Bitcoins/Litecoins/Virtual Currencies

Kithani said:

wtf are you “sources”?

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Arden said:

Well, something just happened to turn the prediction markets negative. Not clear what. Someone got insider info.

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Flobee said:

They had a faulty number maker. The good number maker that they thought they were using wasn't actually getting used. Big computer number guessers guessing the right number to steal people's money.

Hope that helps

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Flobee said:

Probably need someone smarter than me to explain the relationship between entropy, random number generation, and a hardware wallet seed phrase in an easy to understand way haha. Cryptography is complicated.

I've enlisted the assistance of big number guesser himself though and he did a pretty good job

Spoiler: AI explanation

To explain how a seed phrase gets compromised in a situation like the one described, it helps to understand how **entropy**, **randomness**, and **seed generation** form the foundation of crypto security—and what happens when one link in that chain breaks.

---

## 1. Entropy: The Pool of Possibilities

**Entropy** is a measure of unpredictability or "true randomness." In cryptography, high entropy means there are so many possible outcomes that it is mathematically impossible for anyone—or any supercomputer—to guess your secret.

* **High Entropy:** Imagine choosing a specific grain of sand from every beach on Earth. It is impossible for someone to guess which grain you picked because the pool of possibilities is staggering ($2^{256}$ potential seed combinations).
* **Low Entropy:** Imagine picking a number between 1 and 100. A computer can guess that in milliseconds because the pool of possibilities is tiny.

---

## 2. Randomness (RNG): The Machine Drawing the Number

**Randomness** is the process used to pick a secret from that pool. To get high entropy, you need a **Cryptographically Secure Random Number Generator (CSPRNG)**. Hardware wallets usually use dedicated hardware chips (like thermal noise or radio noise sensors) to capture true physical chaos.

* **Cryptographic RNG:** Draws numbers in a way that is completely unpredictable, non-repeating, and impossible to reconstruct.
* **Standard/Default RNG (e.g., Python's standard `random` library):** Designed for things like video games, statistical simulations, or shuffling a digital deck of cards. It is a "pseudo-random" number generator. While it *looks* random to a human, it follows predictable mathematical algorithms. If an attacker knows the algorithm and a few clues, they can predict every number it will ever output.

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## 3. Seed Generation: Baking the Entropy into 12 or 24 Words

When you set up a hardware wallet, it goes through a specific sequence:

1. **Collects Entropy:** The wallet gathers raw bits of entropy (unpredictable 0s and 1s) using its hardware RNG.
2. **Generates a Seed:** It converts those random bits into a master private key.
3. **Translates to Words:** That long mathematical key is converted into your human-readable 12- or 24-word recovery phrase.

If the raw entropy collected in step 1 is truly random, your seed phrase is locked behind a door that no computer in the universe can break open.

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## 4. Bringing It All Together: What Happened in the Context

The scenario described highlights a critical point where this pipeline broke down:

```
[Hardware RNG Fails] ──> [Silent Fallback] ──> [Standard Python RNG Used] ──> [Low Entropy Seed Created]

```

1. **The Intended Design:** The wallet was supposed to use a custom, high-entropy random number function.
2. **The Software Glitch:** A naming conflict caused the code to silently fall back to Python’s default `random` module when the primary RNG failed.
3. **The Loss of Entropy:** Instead of drawing your seed from a pool of endless possibilities, the hardware wallet generated seeds from a small, mathematically predictable list produced by Python's standard RNG.
4. **The "Big Computer Guessers":** Because Python's default RNG isn't cryptographically secure, attackers running brute-force scripts don't have to search $2^{256}$ combinations. They only have to cycle through the predictable outputs of the weak algorithm to recreate the exact seed phrases generated by those affected wallets and drain the funds.

> **Key Takeaway:** Hardware wallet security relies entirely on high entropy. If the process for picking numbers drops from true cryptographic randomness to a simple software algorithm, even a 24-word seed phrase becomes easy for an attacker's automated script to guess.

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