A critical security flaw in Electrum, one of Bitcoin's oldest software wallets, allowed malicious servers to trick users into signing payments directly to attackers. Developers confirmed at least one instance where funds were stolen. Electrum disclosed the vulnerability on Saturday, stating that some servers were already actively exploiting the weakness.
Electrum developers received two reports detailing the attack during October. One report came from a user who lost Bitcoin after approving what seemed to be a routine increase in a transaction fee, directly triggering the theft. The vulnerability specifically targeted how Electrum processed Bitcoin payments that had not yet been confirmed by the network.
Unlike a full Bitcoin node, Electrum relies on external servers to retrieve transaction histories and broadcast payments. Before the recent patch, the wallet trusted these external servers to accurately report pending transactions without independently verifying their digital signatures.
An operator controlling one of these servers could intercept a legitimate payment before it reached the Bitcoin network. The malicious server would then replace the real transaction in the user's wallet with a fraudulent one directed to an address controlled by the attacker. These substituted transactions used invalid digital signatures, which Electrum failed to detect. The wallet interface would display the fraudulent payment as merely pending.
The attack unfolded when users attempted to accelerate these seemingly stuck transactions. Bitcoin's Replace-by-Fee (RBF) feature allows unconfirmed transactions to be replaced with new versions carrying higher fees to expedite confirmation. When a user selected this option for the fake pending transaction, Electrum would sign a valid replacement transaction, ultimately sending the user's coins to the attacker's address.
Attackers deployed sophisticated tactics to mask the scheme. In one reported case, the malicious transaction carried no fee at all, making it appear stalled and encouraging a fee increase. Attackers also generated receiving addresses whose last four characters matched the legitimate destination, making the substitution difficult to spot during a quick review.
The first report arrived on Oct. 11 involving a two-of-three multisignature wallet secured by two Trezor hardware devices. The user confirmed the legitimate payment on both devices but later observed a different outgoing transaction in the wallet's history. This user did not report losing funds.
A second user reported a loss on Oct. 18, confirming they had raised the fee on a substituted transaction and subsequently lost money. Electrum developers have not publicly disclosed the precise amount of Bitcoin stolen or identified the malicious servers involved.
Electrum released version 4.8.3 on Oct. 24, incorporating new signature checks for unconfirmed transactions originating from the user's own wallet. The fix was deployed six days after the first reported theft that resulted in lost funds.
Older Electrum versions remain susceptible to this attack when connected to malicious servers. Developers strongly recommend all users upgrade to version 4.8.3 immediately. Users should meticulously check all receiving addresses and transaction amounts before signing any payments. Users who connect only to servers they explicitly trust, including their own full Bitcoin node, were not exposed to this attack vector.
