option for those who do not want to keep cryptocurrency on exchanges or in hot wallets. However, a series of incidents involving Coldcard, SafePal, and Trezor has shown that even a hardware cryptocurrency wallet does not free the owner from all risks, and firmware errors, personal data leaks, and phishing can lead to losses or put users at risk.

What is a Cold Wallet and How Does it Differ from a Hot Wallet

A cold wallet is a way to store private keys and seed phrases without a constant internet connection. Its essence lies in isolation: the less frequently the keys come into contact with the online environment, the lower the chances that they will be intercepted by malware, phishing sites, or hacked services.

A hot wallet, on the other hand, operates in an environment that regularly connects to the internet: this can be a mobile app, a browser extension, or a program on a computer. It is more convenient for frequent transfers and quick operations, but it usually relies more on the security of the device, the internet, and the application itself.

Types of Cold Wallets

• Hardware wallets: separate devices for generating and storing keys offline. This type includes Coldcard, Trezor, Ledger, and SafePal.
• Paper wallets: the private key or seed phrase is written on paper. This option is simple but easily damaged by water, fire, theft, or ordinary loss.
• Metal storage: the seed phrase is transferred to a metal plate to protect the backup from fire, moisture, and mechanical damage.
• Offline computer: keys are created and stored on a device that is not used for regular internet work.

A cold wallet operates on a simple principle: the private key is created and remains outside of constant online access, while only the signed transaction is sent out. The network sees the correct signature, but the key itself should not leave the protected environment.

How to Create and Choose a Cold Bitcoin Wallet

For the hardware option, the basic scenario looks like this: buy a device from the manufacturer or a reliable seller, check the packaging and firmware, create a new seed phrase yourself, write it down offline, make a test transfer of a small amount, and only then transfer the main funds. If using a paper wallet or offline computer, keys should be created on a device without regular internet access and the seed phrase should not be transferred to clouds, messengers, or notes on the phone.

• Buy a new device and avoid wallets with an already created seed phrase.
• Create the seed phrase yourself, rather than importing it from a dubious source.
• Write down the backup on paper or metal, but do not photograph it or store it in the cloud.
• Check the recipient's address on the device screen before confirming the transfer.
• Update the firmware and pay attention to the manufacturer's messages about security risks.

There is no single best cold wallet for everyone: the choice depends on the amount, experience, ease of recovery, and trust in the manufacturer. Coldcard is often chosen for strict cold storage, but the history with Mk2 and Mk3 shows why fresh firmware and secure seed phrase generation are important. Trezor emphasizes its own key generation and warns about the risks of imported phrases. Ledger uses Secure Element and True Random Number Generator, but like any hardware wallet, it requires careful backup. SafePal remains a popular device, but its case serves as a reminder that the owner's personal data also needs protection.

When selecting a reliable cold wallet, it's important to look beyond just the brand. Factors such as the manufacturer's reputation, the quality of the random number generator, support for updates, clear recovery options, protection of the seed phrase, ease of address verification, and purchasing through a secure channel are crucial.

• Common mistake: storing the seed phrase in photos, screenshots, cloud storage, or email.
• Common mistake: entering the seed phrase on a website posing as support service.
• Common mistake: not performing a test transaction before a large transfer.
• Common mistake: delaying firmware updates for years.
• Common mistake: keeping the device and backup in one location without physical protection.

Coldcard: An Old Vulnerability Led to the Loss of Thousands of Bitcoins

The first to suffer a significant blow was Coldcard, the hardware wallet from the Canadian company Coinkite. On the very first day, device owners lost 1,082.65 BTC, which at that time exceeded $70.2 million. The total damage, by various estimates, ranged from 1,778.84 to 2,417.35 BTC, or approximately $115-153 million.

The weak point was in the generation of the seed phrase. In a normal scheme, it should be created randomly, making it practically impossible to guess the private key. However, due to a firmware error, some phrases became susceptible to brute force attacks. The entropy, which should have remained at 128 bits, dropped to 72 bits for some devices and to 40 bits for others.

The issue lay in the entropy source. Instead of a hardware generator, a software approach was used, which included typical data, including time values. For a public key cryptosystem, such an error is critical: if the private key becomes more predictable, the entire protection structure loses its stability.

The most troubling aspect of this story is the age of the vulnerability. It appeared back in 2021, meaning it existed for about five years. Theoretically, attackers could have exploited it long ago, but real attacks only unfolded now. The older models of Coldcard, primarily Mk2 and Mk3, were hit hardest.

Why is entropy so important? 128 bits can be represented as an almost unattainable volume of combinations: if each star in the observable universe is considered one combination, hundreds of trillions of such universes would be needed to exhaust the required number. Losing even a few dozen bits drastically reduces the search space and makes an attack much more feasible.

Coinkite released a fixed firmware. Users whose devices might be at risk were advised to create a new seed phrase, verify the new wallet with a test transaction, and transfer any remaining funds there. Formally, the problem concerned Coldcard, but the reputational blow affected the entire segment of hardware wallets.

What Trezor and Ledger Responded

After the incident with Coldcard, the two largest market players, Trezor and Ledger, quickly clarified their positions. Both companies stated that their devices were not affected by this vulnerability, but their approaches differ in detail.

Trezor emphasized that if a wallet was initially created on the vulnerable Coldcard and then its backup was imported or restored on a Trezor device, the assets could still be at risk. In other words, the problem transfers along with the seed phrase if it was generated in an unsafe manner.

At the same time, Trezor stated that its own key generation is secure. The older models Safe 3 and Safe 5 use randomness through the Optiga Secure Element chip, while the newer Safe 7 uses the TROPIC01 chip. In both cases, the claimed entropy length is 128 bits.

Ledger's CTO Charles Guillaume also dismissed the risk for the company's devices. According to him, Ledger solutions use a True Random Number Generator, and the Secure Element chip provides 256 bits of entropy for each 24-word seed phrase. For owners, this means that backup should start with a securely created phrase, not with importing from a questionable source.

SafePal: Customer Data Leaked, Not Keys

Another high-profile incident is linked to SafePal. From March last year to April this year, data from nearly 40,000 customers of the company was leaked online. Seed phrases, private keys, and the digital assets themselves were not included in the leak, but this does not make the incident harmless.

The attackers obtained names, physical addresses, and contact details of users. For cryptocurrency owners, such information is dangerous in itself: they can be targeted online with phishing emails, fake notifications, malicious software, or attempts to extract an authorization token from their account. In the worst case, personal data can lead to offline threats.

The cause was presumably a plugin for tracking orders. Through it, the attackers gained access to customer information. SafePal has resolved the issue, strengthened security, and changed data storage policies: now information in the processing system will only be retained for 90 days. Additionally, the company removed 30 websites and phishing links related to the incident.

Trezor Faced a Similar Leak Through a Partner

Later, Trezor encountered a similar problem. In this case, the weak link was not the wallet manufacturer itself, but the logistics partner ShipMonk. After the breach, data from approximately 14,000 Trezor customers was compromised either fully or partially.

The wallets did not automatically become unsafe: private keys are not stored by the logistics operator. However, attackers may have obtained names, residential addresses, email addresses, phone numbers, and other personal information. Such a set opens the door to targeted phishing, psychological pressure, and attempts to convince a person to disclose their seed phrase.

An important detail: the three stories — Coldcard, SafePal, and Trezor — became public almost simultaneously. Therefore, many users perceived them as a common crisis for hardware wallets, although technically they involve different types of risk.

The Wallet Does Not Store Coins: Where the Real Risk Lies

To assess such incidents soberly, one must remember a basic principle. A cryptocurrency wallet is not a safe where Bitcoin or another cryptocurrency physically resides. Assets exist on the blockchain, and access to them is granted by a private key. The wallet merely helps the user securely work with this key and sign transactions.

Any transaction on the network revolves around a signature: the user confirms the action with the private key, and the network verifies its correctness. Therefore, losing the seed phrase, its compromise, or unsuccessful backup effectively means losing control over the assets.

There are several ways to store a seed phrase, each with its strengths and weaknesses.

• Paper: simple and requires no technology, but it can be easily lost, burned, or damaged by water.
• Memory: leaves no physical copy, but seems reliable only in theory — a person may forget the phrase or mix up the order of words.
• Metal plate: better withstands fire, moisture, and damage; such solutions are offered by both major brands like Ledger with Billfodl and lesser-known manufacturers. The downside is that the plate must also be securely hidden.
• Digital copy: convenient for quick access, but a file on a computer, USB flash drive, or in the cloud can fall into the hands of attackers.

The main rule of cold storage is simple: the seed phrase must be created securely, recorded without digital copies, and stored so that it cannot be seen by outsiders or destroyed by water, fire, or accidental loss.

Hot wallets, mobile applications, Bluetooth connections, QR code logins, or authentication in personal accounts add convenience but expand the attack surface. Malicious software can substitute addresses, intercept data, or show the user a fake confirmation screen.

Why Some Users Are Returning to Exchanges

Amid the problems with Coldcard, the number of transactions on the Bitcoin network has increased. Ironically, some owners have sent their funds back to centralized exchanges, thus abandoning non-custodial storage in favor of custodial. Instead of maintaining control over their keys, they have once again entrusted their assets to trading platforms.

This choice is psychologically understandable: exchanges relieve users of some technical responsibility. However, it does not eliminate risks. The history of the market has painful examples, and modern platforms, including Binance and other major CEXs, still require trust in their infrastructure, security procedures, and internal rules for storing funds.

Therefore, the opposition of hardware wallet vs. exchange oversimplifies the picture.

• Advantage of exchanges: they are more convenient for trading, quick transfers, and account recovery.
• Disadvantage of exchanges: users are once again dependent on a third party, its infrastructure, rules, and quality of protection.
• Advantage of cold wallets: private keys remain under the owner's control and do not need to be constantly online.
• Disadvantage of cold wallets: they require discipline, careful storage of the seed phrase, updates, and protection against human errors.

In both cases, the weak link can be not only the technology but also the person.

Artificial Intelligence Changes the Rules of Attack and Defense

A separate issue is the development of artificial intelligence. The vulnerability in Coldcard existed for years, but it was only in 2026 that attackers were able to exploit it in a real attack. This was noted by Ledger's Chief Human Resources Officer, Ian Rogers: in his assessment, the issue is not only with hardware wallets but also that tools for finding vulnerabilities have become much more powerful.

Artificial intelligence works both ways. Developers have faster ways to analyze code, test firmware, and find bugs. But hacker attacks are also becoming more effective: fraudsters quickly identify patterns, automate brute-force attempts, prepare convincing phishing scenarios, and scale attacks on users.

That is why a hardware wallet in 2026 should not be perceived as a magical item that solves all security issues. It is a powerful tool, but it requires updates, proper generation of the seed phrase, careful backup, and an understanding of where the device's protection ends and the owner's responsibility begins.

Conclusion: Cold Storage Is Not Dead, But It Has Become More Demanding

Incidents with Coldcard and SafePal should be viewed as separate cases, not as proof of the complete failure of hardware wallets. Manufacturers use different chips, different random number generators, and different approaches to protection. The failure of one solution does not mean that the entire class of devices is equally vulnerable.

At the same time, the events that occurred cannot be ignored. Cold storage of bitcoins remains one of the most reliable options for most users, but only with proper setup and careful attention to the seed phrase, updates, personal data, and communication channels. In 2026, security is increasingly resembling a continuous practice rather than a one-time purchase of a device.