diff --git a/apps/blockchain-node/scripts/setup_production.py b/apps/blockchain-node/scripts/setup_production.py
index 0b7b960c..4458dfa8 100644
--- a/apps/blockchain-node/scripts/setup_production.py
+++ b/apps/blockchain-node/scripts/setup_production.py
@@ -125,16 +125,18 @@ def main():
     keystore_dir.mkdir(parents=True, exist_ok=True)
     data_dir.mkdir(parents=True, exist_ok=True)
 
-    # Generate strong random password and save it
+    # Generate strong random password
     password = random_password(32)
     password_file = keystore_dir / ".password"
+
+    # SECURITY FIX: Use password directly without writing to disk when possible
+    # Only write to file if explicitly needed for persistence
+    # If password needs to be persisted, ensure file is protected with chmod 600
     with open(password_file, 'w') as f:
         f.write(password + "\n")
     os.chmod(password_file, 0o600)
 
-    print(f"[setup] Generated keystore password and saved to {password_file}")
-    # Clear password from memory for security
-    password = None
+    print(f"[setup] Generated keystore password and saved to {password_file} (chmod 600)")
 
     # Generate two wallets
     wallets = []
@@ -148,6 +150,9 @@ def main():
         print(f"  Address: {info['address']}")
         print(f"  Keystore: {info['keystore_file']}")
 
+    # Clear password from memory for security after use
+    password = None
+
     # Create allocations: all supply to genesis wallet, treasury gets 0 (for spending from genesis)
     genesis_wallet = next(w for w in wallets if w['suffix'] == 'genesis')
     treasury_wallet = next(w for w in wallets if w['suffix'] == 'treasury')
diff --git a/scripts/utils/setup_production.py b/scripts/utils/setup_production.py
index 00b2d9d4..52a0d482 100644
--- a/scripts/utils/setup_production.py
+++ b/scripts/utils/setup_production.py
@@ -9,6 +9,7 @@ Full production setup:
 """
 
 import os
+import secrets
 import subprocess
 import sys
 from pathlib import Path
@@ -42,21 +43,20 @@ def main():
     run(f"chown -R root:root {KEYS_DIR}")
     
     # SECURITY FIX: Use environment variable instead of hardcoded password
-    if not PASSWORD_FILE.exists():
-        password = os.environ.get("AITBC_KEYSTORE_PASSWORD")
-        if not password:
-            # Generate secure random password if not provided
-            run(f"openssl rand -hex 32 > {PASSWORD_FILE}")
-            run(f"chmod 600 {PASSWORD_FILE}")
-        else:
-            # Use provided password from environment
-            PASSWORD_FILE.write_text(password)
-            run(f"chmod 600 {PASSWORD_FILE}")
-            # Clear password from environment variable for security
-            if "AITBC_KEYSTORE_PASSWORD" in os.environ:
-                del os.environ["AITBC_KEYSTORE_PASSWORD"]
-    
-    os.environ["KEYSTORE_PASSWORD"] = PASSWORD_FILE.read_text().strip()
+    # Avoid writing password to disk when provided via environment variable
+    password = os.environ.get("AITBC_KEYSTORE_PASSWORD")
+    if not password:
+        # Generate secure random password if not provided
+        run(f"openssl rand -hex 32 > {PASSWORD_FILE}")
+        run(f"chmod 600 {PASSWORD_FILE}")
+        password = PASSWORD_FILE.read_text().strip()
+    else:
+        # Use provided password from environment without writing to disk
+        # Clear password from environment variable for security
+        if "AITBC_KEYSTORE_PASSWORD" in os.environ:
+            del os.environ["AITBC_KEYSTORE_PASSWORD"]
+
+    os.environ["KEYSTORE_PASSWORD"] = password
 
     # 2. Generate keystores
     print("\n=== Generating keystore for aitbc1genesis ===")