Bitcoin wallet bug let rogue servers steal funds when users tried to speed up payments

Bitcoin allows unconfirmed transactions to be replaced with versions carrying higher fees, a feature called Replace-by-Fee. If a user selected that option, Electrum could take the fraudulent transaction and sign a valid replacement, sending the coins to the attacker.

In one reported case, the malicious transaction carried no fee at all, making it appear stuck. Attackers also generated receiving addresses whose last four characters matched the legitimate destination, making the substitution harder to spot during a quick check.

The first report, submitted Oct. 11, involved a two-of-three multisignature wallet using two Trezor hardware devices. The user had checked the legitimate payment on both devices but later noticed a different outgoing transaction in the wallet's history (that user did not report losing funds).

A second user reported on Oct. 18 that they had raised the fee on a substituted transaction and lost money. Developers have not disclosed the amount stolen or identified the malicious servers.

In response, Electrum released version 4.8.3 on Oct. 24, adding signature checks for unconfirmed transactions spending coins from the user's own wallet. However, earlier versions remain vulnerable to the reported attack when connected to malicious servers.

The developers recommend upgrading and checking receiving addresses and amounts before signing payments. Users connected only to servers they trust, including their own, were not exposed to this attack.