Security chips are no longer invulnerable, nor can they prevent physical tampering and the insertion of spy modules in delivery boxes.

Written by: Ma He, Foresight News

In the dark forest of the crypto world, on-chain hacking attacks are frequent, and now malicious entities have precisely shifted the attack vector to the physical supply chain section of hardware wallets.

On October 9, hardware wallet manufacturer Ledger issued a statement saying that it is investigating reports of financial losses by users in Southeast Asia who purchased devices through the distributor CryptoBilis. The company asked the distributor to suspend all sales and shipments, and suggested that users who purchased devices through this channel in the past 90 days should not power on the device if it has not been initialized; if the setup has been completed, they should consider transferring assets to a new device using brand new mnemonic phrases. Ledger also clarified that its own security infrastructure, systems, and services are unaffected, and no loss reports have been made for devices purchased directly from the official website.

On the same day, on-chain analyst Specter tracked multiple theft addresses and estimated that hundreds of wallets involved with Bitcoin, Ethereum, and TRON networks suffered losses exceeding $86 million. The highest-valued assets included ETH (approximately $42.15 million), TRX (approximately $2.25 million), BTC (approximately $1.756 million), and stablecoins USDD (approximately $1.852 million) and USDT (approximately $1.65 million). Subsequent on-chain statistics from Bitquery updated the figure to approximately $92.9 million. Tether has frozen some USDT addresses associated with the matter. Ledger has not yet confirmed the total amount of losses and the specific causes, and the investigation is still ongoing.

The event itself did not show that Ledger's firmware or core security components were directly compromised. However, community discussions quickly shifted from "whether the device was hacked" to a sharper question: CryptoBilis is an authorized distributor listed on Ledger's official website. According to the official long-term recommendation to "prioritize purchases from authorized channels," users became the main affected group.

This fact calls into question the trust anchor of "authorization" itself.

Who Will Foot the Bill for the Expensive Tuition?

Facing asset losses of nearly $90 million, the core issue most concerning the victims pointed straight to the point: Does Ledger have a compensation fund? Will the giant compensate? How will compensation work?

The answer may be extremely harsh: under the existing legal framework and commercial terms, ordinary retail investors may not receive a dime of proactive compensation from Ledger.

Some users mistakenly believe that security giants have a safety net, but Ledger's risk control mechanism has a significant commercial bias: Ledger's service for enterprises and institutional custody, "Ledger Enterprise," indeed has access to a criminal insurance pool insured by syndicates like Lloyd's of London, covering up to $150 million;

however, for consumer services, its compensation terms are harshly restrictive: the previously launched controversial paid service Ledger Recover, although it provides a maximum compensation limit of $50,000 through Coincover, has an extremely narrow scope of application. This service is only applicable to users who have subscribed to Recover and have verified their identity, and encounter recovery failures due to service issues; it does not cover common loss scenarios such as phishing, mnemonic phrase leakage, device tampering, or supply chain issues.

Moreover, for retail hardware like Nano or Stax purchased by ordinary users from the market, Ledger has never set up any form of user asset protection fund (SAFU) or third-party insurance. In Ledger's standard user agreement, there are written disclaimers regarding "indirect losses, actions of third-party dealers, and private key leakage caused by non-device firmware reasons." In the precedent of the 2020 leak of Ledger’s official e-commerce database, which resulted in hundreds of thousands of users facing targeted phishing intimidations, Ledger also firmly refused to compensate.

Furthermore, in the "Ledger General Terms and Conditions of Sale," the agreement explicitly states that it will not bear any compensation responsibility for unlawful conduct or fraud by any third party, and repeatedly declares in various supplementary agreements that asset and data losses caused by third-party actions are unrelated to the official.

What does official authorization mean? In Ledger's legal context, "authorization" only means allowing agents to sell goods; it does not mean the official must bear the costs of commercial fraud behind it.

For the victims of this incident, suing Ledger presents considerable legal and practical obstacles, and the probability of winning and obtaining compensation is not high. A more realistic path is: to first complete asset transfers and evidence preservation, report to the police, while retaining the right to claim through official channels and monitoring the progress of the subsequent investigation.

The real question is: how could a formally authorized overseas distributor transfer 100% of its ownership to a foreign individual without triggering Ledger's re-audit, inventory spot checks, or any supplementary due diligence mechanisms during that period?

Facts prove that "official authorization" does not mean it includes a dynamic risk control mechanism with ongoing monitoring but is rather a one-time qualification endorsement.

When the authorized defense line collapses, victims ultimately fall into a vacuum where their rights have no recourse, being forced to foot the bill for the "negligence" of the centralized giant's risk control system.

Physical "Poisoning"

After the Ledger incident occurred, the discussion focus in the Twitter community was not merely on the magnitude of the loss, but on the credibility of the purchasing path. Many users pointed out that they chose CryptoBilis precisely by following the conventional advice of "purchasing products from authorized distributors." When this channel was pointed to as a risk source, the actual guarantee effect of the "authorization" mark was challenged.

Quickly, a user with the handle exsiway discovered through investigation that there is a store called Cryptobilis in Malaysia that sells hardware wallets. Ledger has listed it as an official authorized distributor in Malaysia, Indonesia, and the Philippines since at least 2022.

This entity initially had official backing, with a compliant business record showing no anomalies.

In the first half of 2026, this distributor underwent a hidden change in its ultimate controller with a merger and acquisition settlement. The transaction was accompanied by a confidentiality agreement: they could not inform anyone about the sale until October 19. As of August, the company registration showed only one owner who held 100% ownership, and this identity was from Heilongjiang, China.

This gap in the equity change provided operational space for physical poisoning at the supply chain level.

Existing evidence points more towards localized supply chain problems rather than systemic vulnerabilities at the product level of Ledger. Zhao Changpeng publicly stated that current information indicates that the incident is limited to a supply chain attack from a single supplier, and only a few individuals may have purchased tampered or counterfeit devices.

There are also those who analyze specific techniques, including hardware implantation.

Former Mt. Gox CEO Mark Karpelès publicly shared photos of the disassembled devices he purchased from channels in Malaysia, showing that a cellular network SIM card module was implanted in the wallet hardware for transmitting data externally, and pointed out that such modifications can still pass authenticity verification when the security component is intact.

Even authorized channels cannot exempt themselves from additional trust regarding the physical supply chain.

Ledger's own security model document has long stated that authenticity verification can verify the origin of the security chip but cannot detect some unauthorized physical modifications while the security component remains intact. This statement has been repeatedly cited by the community after the incident to illustrate that the security boundary of hardware wallets is not solely determined by chip strength; the circulation link after leaving the factory also constitutes a risk exposure.

Authorized Due Diligence

More attention is given to the continuity of the authorization process than to the geographical attributes of equity changes.

Public company records show that CryptoBilis was acquired in March 2026, and the original shareholders subsequently exited all operational, management, and administrative positions. Since August 3, a person named Jiaming, registered at an address in Heilongjiang, China, has held 100% of the company's shares. The former co-founders confirmed that after the handover, the founding team no longer had insight into the company's actual operational status and only assisted with coordination of certain activities, subject to related agreements. The former team emphasized that they are no longer part of the company and urged the current management team to handle relevant matters transparently.

At the time of the incident, CryptoBilis was listed on Ledger's official distributor list.

After the incident, doubts emerged. When an authorized distributor undergoes a significant equity change, does this trigger a re-evaluation or supplementary due diligence? Are there regular inventory checks, unboxing verifications, or supply chain record requirements? Is the "authorization" a one-time qualification recognition, or does it include continuous monitoring mechanisms?

Currently, publicly available information does not indicate that Ledger initiated any additional review immediately after the equity change. Some discussions suggest that if ownership can be transferred under a confidentiality agreement while the authorized status remains valid, the risk warning function of the authorized list to end-users needs to be reassessed.

CryptoBilis has suspended the sale of relevant market hardware wallets and closed offline stores.

Direct Purchase from Official Website and Evidence Preservation during Unboxing

The design goal of cold wallets is to isolate the custody of private keys from the online environment, thus eliminating the need for trust in exchanges or custodians. However, the integrity of the device itself still relies on the physical distribution link from the factory to the user's hand. Once this link encounters problems, even if the security component is not subjected to software attacks, the mnemonic phrase may still be captured during the generation or display phase.

Users still have to and must trust an extremely fragile logistics and sales chain. Security chips may no longer be invulnerable, nor can they prevent physical tampering and the implantation of spy modules in delivery boxes. This is the current unresolvable pitfall of the Web3 infrastructure; as long as the trust nodes in the physical circulation link are not eliminated, the crypto world will never escape this dark forest.

On-chain data supports the judgment that "attackers had prior access to mnemonic phrases." Multiple wallets signed the same type of transaction within a very short time, and there were weeks of testing behavior before the attack, all indicating that a single entity held multiple sets of keys, rather than users being phished in real-time during use.

This model aligns with supply chain intervention methods such as pre-set mnemonic phrases, implantation of reading modules after the device is opened, or replacement during the packaging phase, but the specific path has not yet been officially confirmed.

As a result, some users have begun to adjust their purchasing habits. Discussions have shifted from "purchasing from authorized distributors is acceptable" to "prefer direct purchases from the official website with evidence retention during unboxing, and generating the seed only on the device screen." For users who already own devices, they use a newly generated mnemonic phrase when transferring assets and avoid using any pre-written cards included in the box. Some high-net-worth holders have also mentioned multi-signature solutions or air-gapped environments as supplementary measures to reduce reliance on a single device.