[bitcoin-dev] Hardware wallets and "advanced" Bitcoin features

[Kevin Loaec]

Hello everyone,

I would like to start a discussion on improving Hardware Wallets.

My approach to this right now is from a vault protocol we are developing (Revault, [1]), and its Hardware Wallet
requirements. I started working on a Github Issue in our repo [2], other people recommended us to do a more general
discussion on the mailing list instead as it could benefit many other protocols and users.
This email discusses improvements that would benefit everyone, and some that are more suitable for "layer 2" or pre-
signed transactions protocols.
The goal is to spark discussions and hopefully iterate to a more secure and more usable hardware ecosystem for all
bitcoiners.
While I mainly foresee issues/improvements that may affect Revault, I would be really happy to see people joining this
thread with any other ideas and remarks that would benefit some parts of Bitcoin that I overlooked.



Prior work on similar problematics:
===================================
- ZmnSCPx
j: [Lightning-dev] Speculations on hardware wallet support for Lightning [3]
- mflaxman: Known Issues: Verifying a Receive Address [4]
- ksedgwic and devrandom01: Lightning-signer [5]
- benma: How nearly all personal hardware wallet multisig setups are insecure [6]


The postulate we start from is that Hardware Wallets (HW) are useful to mitigate the compromission of the day-to-day
device of a user. They mainly prevent private-key extraction today, and aren't very suitable against an attack on the
transaction being signed, as explained further.
To make this discussion security-focused, let's assume the general purpose device (laptop, for example) is compromised
with a malware implanted by an attacker, capable of modifying PSBTs, displayed addresses, etc.

Our study so far:


Output Script Parsing:
======================
Problem: A typical HW today would display the "destination" of a transaction in the form of a bitcoin address. A user
would generally compare this wit
h the address displayed on his laptop screen... which might have been compromised
already. The correct usage would be for a user to verify this address on a third device (mobile phone, for example).
This is weak security and bad user experience.
Proposed improvement: The HW should display the Bitcoin Script itself when possible (including the unlock conditions).
The best way to do so would be to lift this Script to a more user-friendly format such as a MiniScript Policy display,
but anything would be better than an "address".
This applies to pre-signed transaction protocols especially well as the template of these transactions could be known
and recognized by the HW. Typically for Revault, the HW could display: "Unvault Transaction, all expected pubkeys
present in the script".


Pubkey Interpretation:
======================
Problem: currently HW cannot "identify" addresses or keys.
Proposed improvement: The HW could know pubkeys or xpubs it does not hold the private keys 
for, and display a label (or
understand it for logic reasons, such as "expected pubkeys" as the previous example). Going further, the xpubs could be
aliased the first time they are entered/verified (as part of, say, an initial setup ceremony) for instance with the
previously mentioned Miniscript policy: or(pk(Alice), and(pk(Bob), after(42))).
This should be done in the Secure Element if possible to avoid physical compromission, but would be a strong improvement
versus a day-to-day laptop in any case.


Better Bitcoin Compatibility:
=============================
Problem: most HW cannot interpret some Script OPs such as OP_CSV, or any conditional outputs. This is a major issue for
anyone using Bitcoin "advanced" features. Related to this are the Sighash flags: most HW do not support most Sighash
flags. Kind of annoying for a signing device. Then there is PSBT support and the maximum transaction size limit for
these: we need more transparency from HW manufacturers on their li
mitations.
Solution: Make Bitcoin HW actually compatible with Bitcoin :D


Inputs (mainly for pre-signed Tx):
==================================
Problem: Poisoned inputs are a major risk for HW as they don't know the UTXO set. While this can be exploited for fee
attacks, it is a bigger threat to pre-signed transactions protocols. Once any input of a (pre-signed)transaction is
spent, this transaction isn't valid anymore. Most pre-signed transactions protocols are used today as a form of defense
mechanism, spending any input would mean incapacitating the entire defense mechanism.
Proposed improvement: for protocols that requires it, keeping track of inputs already signed once would be extremely
helpful. Going further, most of these protocols require to follow a specific signing order (typically the "clawback"
first, then the regular spend path) so adding a way to check that a "clawback" has been signed first, with the same
input, would be very helpful. All of this on the dev
ice itself.




I understand some of these changes may be very difficult, especially given the low memory and computational power of
secure elements. However I truly believe most of these points are a MUST have for any decent security. If you don't
assume the computer on which the transaction is crafted is compromised, then you don't need a hardware wallet. If you
assume it may be compromised, then the HW needs to be able to defend against those.

Revault does not plan on building hardware wallets, we hope existing and upcoming manufacturers will implement a strong
security that we could use for the Revault protocol users. Vault users will likely hold very large sums and would be
happy to pay a high premium for more secure HW. This will hopefully encourage existing players to keep on improving
their devices and that will ultimately benefit us all.

Feel free to reply with your comments or adding suggestions, I am not a hardware wallet expert and would take criticism
wit
hout being offended.

Kind Regards,
Kevin Loaec

[1]: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2020-May/017835.html
[2]: https://github.com/re-vault/practical-revault/issues/59
[3]: https://lists.linuxfoundation.org/pipermail/lightning-dev/2020-January/002425.html
[4]: https://btcguide.github.io/known-issues/verify-receive-address
[5]: https://gitlab.com/lightning-signer/docs
[6]: https://shiftcrypto.ch/blog/how-nearly-all-personal-hardware-wallet-multisig-setups-are-insecure/

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