I was wondering exactly how powerful can keyloggers be?
Extremely powerful. But the use of the term keylogger can be distracting so lets explore what a keylogger is.
Back many decades ago computers had very small hard drives and little RAM, but lots of various cables and assorted adapters. The keyboard was connected to the computer tower with a 5-pin connecter known as an AT/XT connector because they were designed for the IBM AT, IBM XT, and clones. An 11 bit message was sent from the keyboard to the computer. The Integrated Circuit (IC) used to read the keyboard codes was widely available. A hardware keyboard signal recorder was easily made. Graphics were poor and a mouse would not become a standard input device until the IBM PS/2 four years later.
As computers evolved they became more powerful and had greater capacity for storage. What originally made hardware based keyboard recorders attractive was that provided an easy method for retrieval of the recorded information. As opposed the a floppy. When computers became networked machines (even if the network was made of analog phone modems) the network became a more attractive retrieval mechanism. Additionally now it was possible to attack computer to which you had no physical access. This generation of keyloggers ended to be software trojans that looked specifically for passwords. They targeted AOL, Novell Netware, and other network access programs.
In the modern age where computers are always on and always connected to a network, the keyloggers are more insidious. Now a attacker can simply watch what data you send on the network to look for unencrypted passwords. Keyloggers don't bother reading what the keyboard sends to the computer, instead they look for the final product sent from the machine. They are harder to find as they may hide among any of several running processes on your machine. Take a look at all the processes running on your machine (including the threads if you know how). The software to identify a password and record it may be very small.
But modern keyloggers are not limited to a few hundred or few thousand bytes. They can send millions of bytes and record everything from account numbers to e-mail addresses to IP addresses and more. They can be adaptive and discover linked information making the connection between a web address and a file used to store passwords. In fact most malware does not limit itself to search and transmitting user input. Keyloggers are more typically part of a fuller malware suite that includes a wide range of nastiness.
firstSecondandEight_character_of_password
, a hacker only has to bruteforce 3 characters to know your first, second, and eight character of actual password. If your pass would than be only 8 characters long, he just has 5 to left.