Your Watch-Only Wallet Might Be Leaking Your Entire Balance

[Sammysmart001]

A very common setup that I observed. You just secured your seed offline and then you import in your xpub / ypub / zpub into either your phone or laptop as a wacht only wallet to check balance. Because your private keys are kept offline you confidently feel safe, and truly your funds are safe from theft.

But also your privacy might be gone already!

How the leak happens
Just view your xpub as a master read only key, from just only that key. You see that someone can generate all your future and past addresses for that account.

When your watch only wallet wants to show your balance it has to ask a server: What is the history of these addresses?

And If youre using a default public Electrum server, here is what happens:
Even if your wallet don’t send the raw xpub by itself and asks for addresses only so that server now sees all those addresses together linked to your IP. It knows your entire transaction history and your full balance and can also link it to your location.
You went offline for security and then doxxed urself to a random server.

The Fix
Do well and run your full node and also connect your watch-only wallet only to your node over Tor. In this way you never ask a third party.
Protecting your metadata IP + xpub in Bitcoin is just as so important as protecting your own key.

Question
Are you currently trusting a public server with your entire history? Or have you ever audited your watch only wallet node connections.

[EL MOHA]

Question
Are you currently trusting a public server with your entire history? Or have you ever audited your watch only wallet node connections.

You want the honest truth most people are victims of this because most of them do not have the ability to run a full node some because of storage space and even if they run the node as prune you cannot get access to all the transaction history if those files have been deleted out.

The best option is routing their IP with Tor using wallet like electrum just like you have said, at most they are still having some privacy as long as that address isn’t attached to any of their KYC details but they will lose their anonymity still

[Mr Reporter]

Question
Are you currently trusting a public server with your entire history? Or have you ever audited your watch only wallet node connections.

I might really not have a good idea about wallet that much but I think, using a watch only wallet that connects to a public Electrum server or some random node like that could cause you to be leaving a track on your wallet as well and also your transactions history could be affected and all your addresses to that server, am not sure if everything can be link together but If it can be linked then it best to be careful…

A big Applause for bring this topic because I could not noticed that even in a Watch only wallet your funds can be tempered with, and as for the other question Have you actually checked which server your wallet is connecting to? for example people who make use of mobile watch only wallet it is connected to the wallet company public server…

[promise444c5]

Electrum doesn’t directly expose your public key to the server it connects to, neither should a good wallet expose your public key. At the end, all that would be exposed are some of your address, UTXOs, history and of course your IP ..

The concern is valid though.. and running your node seem to be the most reasonable thing to do if you want full privacy. Otherwise, using proxy can also help for the IP addr.

[nc50lc]

A very common setup that I observed. You just secured your seed offline and then you import in your xpub / ypub / zpub into either your phone or laptop as a wacht only wallet to check balance. Because your private keys are kept offline you confidently feel safe, and truly your funds are safe from theft.

Additionally, there's an unfamous security risk for having your extended public key (xpub) leaked.
It affect those who are exporting their individual private keys and compromised at least one private key.
Getting one private key exposed sounds safe enough but having its parent extended public key exposed can be used together with that child private key to calculate its pair extended private key.

This is a warning to those who exported one or more private keys from their offline wallet.

The Fix
Do well and run your full node and also connect your watch-only wallet only to your node over Tor. In this way you never ask a third party.
Protecting your metadata IP + xpub in Bitcoin is just as so important as protecting your own key.

And make sure that your own server has an onion address, not a clearnet one.
And since it's your own server, use --oneserver so that Electrum wont have to connect to random additional servers for security, since you trust that server anyways.
Because otherwise, if it has to connect to clearnet, a random malicious Tor exit node can still perform attacks to impact your privacy.

[Sammysmart001]

@nc50lc thanks for bringing this up,this are critical point that many individuals do overlook. Many people do think that  leaking just one private key only have to risk that single address and again also  am not even aware that having to combine a leaked xpub with just a leaked private key could expose the whole wallet, that turns a basic privacy leak into a total security loss.

Also I appreciate for this  --oneserver tip on Electrum, i have no idea that electrum still tries to ping random servers in the background over Tor, using  --oneserver makes sure it only talks to your own node.

[BitMaxz]

That is why I don't use the xPub or master public key because it could entirely generate all possible addresses from the key.

But I still stick to importing only the BTC address as a watch-only wallet rather than importing the entire wallet via xPub. I only use one address in one seed phrase since I can't afford to have a stable node because the blockchain keeps growing. My plan is to use a different server for every address and wallet I use. At least they are not leaked to be connected.
For now, I'm fine, but once I have a budget to buy a new SSD, having a node is a must because I don't want to leak any of my BTC addresses.

[nc50lc]

Also I appreciate for this  --oneserver tip on Electrum, i have no idea that electrum still tries to ping random servers in the background over Tor, using  --oneserver makes sure it only talks to your own node.

BTW, in newer Electrum versions, it can also be set in the GUI's network settings.
I've recommended the command line arg because setting it in the GUI requires you to start Electrum which will make it do its default connection behavior before you can even set it, that'll defeat its purpose.

And additionally, those additional server connections are limited, it's not the same as the main server (main interface) where your transactions can be logged.
Those are for only for security purposes in case the server is serving your the wrong blockchain data.
The main concern if those are in clearnet as I've explained earlier.