Bitrace has warned crypto users about a QR code scam that tricks victims into authorizing wallet access through a fraudulent payment test. Additionally, the new "Dark Skippy" attack is posing a new threat to Bitcoin wallets, while researchers at Imperial College London have identified circuit layer vulnerabilities as the biggest threat to systems based on SNARKs. WazirX also announced that it will restore user balances after its $235 million hack by reversing trades that were conducted after the breach.
Bitrace Warns of Rising QR Code Scams
A recent social media post by blockchain analysis firm Bitrace warned users of a new type of crypto scam that can drain their wallets by scanning a fraudulent QR code. The scam operates through a payment QR code transfer test, tricking users into authorizing wallet access.
The scam starts with the fraudster proposing an over-the-counter token swap at a favorable exchange rate, bypassing traditional exchanges. To gain the victim’s trust, they offer a fee in Tron’s TRX token for long-term cooperation and make a small payment in USDT.
The scam escalates when the fraudster asks the user to perform a “small repayment test” by returning the USDT through a QR code. The QR code leads to a third-party website where the user is then prompted to confirm the transaction. After the confirmation, the scammer gains unauthorized access to the user's wallet.
Bitrace reported that at least 27 wallet holders already fell victim to this scam, and lost a collective $120,000 in USDT between July 11 and July 17. The stolen funds were then laundered through five intermediary addresses and three accounts on the Cambodian crypto exchange Huione.
USDT funneled through five addresses into Huionne addresses (Source: Bitrace)
Cyberattacks, particularly targeting crypto, have surged in 2024. Cybersecurity firm Cyvers reports that stolen crypto funds are nearing $1.4 billion this year already. Access control breaches, which are often executed through phishing attacks, are responsible for $490 million in losses in the second quarter alone.
Bitrace advises users to perform a risk check on the counterparty's address before any transaction. The analysis firm also announced that it is busy developing a “one-click risk check tool” to help users identify potential risks associated with target addresses.
Dark Skippy Exploit Threatens Bitcoin Wallets
Security researchers also uncovered a new method that allows hackers to extract private keys from a Bitcoin hardware wallet using as few as two signed transactions. The method is called “Dark Skippy,” and this vulnerability could potentially affect all hardware wallet models if the attacker manages to trick the victim into downloading malicious firmware.
Previously, similar attacks required the victim to post “dozens” of transactions to the blockchain. However, the new Dark Skippy method can be executed with only a couple of transactions, even if the user relies on a separate device to generate seed words.
This discovery was published on Aug. 5 by Lloyd Fournier, Nick Farrow, and Robin Linus. Fournier and Farrow are co-founders of hardware wallet manufacturer Frostsnap, while Linus is a co-developer of Bitcoin protocols ZeroSync and BitVM.
The report explains that malicious firmware can program a hardware wallet to embed parts of the user’s seed words into “low entropy secret nonces,” which are then used to sign transactions. These signatures, once posted to the blockchain, can be scanned and recorded by the attacker.
While the signatures only contain “public nonces” and not the seed words themselves, the attacker can use Pollard’s Kangaroo Algorithm to compute the secret nonces from their public versions. This algorithm was discovered by mathematician John M. Pollard, and is used to solve the discrete logarithm problem. By applying it, an attacker can derive the full set of seed words from just two signatures, even if the seed words were generated on a separate device.
While similar vulnerabilities have been documented in the past, they relied on a much slower process called “nonce grinding,” which required many more transactions to be posted to the blockchain. The researchers acknowledge that Dark Skippy is not necessarily a new vulnerability, but rather a new way of exploiting an already existing one.
Dark Skippy Attack Advantages (Source: Dark Skippy)
To protect against this threat, the report recommends that hardware wallet manufacturers take additional precautions to prevent malicious firmware from infiltrating users’ devices. This could include implementing features like secure boot, locked JTAG/SWD interfaces, and reproducible, vendor-signed firmware builds.
For users, the report suggests safeguarding their devices in secret places, personal safes, or tamper-evident bags, even if these steps take a lot of effort. Additionally, wallet software could adopt “anti-exfiltration” signing protocols to prevent hardware wallets from producing nonces independently to help lower the risk of these attacks.
SNARK Vulnerabilities Exposed by Researchers
Researchers at Imperial College London have identified circuit layer vulnerabilities as the biggest threat to systems based on Succinct Non-Interactive Arguments of Knowledge, or SNARKs. The study analyzed 141 vulnerabilities from 107 audit reports, 16 vulnerability disclosures, and various bug trackers linked to popular SNARK projects, and was presented on Aug. 7 at the Science of Blockchain Conference at Columbia University.
SNARKs is a type of zero-knowledge proof that allows verification of a statement's truth without revealing any information about it. According to Stefanos Chaliasos, a PhD candidate at Imperial College London, the research revealed three main types of circuit layer vulnerabilities: under-constrained, over-constrained, and computational/hints errors.
The most common issue is under-constrained circuits, which lead to a verifier accepting invalid proofs, thereby compromising the system’s soundness or completeness. Of the identified issues, 95 affected soundness and four impacted completeness.
The study pointed out that the primary challenge for developers is adapting to a different level of abstraction and optimizing circuits for efficiency, which directly influences the cost of using SNARKs. Common root causes for vulnerabilities include the improper distinction between assignments and constraints, missing input constraints, and unsafe reuse of circuits.
On the same day, the conference also featured a presentation by the Aptos team on their newly implemented weighted verifiable random functions, or weighted VRFs. This mechanism increases randomness in the consensus process by integrating weights into the random selection of inputs and outputs on-chain.
This approach was deployed on the Aptos mainnet in June, and allows participants to have varying probabilities of being chosen based on their stake (weights). According to Alin Tomescu, head of cryptography at Aptos, the system has processed half a million calls through the new randomness API, with distributed key generation (DKG) taking about 20 seconds. Optimizations reduced the initial randomness latency from 160 milliseconds to 25 milliseconds.
WazirX to Restore User Balances After Hack
Meanwhile, Indian crypto exchange WazirX is set to restore the balances of all platform accounts after its $235 million hack in 2024 that led to the suspension of withdrawals. On Aug. 8, WazirX announced that it will undo all trades that were conducted after the withdrawal halt on July 18, and restore users' portfolio balances to their state before the incident.
The account recovery process will take place over the next few days, and the affected users will receive email notifications about the impacted trades.
The decision to reverse post-hack trades was made to ensure an equitable outcome for all of the users who were affected by the abnormality caused by the hack. WazirX will cancel trades made between July 18 and July 21, rendering them ineffective and restoring users' portfolios to their previous state. Any fees and referrals linked to the restoration will also be reversed. Deposits that were made after July 18 will be addressed in a future update.
The hack targeted WazirX’s Safe Multisig wallet on Ethereum, and resulted in the theft of at least $100 million in Shiba Inu (SHIB) and $52 million in Ethereum (ETH), which was at least 45% of the exchange’s reserves. The breach happened because of discrepancies between data on WazirX’s digital custody platform, Liminal, and the actual transactions on WazirX.
