Security Experts Warn Against Discounted Hardware Wallets Amid Rise in Sophisticated Scam Tactics

A crypto investor has reportedly lost nearly $7 million in digital assets after purchasing a discounted cold wallet through Douyin, the Chinese version of TikTok. According to blockchain security firm SlowMist, the device was compromised at the time of creation, leading to a complete loss of funds within hours of transferring assets to the wallet.

The incident highlights the growing sophistication of crypto-related scams and serves as a stark reminder of the risks of purchasing security hardware from unauthorized vendors.

Private Key Compromised at Creation

In a post on X (formerly Twitter) on Saturday, SlowMist said the user’s wallet had been preloaded with a compromised private key. As a result, all the crypto assets transferred into the wallet were drained in just a few hours after activation.

“The private key was compromised at creation,” SlowMist confirmed. “Funds were drained within hours.”

🚨 Last night, We received an emergency report: a user lost $6.5M worth of crypto from a cold wallet.

The wallet was bought via Douyin (TikTok China), but the private key was compromised at creation — and funds were drained within hours.

⚠️ Cold wallet ≠ Safe

Avoid “Factory… https://t.co/YDV4EgxD3a

— SlowMist (@SlowMist_Team) June 14, 2025

The cold wallet was reportedly purchased via the Douyin Shop, an e-commerce platform that allows third-party sellers to market and ship products directly to consumers.

Close Call From a Chilling Phone Call

An X user named Hella, a former team member of Bitcoin mining pioneer Jihan Wu, said the victim was a close friend who called him late at night in a panic — a call he described as “giving me chills.”

Hella said the wallet was a “carefully designed hot trap” and that the stolen funds were quickly routed through Huiwang, a platform associated with the Huione Group, a Cambodian conglomerate accused of operating illicit crypto-related businesses, including:

• Huione Pay PLC – a payment service provider

• Huione Crypto – an unregulated crypto exchange

• Haowang Guarantee – a known darknet marketplace

“When buying a cold wallet, you must choose a reliable channel,” Hella emphasized. “Most of the ones online are fake.”

Stolen Funds Traced But Unrecoverable

While SlowMist was able to track the stolen funds, both SlowMist and Hella acknowledged that the likelihood of recovery is extremely low, as the funds were quickly laundered through offshore networks.

SlowMist Chief InfoSec Officer Speaks Out

23pds, SlowMist’s Chief Information Security Officer, also commented on the incident, warning users against cutting corners on security for the sake of price.

“Don’t gamble your entire fortune on a wallet that’s a few hundred bucks cheaper,” he wrote in a translated post. “That’s not saving money — it’s throwing your life away.”

He added that such scams are difficult to prevent because third-party sellers often don’t realize they’re participating in fraudulent schemes. Pre-compromised devices can be manipulated at multiple points along the supply chain, including during packaging or shipping.

Preloaded Malware on Devices Is a Growing Threat

The incident is part of a larger trend of hardware and software-based attacks on crypto users:

• On May 19, a Chinese printer manufacturer was accused of distributing malware alongside its official driver downloads, which resulted in more than $953,000 in Bitcoin theft.

• On April 1, cybersecurity firm Kaspersky revealed that thousands of counterfeit Android smartphones were being sold with preinstalled malware designed to steal crypto wallets and personal data.

These developments show how attack vectors have expanded from phishing and email scams to hardware and firmware-level compromises, which are harder to detect and mitigate.

The Illusion of “Factory Sealed”

According to SlowMist, wallets sold as “factory sealed” or “discounted” on e-commerce platforms often turn out to be tampered with or counterfeit. These devices are priced attractively to lure in buyers who may not be aware of the security risks.

“A bargain price is often a red flag, especially in the world of hardware wallets,” 23pds noted.

He emphasized that official channels, such as direct purchases from wallet manufacturers or authorized resellers, remain the safest options for cold storage.

Takeaways for Crypto Investors

Security experts are urging all crypto users to follow best practices when it comes to hardware wallet usage, including:

• Buy only from verified, official sources

• Reset the device upon receiving it and generate a new seed phrase

• Avoid using pre-written recovery phrases or QR codes included in packaging

• Verify firmware authenticity directly from the wallet manufacturer’s website

“It’s tempting to save money on hardware, but when that device is protecting a million-dollar portfolio, the risks simply aren’t worth it,” one cybersecurity expert told Cointelegraph.

Conclusion

The loss of $6.9 million due to a compromised cold wallet purchased via Douyin underscores the urgent need for caution when dealing with crypto hardware. As attacks become more sophisticated and hardware-based, users must treat security as a non-negotiable priority — not a place to cut costs.

With preloaded malware, counterfeit devices, and elaborate laundering networks now part of the crypto threat landscape, experts say the best defense is education, vigilance, and secure sourcing of wallet infrastructure. For crypto holders, a few hundred dollars saved could come at the cost of an entire life’s savings.