Electrum Wallet Flaw Let Malicious Servers Trick Users Into Signing Transactions

Security researchers and Electrum developers confirmed a vulnerability that allowed hostile servers to deceive wallet users into signing transactions that redirected funds to attackers. The weakness involved how unconfirmed payments were handled, and developers say at least one user lost money after attempting to increase a transaction fee.

The problem stemmed from Electrum’s reliance on external servers for transaction history and broadcasting instead of a full Bitcoin node. Before the patch, the wallet accepted server-reported pending transactions without verifying the validity of their signatures, creating an avenue for exploitation.

How the attack worked

An attacker operating a malicious Electrum server could intercept a user’s outgoing payment before it reached the Bitcoin network and substitute it in the wallet history with a counterfeit transaction. That forged entry spent the user’s coins to an address controlled by the attacker using invalid signatures that the wallet did not detect.

When users attempted to speed up a stuck payment by using Replace-by-Fee (RBF) to raise the fee, Electrum could take the fraudulent transaction listed in the history and sign a valid replacement. In effect, the user’s higher-fee replacement finalized the transfer to the attacker’s address.

Details from reported incidents

One reported attack used a fake transaction that carried no fee, making it appear stalled. The attackers also created recipient addresses whose final four characters matched the legitimate destination, reducing the chance the substitution would be noticed during a quick glance.

Developers received two reports in October. The first, on Oct. 11, concerned a two-of-three multisignature wallet involving two Trezor devices: the user verified the correct payment on both devices but later saw a different outgoing transaction in the wallet’s history (that report did not include a confirmed loss). The second report, on Oct. 18, described a user who increased the fee on a substituted transaction and subsequently lost funds.

Patch and recommendations

Electrum released version 4.8.3 on Oct. 24 to address the issue. The update adds signature verification for unconfirmed transactions that spend coins from the user’s wallet, preventing the substitution attack when using updated clients. However, older versions remain vulnerable if they connect to compromised servers.

Developers advise upgrading immediately and recommend users carefully verify receiving addresses and amounts before approving transactions. They also note that users who connect only to trusted servers — for example, their own server — were not exposed to this attack.