I read the article by Obsidian Systems and the linked post on recovery attack. I am not an expert, so I am asking to provide some details on why new accounts should use bip25519 derivation scheme and if there is a security issue for those who still use (and bake) with ed25519.
Thanks for asking! See the answer I provided on this question - Kiln supporting bip32-ed25519 addreses. I'll copy it here for convenience:
Tezos has adopted this new derivation scheme because it improves security. Backstory: because this update involves BIP32 (Bitcoin Improvement Proposal 32), it is important to contrast how addresses are used in Bitcoin and Tezos:
Bitcoin: Users have a root address, from which you can derive a unique address from for each transaction so no two people are sending BTC to you using the same destination address. These are sometime called throwaway receipt addresses. Tezos: Users typically use the same exact address for all operations. Sometimes its the root address, most often it is the /0h/0h derivation path. These is the same as any of the uniquely derived BTC addresses you would use, it just uses Tezos’ path instead of Bitcoin’s. The changes to this derivation scheme are more important in the context of Bitcoin users than they are Tezos. The issue lies the math that BIP32 uses. It assumes that all points on a signing (elliptic) curve are valid, when really only half are valid ECDSA keys. These invalid keys depend on parts of your root key and typically only found using a derivation path with very large numbers or really deep derivations - for example: /7293843h/9372365h instead of /0h/0h. That’s also why this issue wasn’t caught until the derivation scheme was already in use.
If you attempt to use addresses on the invalid part of the curve and an attacker determines which of those addresses do not work, they could use this information to determine your private key. Note that this attack vector requires that you have shared many derived addresses from your root key, which is what makes this attack less likely on Tezos than on Bitcoin.