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Well then; “plant a seed and watch it grow”.
We’re all familiar with the phrase: For those of you with a somewhat ecclesiastical bent, a tacit nod to the Parable of the Growing Seed in the Gospel of Mark; for those of a more motivational bent, an acknowledgement of the cumulative effect of small actions manifesting into something much larger … and for those of no particular inclination, perhaps a distant memory of a children’s rhyme involving those very words. But whatever thoughts this phrase brings to mind, it nicely segways into the opportunity to bring forth a warning that may involve a number of you dear readers, and this warning aptly involves the possible flaws in your crypto wallet seed phrase, which has reportedly led to the loss of millions of dollars in funds by some crypto holders.
Safe as Houses
So, with security foremost in mind, a good many crypto holders will have been more than happy to have been taken through the seed phrase creation process when they first opened their exchange wallets or their online wallets such as Trust or MetaMask. Of course, some cold storage wallets such as Tangem give you the option to create a seed phrase or go with their encrypted NFC smart cards for security; Cypherock X1and BC Vault also give you alternate options. But many crypto holders have felt that with their hyper secure BIP-39 (Bitcoin Improvement Proposal 39) standard seed phrase created, their funds would be literally ‘safe as houses’ as we say here in the UK.
However, it seems that this may not necessarily have been so, and the apparent cause of this seems to have been laid at the door of the random number generators used to create the seed phrases concerned … let’s take a look.
Rules … What Rules?
But as a solid starter, it might be as well to recap on the industry standards and benchmarks that determine wallet seed phrase generation and wallet structure in the first place, before taking a more detailed look at the different types of random number generators themselves.
Non-geekiness warning; we’ll only cover this in the most basic outline. Just enough for you to get an idea and add depth to your understanding of what’s going on with these suspect seed phrases … however, if you also happen to remember any of it, and if you happen to subsequently hook up with a hot university science-type chick, I have calculated that your chances of romantic success will be boosted by a factor of;
- 100.3 (or a factor of two times over whatever your baseline was).
- However, decreasing to 10-1 (or one tenth of your baseline) if you’re prone to monologuing and don’t know when to quit.
So onwards!
The BIP-39 Protocol (Mnemonic Generation)
So … at the figurative top of the hierarchy is the BIP-39 protocol (Bitcoin Improvement Proposal 39). BIP-39 is what actually defines the generation of human-readable mnemonic seed phrases (which as we know, are typically 12, 18, or 24 words long).
Going a little further; it specifies how cryptographically secure random entropy is generated (128–256 bits).
And what exactly is this ‘entropy’?
Stick with me … this is key:
Entropy is just the random secret that say, a 12 word phrase represents.
The words are not the secret themselves but they are a human-readable way of writing down a random string of bits. So for instance in a 12 word BIP-39 mnemonic;
- 128 bits of random entropy are generated.
- Then the first 4 bits of the checksum (or hash) are added to make a total of 132 bits.
- These are then split up into 12 groups of 11 bits each.
- And there you are; each 11 bit group becomes one BIP-39 word in a 12 word seed phrase.
So as we saw above, a checksum was added into each 11 bit BIP-39 word … and indeed, this is also a function of the BIP-39 protocol. But of course, I wouldn’t be doing my job if I didn’t expand upon what a checksum is and why we need one at all; so in the most basic terms; the checksum in BIP-39 exists to detect mistakes.
Essentially, it helps wallet software recognise when a mnemonic phrase is most likely invalid because of a typo, a missing word, or because of words in the wrong order.
Now there are a couple more functions of the BIP-39 protocol … but even I don’t want to go there!
But in recompense, and to be completely thorough, I’m sure that at least one reader will be wondering why each BIP-39 word is made up of 11 bit groups?
Excellent. Well, it’s because 2¹¹ is exactly the size of the BIP-39 word list … so 11 bits can uniquely identify every word in the list.
The BIP-32 Protocol (Key Derivation)
Ok, so well now go a little further and build upon the last chapter.
As we just covered; BIP 39 creates a human-readable recovery phrase, usually 12 or 24 simple words. Instead of remembering a long, random string of numbers and letters, you only need to keep these words safe. If your wallet is lost, damaged, or replaced, the recovery phrase can restore your funds.
BIP 32 then, is the standard that allows hierarchical deterministic (HD) wallets; building upon the BIP-39 functions. It allows a single BIP-39 master seed to generate an entire tree of private and public keys, creating a new wallet address for each transaction whilst all addresses remain linked to the same seed. This means users only need to back up one recovery phrase instead of many individual keys. BIP 32 also makes it possible to safely share extended public keys to generate receiving addresses without exposing private keys, improving both security, privacy, and the overall management of cryptocurrency wallets.
Or perhaps put another way; for ordinary users, the main features are simplicity, convenience, and improved privacy. You only need to back up one recovery phrase, no matter how many addresses your wallet creates. Your wallet can automatically generate a new receiving address for each transaction, making it harder for others to link all of your transactions together. This keeps managing your cryptocurrency much easier while also providing better privacy and reducing the risk of losing access to your funds.
Now hopefully, you’re all still hanging on in there … there’s only one more protocol to cover … let’s go!
BIP 43 and BIP 44 (Wallet Structure)
… ok, a small white lie; it’s actually two more protocols, but combined in just one chapter.
So whilst BIP 32 introduced the ability to generate an unlimited number of wallet addresses from a single master seed, it did not actually specify a standard format to organise those addresses. This invariably resulted in different wallet developers arranging their keys in different ways, making it difficult for wallets to be compatible with one another.
The BIP 43 protocol solved this problem by introducing the idea of a purpose field. A purpose field basically acts like a label or signpost, telling wallet software which organisational structure is being used. By defining a purpose, wallets could thereby follow a consistent set of rules when generating keys and addresses.
The BIP 44 protocol builds upon both BIP 32 and BIP 43 by defining a standard hierarchy for organising wallets. It specifies separate levels for the purpose, cryptocurrency type, account number, change addresses, and individual wallet addresses. This creates a clear and predictable folder-like structure for managing digital assets.
All good stuff of course, but for ordinary users, the main advantage is simply compatibility and organisation.
In essence, a single recovery phrase can restore not only all wallet addresses but also the way they are organised across different cryptocurrencies and accounts. Because many wallet applications follow the BIP protocol standards, users are enabled to recover their wallets in other compatible applications simply by entering their recovery phrase. This makes cryptocurrency wallets eminently more portable, reliable, and very much simpler to manage.
How Random is Random?
So dear readers, we have now briefly examined the protocols which delineate the way crypto wallets are structured and the way their seed phrases are generated from random entropy, but … and it’s a BIG but … it is vital to be aware of the following:
None of these BIPs define the random number generator itself: Instead, they assume the wallet first generates cryptographically secure random entropy using a cryptographically secure random number generator; provided by the operating system or secure hardware.
And herein lies the rub; it turns out that some crypto wallets have been creating weak seed phrases since as far back as 2018!
But why has this been happening? Is your wallet affected? What can you do?
Well, the key to the first question lies in looking at the three major types of random number generators, at what they do, and how exactly this has led to the current problems.
So as you will by now have intuited, there is a right and a wrong way to generate a seed phrase; the correct way uses ‘true randomness’ which makes it virtually impossible to hack. However, if the quality of randomness is weak, then this gives a much smaller number of permutations and combinations, and thereby, attackers could be enabled to compute a ‘password crack’.
As an example, a well-known wallet browser extension had been generating seed phrases that resulted in around only 4 billion possible outcomes, and at first sight, this might seem more than adequate, however, when contrasted with a truly random generator, the output would equate roughly to the total number of atoms in the universe!
And this is precisely what has been going on with certain crypto wallets; they have, essentially, been generating seed phrases that can literally be hacked as soon as they are generated.
TRNG (True Random Number Generator)
So to start our foray into the world of random number generators, let us start with the top tier in terms of security; the TRNG (true random number generator).
A TRNG generates its output by utilising completely unpredictable and irreplicable physical events occurring at the instant of creation; inputs of such natural sources of randomness as electronic noise, radioactive decay, or tiny fluctuations in temperature or light. These physical processes are impossible to predict exactly, making the generated numbers genuinely random and unbreakable. It is the method most used by most hardware wallets.
As would be expected, the aforementioned physical processes, once captured, are duly converted into binary digits (0s and 1s), which are then used to produce the required random outputs.
Just for completeness; TRNGs when utilised in wallet seed phrase creation, specifically use environmental sound to generate their seed phrases. So if you happen to be at the disco, out on the moors or even ‘on the job’ whilst creating your wallet seed phrase, this all adds to the complete randomness and ultimate security!!
CSPRNG (Cryptographically Secure Random Number Generator)
Actually, although listed here in a hierarchical order a CSPRNG is not actually deemed to be any less secure than a TRNG; it just accomplishes its outputs in a different manner; sometimes even using TRNGs as input sources.
A CSPRNG generates random looking numbers using a mathematical algorithm and a secret starting value called a seed. Unlike a TRNG, a CSPRNG does not rely on continuous physical randomness. Instead, it expands the initial seed into a long sequence of numbers that are mathematically impossible to predict without knowing the seed. A secure seed is often obtained from a TRNG or another trusted source of entropy.
Examples of such trusted sources of entropy might include;
- Electronic (thermal) noise from hardware circuits.
- Mouse movements and keyboard timings.
- Hard drive timing variations.
- Network interrupt timing (which is basically the unpredictable timing of incoming network data).
- Hardware random number generators, such as those built into modern Intel or AMD CPUs.
CSPRNGs are designed to withstand attacks that try to predict future outputs, making them eminently suitable for cryptography, secure communications, authentication, and encryption.
PRNG (Pseudo Random Number Generator)
Finally, we come to the PRNG. A PRNG produces a sequence of numbers that appears random, solely by using a mathematical algorithm. As a starting point, it uses an initial value called a seed, and each new number is calculated from the previous one using a fixed formula. But, it is exactly because the same seed always produces the same sequence that PRNGs are not truly random at all. Now, that is not to say that they are of no practical use, because the opposite is true; PRNGs are fast and efficient, allowing them to generate large amounts of random data quickly, and their output is certainly random enough for simulations, games, and statistical applications.
When it comes to securing a crypto wallet, however, or any situations where the highest levels of cryptography are essential, because their output is deterministic, they are generally not suitable without additional security measures.
… and as you have, no doubt guessed, it is precisely the wallets using this type of random number generator that are the source of the problems which have now come to light.
What Next?
Well then, we’ve travelled a long road, so where are we with all this?
So far, we’ve looked at the protocols covering wallet seed phrases as well as the wallet structuring protocols: We’ve examined the types of random number generators, how they derive their seed phrases and how a deficiency (or actually and more fairly), how an inappropriate use of one type has led to wallets with much weakened seed phrases.
So let’s march on to the nitty-gritty of the matter, because dear readers, some of you will invariably be affected.
Heeeelp … Is It Me?
The question that by now many of you will be asking is “am I personally affected?”
Amazingly, as there is no definitive list of all crypto wallets which have generated weak seed phrases, we have to approach the matter with extreme caution and with a very measured approach.
Also amazingly, the truth is that it is simply not possible to audit for a weak seed phrase after it has been created and alarmingly, you would not even be aware of the fact until your crypto was syphoned directly out of your wallet … which is exactly what has been happening.
However, as a qualified indication, experts in the field have stated that if your seed phrase was generated by a software wallet or a browser tool, especially an older one, then you should immediately treat it as potentially exposed.
As a second qualified indication, the company Coinspect, has developed a tool that you can use to check whether your seed phrase is weak.
Warning!
Although the Coinspect tool can give you an indication as to whether your seed phrase is safe or at risk, it is NOT definitive … it merely gives an INDICATION: It would, therefore, seem sensible to treat any warning of weakness as definitive and any indication of ‘no risk’ with caution.
Second Warning!!
I have mentioned the Coinspect tool here simply to give you a ‘lead’ dear readers; of course, there are other tools on the market designed to check, verify, or recover seed phrases, ranging from open-source recovery scripts to built-in hardware checks. I urge you to do your own research before selecting the most suitable tool for your own setup and circumstances.
However, whatever tool you finally select, you should NEVER, EVER, enter your seed phrase into an unverified online tool, as it will immediately expose your wallet to theft. In passing, the Coinspect tool simply asks for your public wallet address.
Home and Safe
In the midst of all of this gloomy news, I do bear some glad tidings: If you are the owner of a hardware wallet (cold wallet); such as Ledger, Trezor, Tandem, Blockstream Jade, OneKey etc, then you are home and safe … Hardware wallets exclusively utilise TRNGs and CSPRNGs so your wallet seed phrase will be truly random and, therefore, truly safe.
Actions
Here at MegaCrypto Casino, we have always advocated for hardware wallets as the primary repository of one’s crypto holdings. Primarily, because we have always held with the ‘if you don’t hold it, you don’t own it’ principal … and now, we can add the assurance of complete security, to the list.
So this is our principal recommendation to readers who suspect the security of their seed phrase; get yourself a hardware wallet as soon as possible and transfer your holdings onto it. You will be safe and you will feel much relieved.
Regarding your existing wallet; you might consider deleting the old one if you consider it suspect; a newly created wallet might prove safer due to improvements and updates since the first Trust wallet was exposed as risky in 2022. But ultimately, its your call.
Of course, there absolutely is a role and a utility for software wallets (hot wallets), especially for crypto holders who like to engage in activities such as interacting with decentralised exchanges, claiming airdrops etc but even then, it makes supreme sense to keep the majority of funds on a hardware wallet and just ‘decant’ a ‘working amount’ onto any software wallet as required.
Importantly, never keep any amount of crypto on a software wallet that would cause you meaningful damage if it were ever to be stolen.
Well, that’s pretty much it for this week; I now feel somewhat unburdened in having brought you, dear readers, a warning regarding the current danger abounding out there in the Aether; and similarly, in having provided a rigorous explanation as to the causes, and an education on the subject of crypto wallet protocols and random number generators.
I trust that once again, you will have deemed your time with us as ‘well spent’ and this being the case, I trust that I can again, look forward to the pleasure of your company here at MegaCrypto Casino.
… until next time, stay safe, stay secure and stay lucky.