Security of Electrum wallet

[LTRippley]

Hi, I've been told that hardware wallets are more secure than software wallets.

I wanted to find out exactly what are the risks of using a desktop Electrum wallet. Can someone elaborate?

If I were to use my desktop Electrum wallet over VPN, and be ultra careful about phishing scams and be careful not to download any upgrades from sources other than Electrum.org, does this eliminate 99.9% of risk of using Electrum? 

[jackg]

The risks when using software wallets are risks to your device. If you're careful and not many people use your network or you have good security settings (eg on your router) then you should be safe running electrum - hardware and airgapped wallets are still safer though.

Electrum is fairly safe though if you're not handling large amounts and you're also not downloading anything that could be potentially malicious (espefialkt from places like ads).

[hosseinimr93]

If you want your wallet to be completely secure, you should generate your wallet on an air-gapped device (a device which has been always offline and will never be online).

Create your wallet on an airgapped device and keep the seed phrase offline in a safe place.
For making transaction, create the unsigned transaction on an online device, sign it on your air-gapped device and broadcast it using your online device.

If you can't use an air-gapped device for any reason, it's better to use a hardware wallet.

[Cricktor]

The security of your software wallet like Electrum (without a hardware wallet) is only as good as the security of your computer. If some sophisticated malware can infect and control your computer, so it can control your inputs and Electrum. E.g. the malware could modify the destination address of a transfer (which you could spot if you're careful to always check what gets signed before it's broadcasted). Or the malware could show you your intended transfer while it signs and broadcasts a completely different transaction. It's only a matter of sophistication of the malware.

Such a hidden change of the transaction parameters and destination isn't possible with a good hardware wallet, because the malware can't trick or modify the hardware wallet without notice to a carefully controlling user. The hardware wallet shows you exactly what transaction it is going to sign with your physical confirmation on the hardware wallet device itself. You have of course to check the transaction to be signed for correctness and once you confirm the malware can't modify the signed transaction. That way a malicious software on a computer can't fool an attentive user and his hardware wallet. If you don't control carefully, you're a lost case.

[DireWolfM14]

Hi, I've been told that hardware wallets are more secure than software wallets.

Because of the way hardware wallets interact with your computer, there's almost no risk to your bitcoin from malware and viruses.  They're not without risk, however.  There's still the potential for clipboard malware to change a send-to address.  They still require caution and diligence by the user.

I wanted to find out exactly what are the risks of using a desktop Electrum wallet. Can someone elaborate?

If I were to use my desktop Electrum wallet over VPN, and be ultra careful about phishing scams and be careful not to download any upgrades from sources other than Electrum.org, does this eliminate 99.9% of risk of using Electrum? 

As you've indicated, there's the potential to download a malicious version of Electrum, which is the biggest risk to your coins.  There's the potential for other types of malware to capture your key strokes, and compromise your passwords.

If you are a confident and competent computer user who takes great care to avoid getting hacked or download malware, then you're desktop wallet is likely to remain safe.  But realistically, only you can assess the risk/reward of your behavior.  I would advise against storing the majority of your wealth on a desktop wallet.  Personally I use desktop (or "hot") wallets as if they are my leather wallet in my pocket, and I don't keep very much cash in my leather wallet.  If it gets lost, I'll still be able to feed the kids and pay the bills.

[pooya87]

Safety of any type of bitcoin wallets depends on how you use them. For example if you store the seed phrase generated by your hardware wallet in your email then you have no security at all despite using a hardware wallet!
It's the same for Electrum or any other desktop wallet, when they are used on a computer that is connected to the internet you have a lower security but for example if it is installed and used on an airgap computer then it's security could be the same as a hardware wallet.

P.S. a VPN is not improving your "security" it will only slightly increase your "privacy".

[NotATether]

If I were to use my desktop Electrum wallet over VPN, and be ultra careful about phishing scams and be careful not to download any upgrades from sources other than Electrum.org, does this eliminate 99.9% of risk of using Electrum? 

No, such a setup won't eleiminate near that much risk.

The only way to get 99.9% of the protection is to disconnect Electrum wallet from the internet completely, and create a watch-only wallet from the same wallet on a second computer that is connected to the internet.

With only the public key, hackers cannot spend from your address. You can use a USB drive to transmit signed transactions between the offline and online computer.

To update the airgapped wallet, simply download the new version and verify the checksums and GPG signatures on the online computer.

Having an airgapped wallet doesn't mean you don't need a password either. It's strongly recommended to set a password at least 32 chars long for the offline wallet (assuming it will store thousands of $$$)

[NeuroticFish]

I wanted to find out exactly what are the risks of using a desktop Electrum wallet. Can someone elaborate?

1. A malicious software can "send home" your Electrum wallet and the associated password, allowing somebody else spend your funds.
2. A malicious Electrum clone can "send home" your wallet and the associated password or even directly the seed.
3. A malicious Electrum clone can directly make a transaction sending your coins away (it has your keys, remember?)
4. A clipboard malware can change the address you send to and trick you into sending funds to different address than you intended to (and also HW doesn't fix this!)

If I were to use my desktop Electrum wallet over VPN, and be ultra careful about phishing scams and be careful not to download any upgrades from sources other than Electrum.org, does this eliminate 99.9% of risk of using Electrum? 

As said, VPN doesn't make your computer more secure.
Verifying your Electrum download may help much more than just being careful.
I also think that using a Linux, together with the other safety measures, could, for now be pretty much OK. Still, for very big funds I will not use hot wallet, no matter what.

[LTRippley]

Thanks everyone for your valuable input. I learn new stuff everyday! I love this forum.