The Case For Improving Crypto Wallet Security28 Mar 2023 - Posted by Viktor Chuchurski
Anatomy Of A Modern Day Crypto Scam
A large number of today’s crypto scams involve some sort of phishing attack, where the user is tricked into visiting a shady/malicious web site and connecting their wallet to it. The main goal is to trick the user into signing a transaction which will ultimately give the attacker control over the user’s tokens.
Usually, it all starts with a tweet or a post on some Telegram group or Slack channel, where a link is sent advertising either a new yield farming protocol boasting large APYs, or a new NFT project which just started minting. In order to interact with the web site, the user would need to connect their wallet and perform some confirmation or authorization steps.
Let’s take a look at the common NFT
approve scam. The user is lead to the malicious NFT site, advertising a limited pre-mint of their new NFT collection. The user is then prompted to connect their wallet and sign a transaction, confirming the mint. However, for some reason, the transaction fails. The same happens on the next attempt. With each failed attempt, the user becomes more and more frustrated, believing the issue causes them to miss out on the mint. Their concentration and focus shifts slightly from paying attention to the transactions, to missing out on a great opportunity.
At this point, the phishing is in full swing. A few more failed attempts, and the victim bites.
(Image borrowed from How scammers manipulate Smart Contracts to steal and how to avoid it)
The final transaction, instead of the
mint function, calls the
setApprovalForAll, which essentially will give the malicious actor control over the user’s tokens. The user by this point is in a state where they blindly confirm transactions, hoping that the minting will not close.
Unfortunately, the last transaction is the one that goes through. Game over for the victim. All the attacker has to do now is act quickly and transfer the tokens away from the user’s wallet before the victim realizes what happened.
These type of attacks are really common today. A user stumbles on a link to a project offering new opportunities for profits, they connect their wallet, and mistakenly hand over their tokens to malicious actors. While a case can be made for user education, responsibility, and researching a project before interacting with it, we believe that software also has a big part to play.
The Case For Improving Crypto Wallet Security
Nobody can deny that the introduction of both blockchain-based technologies and Web3 have had a massive impact on the world. A lot of them have offered the following common set of features:
- transfer of funds
- permission-less currency exchange
- decentralized governance
- digital collectibles
Regardless of the tech-stack used to build these platforms, it’s ultimately the users who make the platform. This means that users need a way to interact with their platform of choice. Today, the most user-friendly way of interacting with blockchain-based platforms is by using a crypto wallet. In simple terms, a crypto wallet is a piece of software which facilitates signing of blockchain transactions using the user’s private key. There are multiple types of wallets including software, hardware, custodial, and non-custodial. For the purposes of this post, we will focus on software based wallets.
Before continuing, let’s take a short detour to Web2. In that world, we can say that platforms (also called services, portals or servers) are primarily built using TCP/IP based technologies. In order for users to be able to interact with them, they use a user-agent, also known as a web browser. With that said, we can make the following parallel to Web3:
|Blockchain JSON RPC
Web browsers are arguably much, much more complex pieces of software compared to crypto wallets - and with good reason. As the Internet developed, people figured out how to put different media on it and web pages allowed for dynamic and scriptable content. Over time, advancements in HTML and CSS technologies changed what and how content could be shown on a single page. The Internet became a place where people went to socialize, find entertainment, and make purchases. Browsers needed to evolve, to support new technological advancements, which in turn increased complexity. As with all software, complexity is the enemy, and complexity is where bugs and vulnerabilities are born. Browsers needed to implement controls to help mitigate web-based vulnerabilities such as spoofing, XSS, and DNS rebinding while still helping to facilitate secure communication via encrypted TLS connections.
Next, lets see what a typical crypto wallet interaction for a normal user might look like.
The Current State Of Things In The Web3 World
Using a Web3 platform today usually means that a user is interacting with a web application (Dapp), which contains code to interact with the user’s wallet and smart contracts belonging to the platform. The steps in that communication flow generally look like:
1. Open the Dapp
In most cases, the user will navigate their web browser to a URL where the Dapp is hosted (ex. Uniswap). This will load the web page containing the Dapp’s code. Once loaded, the Dapp will try to connect to the user’s wallet.
2. Authorizing The Dapp
A few of the protections implemented by crypto wallets include requiring authorization before being able to access the user’s accounts and requests for transactions to be signed. This was not the case before EIP-1102. However, implementing these features helped keep users anonymous, stop Dapp spam, and provide a way for the user to manage trusted and un-trusted Dapp domains.
If all the previous steps were completed successfully, the user can start using the Dapp.
When the user decides to perform an action (make a transaction, buy an NFT, stake their tokens, etc.), the user’s wallet will display a popup, asking whether the user confirms the action. The transaction parameters are generated by the Dapp and forwarded to the wallet. If confirmed, the transaction will be signed and published to the blockchain, awaiting confirmation.
Besides the authorization popup when initially connecting to the Dapp, the user is not shown much additional information about the application or the platform. This ultimately burdens the user with verifying the legitimacy and trustworthiness of the Dapp and, unfortunately, this requires some degree of technical knowledge often out-of-reach for the majority of common users. While doing your own research, a common mantra of the Web3 world, is recommended, one misstep can lead to significant loss of funds.
That being said, let’s now take another detour to Web2 world, and see what a similar interaction looks like.
How Does The Web2 World Handle Similar Situations?
Like the previous example, we’ll look at what happens when a user wants to use a Web2 application. Let’s say that the user wants to check their email inbox. They’ll start by navigating their browser to the email domain (ex. Gmail). In the background, the browser performs a TLS handshake, trying to establish a secure connection to Gmail’s servers. This will enable an encrypted channel between the user’s browser and Gmail’s servers, eliminating the possibility of any eavesdropping. If the handshake is successful, an encrypted connection is established and communicated to the user through the browser’s UI.
The secure connection is based on certificates issued for the domain the user is trying to access. A certificate contains a public key used to establish the encrypted connection. Additionally, certificates must be signed by a trusted third-party called a Certificate Authority (CA), giving the issued certificate legitimacy and guaranteeing that it belongs to the domain being accessed.
But, what happens if that is not the case? What happens when the certificate is for some reason rejected by the browser? Well, in that case a massive red warning is shown, explaining what happened to the user.
Such warnings will be shown when a secure connection could not be established, the certificate of the host is not trusted or if the certificate is expired. The browser also tries to show, in a human-readable manner, as much useful information about the error as possible. At this point, it’s the choice of the user whether they trust the site and want to continue interacting with it. The task of the browser is to inform the user of potential issues.
What Can Be Done?
Crypto wallets should show the user as much information about the action being performed as possible. The user should see information about the domain/Dapp they are interacting with. Details about the actual transaction’s content, such as what function is being invoked and its parameters should be displayed in a user-readable fashion.
Comparing both previous examples, we can notice a lack of verification and information being displayed in crypto wallets today. This, then poses the question: what can be done? There exist a number of publicly available indicators for the health and legitimacy of a project. We believe communicating these to the user may be a good step forward in addressing this issue. Let’s go quickly go through them.
Proof Of Smart Contract Ownership
It is important to prove that a domain has ownership over the smart contracts with which it interacts. Currently, this mechanism doesn’t seem to exist. However, we think we have a good solution. Similarly to how Apple performs merchant domain verification, a simple JSON file or
dapp_file can be used to verify ownership. The file can be stored on the root of the Dapp’s domain, on the path
.well-known/dapp_file. The JSON file can contain the following information:
- address of the smart contract the Dapp is interacting with
- timestamp showing when the file was generated
- signature of the content, verifying the validity of the file
At this point, a reader might say: “How does this show ownership of the contract?”. The key to that is the signature. Namely, the signature is generated by using the private key of the account which deployed the contract. The transparency of the blockchain can be used to get the deployer address, which can then be used to verify the signature (similarly to how Ethereum smart contracts verify signatures on-chain).
This mechanism enables creating an explicit association between a smart contract and the Dapp. The association can later be used to perform additional verification.
Domain Registration Records
When a new domain is purchased or registered, a public record is created in a public registrar, indicating the domain is owned by someone and is no longer available for purchase. The domain name is used by the Domain Name Service, or DNS, which translates it (ex www.doyensec.com) to a machine-friendly IP address (ex. 188.8.131.52).
The creation date of a DNS record shows when the Dapp’s domain was initially purchased. So, if a user is trying to interact with an already long established project and runs into a domain which claims to be that project with a recently created domain registration record, it may be a signal of possible fraudulent activities.
Creation and expiration dates of TLS certificates can be viewed in a similar fashion as DNS records. However, due to the short duration of certificates issued by services such as Let’s Encrypt, there is a strong chance that visitors of the Dapp will be shown a relatively new certificate.
TLS certificates, however, can be viewed as a way of verifying a correct web site setup where the owner took additional steps to allow secure communication between the user and their application.
Smart Contract Source Code Verification Status
Published and verified source code allows for audits of the smart contract’s functionality and can allow quick identification of malicious activity.
Smart Contract Deployment Date
The smart contract’s deployment date can provide additional information about the project. For example, if attackers set up a fake Uniswap web site, the likelihood of the malicious smart contract being recently deployed is high. If interacting with an already established, legitimate project, such a discrepancy should alarm the user of potential malicious activity.
Smart Contract Interactions
Trustworthiness of a project can be seen as a function of the number of interactions with that project’s smart contracts. A healthy project, with a large user base will likely have a large number of unique interactions with the project’s contracts. A small number of interactions, unique or not, suggest the opposite. While typical of a new project, it can also be an indicator of smart contracts set up to impersonate a legitimate project. Such smart contracts will not have the large user base of the original project, and thus the number of interactions with the project will be low.
Overall, a large number of unique interactions over a long period of time with a smart contract may be a powerful indicator of a project’s health and the health of its ecosystem.
While there are authorization steps implemented when a wallet is connecting to an unknown domain, we think there is space for improvement. The connection and transaction signing process can be further updated to show user-readable information about the domain/Dapp being accessed.
As a proof-of-concept, we implemented a simple web service https://github.com/doyensec/wallet-info. The service utilizes public information, such as domain registration records, TLS certificate information and data available via Etherscan’s API. The data is retrieved, validated, parsed and returned to the caller.
The service provides access to the following endpoints:
The data these endpoints return can be integrated in crypto wallets at two points in the user’s interaction.
Initial Dapp Access
/host endpoint can be used when the user is initially connecting to a Dapp. The Dapp’s URL should be passed as a parameter to the endpoint. The service will use the supplied URL to gather information about the web site and its configuration. Additionally, the service will check for the presence of the
dapp_file on the site’s root and verify its signature. Once processing is finished, the service will respond with:
"name": "Example Dapp",
This information can be shown to the user in a dialog UI element, such as:
As a concrete example, lets take a look at this fake Uniswap site was active during the writing of this post. If a user tried to connect their wallet to the Dapp running on the site, the following information would be returned to the user:
The missing information from the response reflect that the
dapp_file was not found on this domain. This information will then be reflected on the UI, informing the user of potential issues with the Dapp:
At this point, the users can review the information and decide whether they feel comfortable giving the Dapp access to their wallet. Once the Dapp is authorized, this information doesn’t need to be shown anymore. Though, it would be beneficial to occasionally re-display this information, so that any changes in the Dapp or its domain will be communicated to the user.
Making A Transaction
Transactions can be split in two groups: transactions that transfer native tokens and transactions which are smart contract function calls. Based on the type of transaction being performed, the
/contract endpoint can be used to retrieve information about the recipient of the transferred assets.
For our case, the smart contract function calls are the more interesting group of transactions. The wallet can retrieve information about both the smart contract on which the function will be called as well as the function parameter representing the recipient. For example the
spender parameter in the
approve(address spender, uint256 amount) function call. This information can be retrieved on a case-by-case basis, depending on the function call being performed.
Signatures of widely used functions are available and can be implemented in the wallet as a type of an allow or safe list. If a signature is unknown, the user should be informed about it.
Verifying the recipient gives users confidence they are transferring tokens, or allowing access to their tokens for known, legitimate addresses.
An example response for a given address will look something like:
In the background, the web service will gather information about the type of address (EOA or smart contract), code verification status, address interaction information etc. All of that should be shown to the user as part of the transaction confirmation step.
Links to the smart contract and any additional information can be provided here, helping users perform additional verification if they so wish.
In the case of native token transfers, the majority of verification consists of typing in the valid
to address. This is not a task that is well suited for automatic verification. For this use case, wallets provide an “address book” like functionality, which should be utilized to minimize any user errors when initializing a transaction.
The point of this post is to highlight the shortcomings of today’s crypto wallet implementations, to present ideas, and make suggestions for how they can be improved. This field is actively being worked on. Recently, MetaMask updated their confirmation UI to display additional information, informing users of potential
setApprovalForAll scams. This is a step in the right direction, but there is still a long way to go. Features like these can be built upon and augmented, to a point where users can make transactions and know, to a high level of certainty, that they are not making a mistake or being scammed.
There are also third-party groups like WalletGuard and ZenGo who have implemented similar verifications described in this post. These features should be a standard and required for every crypto wallet, and not just an additional piece of software that needs to be installed.
Like the user-agent of Web2, the web browser, user-agents of Web3 should do as much as possible to inform and protect their users.
Our implementation of the
wallet-info web service is just an example of how public information can be pooled together. That information, combined with a good UI/UX design, will greatly improve the security of crypto wallets and, in turn, the security of the entire Web3 ecosystem.
Does Dapp verification completely solve the phishing/scam problem? Unfortunately, the answer is no. The proposed changes can help users in distinguishing between legitimate projects and potential scams, and guide them to make the right decision. Dedicated attackers, given enough time and funds, will always be able to produce a smart contract, Dapp or web site, which will look harmless using the indicators described above. This is true for both the Web2 and Web3 world.
Ultimately, it is up to the user to decide if the they feel comfortable giving their login credentials to a web site, or access to their crypto wallet to a Dapp. All software can do is point them in the right direction.