SDE ep. 41: Bitcoin Self-Custody After ColdCard

In episode 41 of Separating Money and State, Matías Mathey returns to the program in emergency mode, days after the Coldcard incident, not as an analyst of the technical failure but as someone who was on the ground attending to scared people: calls, workshops, spaces, a free tutorial on setting up passphrases for eighteen wallets.

His framework for the crisis is urgent versus important: the urgent is not to lose funds ---even if that means temporarily going through an exchange, against the purist reflex of no-KYC--- and the important comes later, when there is time to think about hardware, multi-signature, inheritance. Regarding the underlying dilemma ---how much complexity is too much--- he brings the best material of the episode: the Argentine grandfather who hid dollars under the tiles and took the secret to the grave. The paranoia that destroys wealth was not invented by self-custody.

Matías proposes a concrete and difficult solution: cross-auditing among competitors ---Trezor reviewing Blockstream and vice versa--- with multiple approval processes like ISO standards, and admits in the same sentence why it doesn’t happen: egos and commercial interests.

The most relevant points:

• None of his close clients were affected; several had Coldcard MK4 with passphrase and made migrations or reinforced their configuration.
• Initially, it was believed that the problem was limited to devices with the 2021 firmware, but funds were also taken from MK4 devices.
• Jameson Lopp pointed out that most people will not audit the code of companies and end up trusting.
• According to Coldcard, the company ran its code through various artificial intelligence services and did not detect the vulnerability.
• The attacker is moving funds through a mixer, presumably Wasabi.
• A user identified as Krwed was pointed out on social media as the coordinator of the CoinJoin used, and he positions himself in favor of anti-censorship and non-confiscability.
• According to Matías, there was autonomy at Coldcard for developers to upload certain changes to the code without third-party review.
• About a month ago, a notary in Romania was hacked and property records were deleted; similar situations occurred in Poland, Greece, and Croatia.
• After the incident, record peaks of on-chain transactions were reached by users leaving Coldcard or changing configurations.
• Charles Guillemet from Ledger has pointed out that the cost and effort relationship of reviewing code changes completely when done by an automated agent instead of a human.
• There is a Bitcoin Red Team, with participation from the CEO of Anchor Watch and Calle from Cashu, that reviews code with artificial intelligence.
• According to Calle, that review has found about one critical vulnerability per person per hour in the analyzed projects.
• Matías tests multi-signature configurations, including four of ten schemes with hardware wallets.
• In the same week, Boltz suffered a sustained attack for several days and suspended services before funds were compromised.
• The fall of Boltz had repercussions on other services in the industry.
• Covenants would allow establishing spending conditions, such as restricting the sending of bitcoin only to predefined addresses, something that is currently not possible.