After the Coldcard Hack, Can Victims Sue? Crypto’s Own Lawyers See an Uphill Battle

The theft of more than $100 million in bitcoin from Coldcard hardware wallets has already reopened the debate over self-custody. On the latest DEX in the City, three crypto general counsels took up the question that comes next: if you did everything right and still lost your coins, can you sue anyone? Their answer, in short, was maybe, but the law isn’t built for it.

The exploit traces to a 2021 Coldcard firmware flaw that generated wallet seed phrases with too little randomness, letting attackers reconstruct the keys and drain funds. On-chain analysis from Galaxy Research first identified 1,367 BTC drained from 4,585 addresses across a series of coordinated waves, a tally that kept climbing past $100 million as new attacks surfaced. What makes the episode a legal puzzle, the hosts argued, is that the victims took every precaution the industry preaches.

Vy Le, general counsel of Veda, said the hardest part was that the victims believed they had eliminated a major risk of holding their own crypto, and still lost their Bitcoin. The lesson, she argued, is that owning your own keys never actually erased the need to trust someone.

Self-custody, Le said, “doesn’t completely eliminate trust.” Owners no longer trust a centralized custodian but the device’s makers, she said on the show: “You’re trusting the engineers who designed the hardware and the firmware that generated your keys. You’re trusting the people who reviewed the code, the auditors.”

That reframing is what pushes the incident from a security story into a legal one. “What duty does a hardware wallet manufacturer owe to its users?” Le asked on the show, running through the possible theories: negligence, product liability, consumer protection law, breach of warranty.

The instinctive claim, the hosts agreed, is product liability, the body of law that covers goods that are defectively designed, manufactured, or sold without adequate warnings. The problem is that a hardware wallet’s failure lives in its code, not its casing, the kind of weakness that has surfaced in other devices before without producing a clear legal remedy.

“There’s no precedent kind of addressing how this works in cryptography,” Katherine Kirkpatrick Bos, a co-host and longtime crypto general counsel, said on the show. Software, she noted, has never fit the mold cleanly: “Courts have not consistently treated software bugs as product defects. They’re not treated the same as physical defects. So it’s actually an uphill battle to even sue on the basis of product’s liability,” even though, she said, suing on that theory would be the natural instinct for any litigator representing a victim.

Jessi Brooks, general counsel and chief compliance officer at Ribbit Capital, raised the harder version of the problem for the parts of crypto with no company behind them at all. For decentralized projects, Brooks said on the show, product liability “might be the best way to address” the flaw, but “finding the entity that can pay the victim, assuming the whole case goes through, is difficult.”

Le argued that the stakes go beyond one manufacturer. Crypto has long run on a “caveat emptor,” buyer-beware ethic, she said on the show, tolerable when the users were a handful of “degens” who accepted the risk, less so now. “If crypto wants to grow up, then there does need to be that accountability,” Kirkpatrick Bos said on the podcast.

Le said she now hopes the episode ends up in court, not out of any love of litigation but because it may be the only forcing function. “I do hope that there is litigation,” she said on the show. “I hate to say it, but I think we are at the point now where” litigation may be “the only way to force” things to improve.

For its part, Coinkite, the Canadian company that makes Coldcard, has publicly accepted blame for the flaw. It has released patched firmware for every model, halted shipments of units built with the vulnerable software, and emailed affected customers, though the fix protects only newly generated seeds, not those already created on the buggy firmware. Chief executive Rodolfo Novak has publicly apologized and said Coinkite accepts full responsibility, and the company has urged anyone who generated a seed on an affected Coldcard to move their funds immediately.

Whether that accountability ever becomes a legal one is the open question the hosts left hanging. The law in this area, Le said on the show, “is going to develop a lot in the next few years.” For now, the panel’s takeaway was less a verdict than a warning: self-custody remains a right worth protecting, but it was never the same thing as trusting no one.

Related Listen: DEX in the City: Why the Supreme Court’s FTC Ruling Could Rewire Crypto Regulation

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