How the Bluetooth Hack Works?

Researchers from the Israel Institute of Technology discovered that the Bluetooth specification recommends, but does not mandate devices supporting the two features to validate the public encryption key received over-the-air during secure pairing.
Since this specification is optional, some vendors' Bluetooth products supporting the two features do not sufficiently validate elliptic curve parameters used to generate public keys during the Diffie-Hellman key exchange.
In this case, an unauthenticated, remote attacker within the range of targeted devices during the pairing process can launch a man-in-the-middle attack to obtain the cryptographic key used by the device, allowing them to potentially snoop on supposedly encrypted device communication to steal data going over-the-air, and inject malware.
Here's what the Bluetooth Special Interest Group (SIG), the maintainers of the technology, says about the flaw: