A security vulnerability in Electrum’s Bitcoin wallet caused at least one user who increased the fee to speed up a transaction to send their Bitcoin to an attacker.
According to CoinDesk, Electrum developers said malicious servers were exploiting the vulnerability and that they received two separate reports in October. One involved a loss of funds, and the vulnerability was fixed in version 4.8.3, released on October 24.
Electrum, one of the oldest software wallets for Bitcoin, connects to external servers to retrieve transaction history and broadcast payments to the network. The issue stemmed from the wallet not verifying signatures on unconfirmed transactions that spent users’ coins.
How did the option to speed up a transaction become a trap?
A server controlled by an attacker could insert a fake transaction into the wallet’s history before the actual payment reached the Bitcoin network. The signatures on this transaction, which routed the coins to the attacker’s address, were invalid; however, because Electrum failed to detect this, it showed the payment as pending.
The trap was triggered when a user tried to speed up the transaction. A feature in Bitcoin called Replace-by-Fee (RBF) allows an eligible pending transaction to be replaced with a version carrying a higher fee. During the fee increase, Electrum could use the fake transaction as its basis and sign it validly this time, sending the Bitcoin to the attacker.
In one reported case, the fake transaction had a zero fee, making the payment appear stuck. The attackers also matched the last four characters of the recipient address to the real address, making the change harder to spot in a quick check.
Update released, risk remains in older versions
The first report, received on October 11, concerned a multisignature wallet requiring approval from two of three keys and using two Trezor devices. Although the user checked the actual payment on both devices, a different transaction appeared in the wallet history; the user did not report losing funds.
The second user, who reported the issue on October 18, lost money after increasing the fee on the altered transaction. The amount stolen and the identities of the malicious servers were not disclosed.
Electrum 4.8.3 added signature checks for unconfirmed transactions that spend coins in the wallet. Earlier versions remain vulnerable when connected to malicious servers. The developers recommend updating the wallet and checking the recipient address and amount before signing a transaction. They said users who connect only to servers they trust, including their own servers, were not exposed to this attack.
Not investment advice.