[bitcoin-dev] Electrum Personal Server alpha release

[Chris Belcher <belcher@riseup.net>]

Electrum is a popular bitcoin wallet, but it is not a full node wallet
as it synchronizes itself using third-party Electrum servers. The
servers must be trusted to verify the rules of bitcoin, they can trick
Electrum wallets into accepting fake bitcoin transactions which, for
example, print infinite money. Bitcoin's security model requires that
most economic activity is backed by full nodes. The Electrum servers
must also be trusted with the user's privacy, as wallets send all their
bitcoin addresses to the server. Spying on wallets is not much more
complicated than simply grepping the server logs. Electrum wallets by
default also connect to servers using their own IP address, linking it
further to their revealed bitcoin addresses.

A way to avoid these problems is for users to run their own Electrum
server and connect their wallets only to it. But this requires
significant resource usage: the full unpruned blockchain, transaction
index and an extra address index, as well as more RAM and CPU usage
compared to just a full node. Servers are not well suited to being shut
down and started up again, they are typically always online.

Electrum servers store a database of every bitcoin address ever used,
which is inherently not scalable. This is resource-intensive and
therefore pushes users towards centralized solutions. An alternative way
would be to store only your own addresses and transactions.

Introducing Electrum Personal Server; an implementation of the Electrum
server protocol which fulfills the specific need of using the Electrum
UI with full node verification and privacy, but without the heavyweight
server backend, for a single user. It allows the user to benefit from
all of Bitcoin Core's resource-saving features like pruning, blocksonly
and disabled txindex. All of Electrum's feature-richness like hardware
wallet integration, multisignature wallets, offline signing, mnemonic
recovery phrases and so on can still be used, but backed by the user's
own full node.

An alpha version of Electrum Personal Server can be found on the
repository: https://github.com/chris-belcher/electrum-personal-server

Before using, the wallet user must configure Electrum Personal Server
with their master public key and those addresses are imported into
Bitcoin Core as watch-only. If the wallet contains historical
transactions then it must be rescanned. One of Electrum's motivating
features is "instant on", which is therefore traded away when using
Electrum Personal Server in return for full node verification and
privacy. Although if a brand new empty wallet is created there is no
need to rescan. A script like Electrum Personal Server is also well
suited to use private transaction broadcasting tech like dandelion or
broadcasting through tor.

Using Electrum with Electrum Personal Server is probably the most
resource-efficient way right now to use a hardware wallet connected to
your own full node. People who make use of Blockstream Satellite could
use it to have an off-the-grid node connected to Electrum if that is
their preferred wallet. In the situation of a traveller staying a cheap
hostels, they could sync their node every couple of days to download
recent blocks and use Electrum. Hopefully this software can be part of
the plan to get full node wallets into the hands of as many people as
possible.

The same kind of ideas could be applied to other lightweight wallets.
For example a full nodes can run on smartphones with pruning and
blocksonly, then a similar script would allow the user to connect their
Samourai Wallet, Breadwallet or GreenAddress app to their own full node.


Further Reading:

* https://bitcointalk.org/index.php?topic=2664747.msg27179198
*
https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2017-September/015030.html
* https://bitcointalk.org/index.php?topic=1634967.0;all