# Security

## Threat model

Palladium Wallet is a self-custody SPV wallet. It is designed to protect funds against:

- Theft of the wallet file at rest (AES-256-GCM encryption with PBKDF2-HMAC-SHA512)
- Memory snooping of private keys after unlock (keys are held only in process memory, never written to disk in plaintext unless the user explicitly disables encryption)
- Fraudulent transaction injection by a malicious server (every confirmed transaction is verified with a Merkle proof against SPV-validated block headers anchored to hardcoded checkpoints)

It does **not** protect against:

- A fully compromised operating system or process (malware with memory access can extract keys from RAM)
- An attacker who obtains the wallet file **and** the password
- Denial of service or eclipse attacks against the indexing server
- Network-level traffic analysis (no Tor/proxy support in the first release)

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## SPV trust model

This wallet is an SPV client, not a full node. It validates:

- Block headers (proof of work checked up to the last checkpoint; `SkipPowValidation` is enabled because LWMA difficulty cannot be recomputed client-side — trust is anchored to hardcoded checkpoints in `Core/Chain/ChainProfiles.cs`)
- Transaction inclusion in a confirmed block (Merkle branch proof, mandatory for every confirmed transaction — see `Core/Spv/MerkleVerifier.cs`)

It does **not** validate:

- Script execution (P2WPKH scripts are assumed valid if the server returns a confirmed transaction with a valid Merkle proof)
- Double-spend detection beyond what the server reports (an eclipse attack on the indexing server could hide a conflicting transaction)
- Full block validity (coinbase, consensus rules beyond the header)

The indexing server (ElectrumX-compatible, port 50001/50002) is a **semi-trusted** component. It can:

- Lie about unconfirmed (mempool) transactions — the wallet shows mempool transactions as unconfirmed and non-spendable
- Refuse to relay a broadcast transaction
- Delay reporting of new blocks

It cannot (given correct Merkle verification):

- Fabricate a confirmed transaction with a valid Merkle proof
- Forge a payment to a wrong address

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## Key and seed management

- The BIP39 mnemonic and derived private keys exist only in process memory after unlock
- Private keys are never written to disk, logged, or sent over the network
- The wallet file stores the encrypted seed (with password) or the encrypted/plaintext `WalletDocument` — the document contains the account xpub and sync cache, not the raw seed when watch-only
- Watch-only wallets (`restore-xpub`) hold no private keys and cannot sign transactions

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## Encryption at rest

- Algorithm: AES-256-GCM
- Key derivation: PBKDF2-HMAC-SHA512, 100 000 iterations, 32-byte random salt
- Authentication: GCM tag (16 bytes) — any tampering is detected before decryption
- The user can explicitly opt out of encryption (UI shows a warning); the `WalletStore.Save` API accepts `null` password only when the caller has confirmed user intent

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## TLS certificate pinning

Connections to the indexing server use TOFU (Trust On First Use): the server's TLS certificate is pinned on first connection and stored in `server-certs.json`. A certificate change triggers a hard error (`CertificatePinMismatchException`) requiring explicit reset by the user. This prevents silent MITM substitution after first connection.

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## Backup

The wallet file is the only thing that needs to be backed up. For encrypted wallets, the password is also required. If both the file and the password are lost, funds are unrecoverable (no server-side backup). For watch-only wallets restored from xpub, the private keys must be kept in a separate cold storage device.

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## Known limitations and out-of-scope for v1

- No Tor/proxy support (network traffic reveals which addresses are being queried)
- No multi-server pooling (single point of failure for the indexing server)
- No hardware wallet integration
- No coin control (automatic UTXO selection only)
- No RBF/CPFP UI (RBF flag is set on all transactions, but fee bumping is not exposed)
- No Lightning Network support
