Electrum has released version 4.8.3 to fix a high-severity Bitcoin wallet vulnerability that malicious servers have exploited to redirect user payments, with developers confirming at least one case of stolen funds.
According to the wallets October 24 security advisory, attackers exploited how Electrum handled unconfirmed Bitcoin transactions, replacing legitimate outgoing payments with fraudulent ones that users could accidentally authorize while increasing transaction fees.
Electrum is a lightweight Bitcoin wallet that connects to external servers for transaction histories, broadcasting and other network information. Unlike a full Bitcoin node, the software does not independently process every aspect of blockchain activity.
New release: Electrum 4.8.3. This release fixes a critical security issue, so we urge all users to upgrade. A description of the vulnerability will be published later today. (note: Windows Defender may show a warning about ZXing.dll, ignore that, it is a false positive)
Its documentation explains that Electrum verifies confirmed transactions through Simple Payment Verification but has historically trusted its main server when displaying pending transactions.
Attackers exploited this distinction by intercepting transactions submitted through malicious servers before they reached the Bitcoin network.
After preventing a legitimate transaction from being broadcast, an attacker could send the wallet a replacement transaction that changed the receiving address to one under the attackers control.
Although the replacement carried invalid signatures, vulnerable Electrum versions did not check them before displaying the transaction in the wallets history.
The deception became dangerous when users tried to increase the transaction fee through Replace-by-Fee, or RBF, a Bitcoin feature that allows an unconfirmed payment to be replaced with another paying a higher fee.
By approving the fee adjustment, users could unknowingly sign a valid transaction paying the attacker.
Electrum confirms real-world exploitation and Bitcoin losses
Developers disclosed two privately reported incidents, establishing that the vulnerability had moved beyond a theoretical attack.
On October 11, a user identified as dannydeezy reported that a transaction displayed in Electrums history did not match the payment originally submitted.
A second user, Raju-K12, contacted developers on October 18 after losing funds while attempting to increase a transaction fee.
According to the advisory, both incidents involved attacker-controlled receiving addresses designed to match the final four characters of the intended recipients Bitcoin address.
In the second case, the fraudulent transaction carried a zero fee, which developers suspected was intended to encourage the victim to initiate a fee increase.
The first report involved a two-of-three multisignature wallet using two Trezor devices. Its legitimate transaction contained 31 inputs and one output.
Investigators found that all 62 signatures were valid for the original payment but invalid for the substituted transaction. The fake redirected nearly all the Bitcoin to a lookalike address and returned a small amount to the wallet.
The original transaction remained valid but had never reached the public Bitcoin network.
Electrum acknowledged that some servers were performing the attack in the wild. However, developers have not disclosed how many servers participated, the amount stolen or whether additional victims have been identified.
Electrum 4.8.3 blocks malicious fee-bump transactions
The fix was incorporated into version 4.8.3 on October 23, with downloadable binaries released on October 24.
Through commit 90fe308, developers introduced signature verification for unconfirmed transactions spending inputs owned by the users wallet.
Electrum now checks those signatures before accepting the transactions into its local history, preventing the fraudulent outgoing payments described in the advisory from appearing as legitimate transactions.
The update does not make Electrum a full Bitcoin node. Developers clarified that incoming unconfirmed transactions remain outside the new signature checks, while confirmed payments continue to undergo existing verification procedures.
Users running versions before 4.8.3 have been urged to download the update from the official Electrum website.
For anyone unable to upgrade immediately, developers recommend checking complete receiving addresses and amounts before signing transactions, including fee replacements.
According to the advisory, users connecting exclusively to trusted servers, including their own, are not exposed to this particular malicious-server attack.
Electrums previous attacks reveal recurring server risks
The incident follows previous attempts to exploit Electrums reliance on outside servers.
In December 2018, crypto.news reported that malicious servers had displayed fraudulent software-update instructions to users. Contemporary reports estimated losses approaching $1 million.
Another malicious-server campaign in 2019 used fake wallet updates and denial-of-service activity to redirect users toward compromised software.
Those attacks relied on deceptive downloads, while the newly patched vulnerability manipulated pending transaction information inside an otherwise legitimate wallet.
An interview about Electrum servers published in 2020 examined the trade-offs of lightweight wallets, including their reliance on external infrastructure for transaction histories.
Electrums own documentation says its client typically connects to approximately 10 servers, but selects one main server to retrieve wallet history and broadcast transactions. The documentation states that this main server is trusted regarding unconfirmed transactions.