Compromised Hot Wallet? A Canadian Step-by-Step Incident Response Plan for Bitcoin Users

Discovering that a hot wallet has been compromised is stressful. Whether you are a beginner who uses a mobile wallet for everyday spending or an experienced hodler who occasionally keeps funds online, a fast, methodical response can save value and preserve evidence. This guide gives Canadian and international Bitcoin users a clear, prioritized incident response playbook: containment, recovery, reporting, and future hardening. The steps are practical and actionable, with Canadian context such as banking and reporting channels, but remain broadly useful for any Bitcoin user.

Why an immediate plan matters

A hot wallet compromise often leads to rapid fund movement. Attackers may empty addresses within minutes. Acting quickly reduces losses, preserves information for investigative follow up, and lowers the chance of further account takeover through linked services like exchanges or email. This guide focuses on containment and recovery while helping you maintain legal and evidentiary best practices in Canada and elsewhere.

Initial triage: Stay calm and gather facts

Before you start moving funds or contacting services, collect key details. A calm, fact-first approach keeps you from making mistakes that could complicate recovery.

  • What happened and when: Note timestamps for when you noticed suspicious activity.
  • Wallet type: Mobile app, browser extension, custodial exchange, or a desktop wallet.
  • Scope of compromise: Which wallet addresses, linked exchanges, email, or phone numbers may be affected.
  • Transaction evidence: Copy transaction IDs, recipient addresses, and screenshots of any alerts or messages.
  • Recent actions: Any recent installs, firmware updates, or password changes that may have introduced risk.

Immediate containment steps

Containment must be fast. The three goals are: stop further theft if possible, preserve evidence, and prevent attacker escalation into other accounts.

1. Freeze linked accounts and change passwords

If the compromised hot wallet is linked to an exchange, custodial service, email, or payment method, immediately sign in from a trusted device and change passwords. Enable two factor authentication using an authenticator app rather than SMS to avoid SIM swap attacks. Notify support teams at affected exchanges such as Bitbuy or Coinsquare if you are a Canadian user so they can monitor or freeze accounts on their end.

2. Disconnect the compromised device

If a mobile phone or computer is compromised, disconnect it from the internet and power. Do not factory reset or uninstall apps until you have collected forensic details such as logs and screenshots, unless instructed by law enforcement or a trusted security professional. Secure a clean device for recovery and communications.

3. Preserve evidence

Take screenshots of the wallet history, transaction IDs, emails, and any ransom demands. Record your steps in a log with timestamps. Evidence is critical for investigative authorities and for recovery conversations with exchanges and banks.

Recovery: Move funds safely to trusted cold storage

The primary recovery action is to move any remaining funds that you control to addresses that the attacker does not have access to. For most users that means sweeping funds into a hardware wallet or a newly created, uncompromised wallet that you control.

4. Create a new secure environment

  • Use a clean, updated device that you know is secure.
  • Install a reputable wallet or connect a hardware wallet. For Canadians, consider trustworthy vendors from verified retailers to avoid supply chain risks.
  • Generate a new seed phrase offline on a hardware wallet when possible. Do not type seeds into internet-connected devices.

5. Sweep funds, do not import compromised keys

Sweeping creates new transactions that send funds from compromised addresses to new addresses you control without reusing the vulnerable private keys. Importing private keys into a new wallet can expose them to the new environment. Use the wallet app's sweep function or construct a Partially Signed Bitcoin Transaction with a clean signing device. If you are unsure, choose a hardware wallet that has a sweep tool in its companion app.

6. Prioritize small test transactions when planning transfers

If any doubt exists about whether all keys are compromised or whether transactions will be broadcast correctly, move a small test amount first. Confirm the test transaction reaches the network and the funds land in your secure wallet before sweeping the rest.

Technical notes: Sweeping, PSBT, and replay risks

Understand a few technical differences to choose the safest approach.

  • Sweeping: Creates outputs that spend the entire UTXO to new addresses. Preferred when private keys are suspect.
  • Importing: Adds private keys to a new wallet. Avoid if the origin keys may be known to attackers.
  • PSBT: Partially Signed Bitcoin Transactions let you create unsigned transactions on an online machine and sign them on an offline device. Use PSBT if you need an extra layer of safety when sweeping from a compromised environment.
  • Replace-By-Fee and CPFP: If transactions are stuck, techniques such as Replace-By-Fee or Child-Pays-For-Parent help confirm important recovery transactions. Work with a wallet that supports these features.

Reporting and legal steps in Canada

Reporting a compromise helps authorities and could be required in certain circumstances. Keep records for tax and police follow up.

  • Local police: File a report with your municipal police. Provide transaction IDs and evidence collected. A police file is useful for banks and exchanges when freezing related accounts.
  • Canadian Anti-Fraud Centre: Report the incident to federal anti-fraud bodies to help track trends and provide support.
  • Exchanges and banks: Contact any financial institutions that may be impacted. If you dealt with Interac e-transfer or your bank account was used, inform the bank immediately. Banks may be able to reverse some fiat transactions while cryptocurrency on-chain transfers are irreversible.
  • FINTRAC and compliance: If you are a business or operate a reporting entity, you may have obligations to report suspicious transactions to FINTRAC. Seek legal or compliance advice promptly.

When to involve professionals

If the stolen amount is large or the attack involves extortion, ransomware, or complex credential theft, involve professionals:

  • Forensic security firms that specialize in cryptocurrency incidents.
  • Legal counsel experienced in cybercrime and digital asset disputes.
  • Trusted exchanges with compliance teams who can monitor on-chain flows and freeze accounts that attempt to cash out.

Do nots: What to avoid during an incident

  • Do not negotiate or send more funds to attackers. Paying a ransom rarely guarantees recovery.
  • Avoid using the compromised device to create new wallets or sign transactions.
  • Do not expose your seed phrase to anyone, even if they claim to be law enforcement or exchange staff. Verify official channels and contact them independently.
  • Do not publicly post your transaction details or private evidence on social media in a way that could compromise privacy or ongoing investigations.

Hardening your setup after recovery

After you sweep funds and report the incident, take time to strengthen your overall security posture so the same attack is less likely to repeat.

  • Adopt cold storage for long term holdings. Hardware wallets and multisig setups reduce single point of failure risk.
  • Use watch-only wallets to monitor addresses without exposing keys on online devices.
  • Harden email and exchange accounts with unique passwords and authenticator apps. Avoid SMS based 2FA.
  • Keep a documented backup and recovery plan that includes metal seed backups, geographic separation, and tested recovery rehearsals.
  • Educate family members and staff about phishing, social engineering, and Interac e-transfer scams that can lead to account compromise.

A short Canadian checklist to keep handy

  • Immediate: Collect evidence, disconnect compromised device, notify exchanges and bank.
  • Short term: Create clean device, generate a new seed on a hardware wallet, sweep remaining funds via PSBT or sweep function.
  • Report: File police report, notify Canadian Anti-Fraud Centre, alert exchanges, and consult legal counsel for business accounts.
  • Long term: Move holdings to cold storage, adopt multisig where appropriate, and rehearse a disaster recovery plan.

Practical security is about layered defenses. Hot wallets are convenient. Cold storage, careful procedures, and a practiced incident response plan give you the best chance to protect your Bitcoin.

Conclusion

A hot wallet compromise is a serious event but it does not always mean total loss. Rapid, methodical action focusing on containment, secure sweeping to cold storage, and proper reporting can limit damage and preserve options. For Canadian users, coordinate with banks and file reports with local police and anti-fraud bodies. Above all, treat this as an opportunity to upgrade security practices. Building layered custody, rehearsing recovery steps, and keeping calm will make you far more resilient the next time a security incident occurs.

If you want, I can provide a printable one page incident checklist tailored to your wallet type, or walk you step by step through sweeping funds from a specific wallet model. Tell me the wallet type and I will tailor the recovery flow.