(credit: NoHoDamon)
Hackers have siphoned about $103,000 out of Bitcoin accounts that were protected with an alternative security measure, according to research that tracked six years' worth of transactions. Account-holders used easy-to-remember passwords to protect their accounts instead of the long cryptographic keys normally required.
The heists were carried out against almost 900 accounts where the owners used passwords to generate the private encryption keys required to withdraw funds. In many cases, the vulnerable accounts were drained within minutes or seconds of going live. The electronic wallets were popularly known as "brain wallets" because, the thinking went, Bitcoin funds were stored in users' minds through memorization of a password rather than a 64-character private key that had to be written on paper or stored digitally. For years, brain wallets were promoted as a safer and more user-friendly way to secure Bitcoins and other digital currencies, although Gregory Maxwell, Gavin Andresen, and many other Bitcoin experts had long warned that they were a bad idea.
The security concerns were finally proven once and for all last August when Ryan Castellucci, a researcher with security firm White Ops, presented research at the Defcon hacker convention that showed how easy it was to attack brain wallets at scale. Brain wallets used no cryptographic salt and passed plaintext passwords through a single hash iteration (in this case, the SHA256 function), a shortcoming that made it possible for attackers to crack large numbers of brain wallet passwords at once. Worse, a form of the insecurely hashed passwords are stored in the Bitcoin blockchain, providing all the material needed to compromise the accounts.