Electrum Wallet security vulnerability fixed, hackers have stolen bitcoins

Electrum has released version 4.8.3, which fixes a high-risk vulnerability in a Bitcoin wallet. Developers have confirmed that malicious servers have exploited this vulnerability to redirect users' payments, and at least one case of funds theft has occurred.

• After confirming that malicious servers were exploiting a high-risk vulnerability, Electrum released version 4.8.3.
• Attackers will replace pending Bitcoin payments with fraudulent transactions, and users may mistakenly assume that the transactions are legitimate and authorize them when they see increased transaction fees.
• Two users reported the relevant incident, and one of them lost Bitcoin due to an increase in transaction fees.
• This vulnerability affects all versions of Electrum prior to 4.8.3; the developer has not yet disclosed the total amount of losses.
• Security patches will verify the transaction signatures initiated by coins controlled by wallets that have not yet been confirmed.

According to a security announcement released by the wallet on October 24th, attackers exploited the way Electrum processes unconfirmed Bitcoin transactions to replace legitimate outgoing payments with fraudulent ones; users may inadvertently authorize these transactions when adding transaction fees.

Electrum is a lightweight Bitcoin wallet that connects to external servers to retrieve transaction history, broadcast transactions, and other network information. Unlike a full Bitcoin node, this software does not handle every aspect of blockchain activities independently.

According to the document explanation, Electrum has confirmed transactions through simple payment verification ( Simple Payment Verification ), but in displaying pending transactions, its main server has always been trusted in the past.

The attacker exploited this difference by intercepting submitted transactions through a malicious server, allowing them to be tampered with before they reached the Bitcoin network.

After preventing the broadcast of legitimate transactions, attackers can send a substitute transaction to the wallet, altering the recipient address to one controlled by the attacker.

Although the substitute transactions have invalid signatures, the vulnerable Electrum version does not check these signatures before displaying them in the wallet history.

When users attempt to increase transaction fees through Replace-by-Fee ( RBF ), such deception becomes dangerous. RBF is a feature of Bitcoin that allows an unconfirmed payment to be replaced by another transaction with higher fees.

Once users approve the fee adjustment, they may unknowingly sign a valid transaction that pays money to the attackers.

Electrum Confirmed real-world attack resulting in Bitcoin losses

Developers have disclosed two incidents that were reported privately, indicating that this vulnerability is no longer just a theoretical attack.

On October 11th, a user named dannydeezy reported that a transaction shown in the historical records of Electrum did not match the payment initially submitted.

On October 18th, another user Raju-K12 lost funds while attempting to increase transaction fees and contacted the developers.

According to the announcement, both incidents involved payment addresses controlled by the attackers, and these addresses were designed to match the last four characters of the target recipients' Bitcoin addresses.

In the second case, the transaction fee for the fraudulent transaction was zero, and developers suspect that this was done to induce victims to initiate operations to increase the transaction fee.

The first report involves a 2-of-3 multi-signature wallet that used two Trezor devices. Its legitimate transactions included 31 inputs and 1 output.

Investigators found that all 62 signatures were valid for the original payments, but invalid for the replaced transactions. The forged transactions transferred almost all of the bitcoins to a similar address, with only a small portion being returned to the wallet.

The original transaction is still valid, but it never entered the public Bitcoin network.

Electrum acknowledges that in reality, there are indeed some servers carrying out such attacks. However, the developers have not disclosed the number of servers involved in the attacks, the amount of money stolen, or whether more victims have been identified.

Electrum 4.8.3 Preventing Malicious Transactions with Increased Fees

This fix was incorporated into version 4.8.3 on October 23, and the downloadable binary files were made available on October 24.

By submitting 90fe308, developers introduced signature verification for unconfirmed transactions that are controlled by the user's wallet.

Electrum will now check signatures before incorporating these transactions into the local historical records, thereby preventing the fraudulent outgoing payments described in the announcement from being displayed as legitimate transactions.

This update will not turn Electrum into a complete Bitcoin node. Developers have stated that unconfirmed transactions sent in are still not within the scope of the new signature verification, while confirmed payments will continue to follow the existing validation process.

Users running versions prior to 4.8.3 are urged to download the update from the Electrum official website.

For users who are temporarily unable to upgrade, developers recommend verifying the complete recipient address and amount before signing a transaction, including replacing the transaction fees.

According to the announcement, only users connecting to trusted servers (including their own servers) will not be affected by this specific type of malicious server attack.

Electrum Past attacks have shown that server risks recur repeatedly.

This incident continues the previous attempts to attack Electrum due to its reliance on external servers.

In December 2018, crypto.news reported that malicious servers displayed fake software update notifications to users. The report at that time estimated the loss to be close to one million US dollars.

Another round of malicious server attacks in 2019 utilized fake wallet updates and denial-of-service activities to lure users towards compromised software.

These attacks rely on deceptive downloads, whereas the newly patched vulnerability allows for manipulation of pending transaction information within what is otherwise a legitimate wallet.

An interview article published in 2020 about the Electrum server discussed the trade-offs of lightweight wallets, including their dependence on external infrastructure regarding transaction history.

According to their own documentation, Electrum, their clients usually connect to about 10 servers, but they choose one primary server to retrieve wallet history and broadcast transactions. The documentation also states that this primary server is trusted in terms of not confirming transactions.