A vulnerability in the Electrum Bitcoin wallet enabled malicious servers to redirect users’ payments to attacker-controlled addresses when they attempted to speed up unconfirmed transactions. Developers confirmed at least one case of stolen bitcoin before the issue was patched.
Electrum, a long-established software wallet in the Bitcoin ecosystem, disclosed the flaw on Saturday, reporting that attackers had already begun exploiting it. The development team received two reports during October, including one from a user who lost funds after approving what appeared to be a routine transaction-fee increase.
The security issue involved Electrum’s handling of Bitcoin transactions that had not yet been confirmed by the network.
Unlike a full Bitcoin node, Electrum uses external servers to access transaction histories and broadcast payments. Before the fix, the wallet did not verify signatures when processing server-provided information about unconfirmed transactions.
This weakness allowed an attacker operating a malicious server to intercept a payment before it reached the Bitcoin network and replace the transaction shown in the wallet with a fraudulent one. The substituted transaction directed the user’s bitcoin to an address controlled by the attacker, despite containing invalid signatures that Electrum failed to detect.
The fraudulent payment then appeared as pending in the wallet. Attackers relied on users attempting to resolve the delay by increasing the transaction fee.
Bitcoin’s Replace-by-Fee (RBF) feature allows an unconfirmed transaction to be replaced with another transaction that offers a higher fee. In the vulnerable version of Electrum, selecting this option could result in the wallet signing a replacement transaction that sent the funds to the attacker instead of the intended recipient.
In one reported case, the fraudulent transaction had no fee, making it look as though the payment was stuck. Attackers also used receiving addresses whose final four characters matched those of the legitimate destination, making the substitution less obvious during a brief review.
The first incident was reported on October 11 and involved a two-of-three multisignature wallet secured with two Trezor hardware devices. The user verified the intended payment on both devices but later discovered a different outgoing transaction in Electrum’s history. That incident did not result in a reported financial loss.
A second report, submitted on October 18, involved a user who increased the fee on a manipulated transaction and subsequently lost funds. Electrum’s developers have not revealed the amount stolen or identified the malicious servers.
Electrum Patches the Bitcoin Wallet Vulnerability
Electrum released version 4.8.3 on October 24 to address the issue. The update added signature verification for unconfirmed transactions that spend coins from the user’s own wallet.
Earlier versions remain vulnerable when connected to malicious servers.
The developers advise users to upgrade their wallets and carefully check recipient addresses and payment amounts before approving transactions. Users who connected exclusively to trusted servers, including servers they operated themselves, were not exposed to this particular attack.
The security fix arrived six days after the first reported incident, highlighting the risks of relying on untrusted external servers when handling Bitcoin transaction data.
