A Bitcoin trader has inadvertently incinerated close to $60,000 in transaction fees following a disastrous attempt to use the replace-by-fee (RBF) mechanism.
The event took place shortly after midnight UTC on April 8, when a Bitcoin user sought to replace their transaction using RBF. This functionality permits users to resend a transaction with an increased fee, thereby encouraging miners to prioritize its confirmation.
The initial transaction included a standard fee and was designed to transfer 0.48 BTC (approximately $37,770 at that time) along with around 0.2 BTC (nearly $16,357) as change. However, the subsequent RBF attempt led to unexpected consequences.
Source: Blockchair
Rather than simply raising the fee to expedite confirmation, the user’s secondary RBF attempt mistakenly introduced a new input UTXO (unspent transaction output) of 0.75 BTC, presumably in an effort to enhance the fee.
Unfortunately, a misstep in specifying a correct change address or a misunderstanding of the fee mechanics resulted in the entire 0.75 BTC being processed as a fee.
This blunder led to the miner receiving nearly three-quarters of a Bitcoin, amounting to about $60,000.
Replace-by-Fee: The Double-Edged Sword
This incident reignites discussions surrounding the safety and functionality of Bitcoin’s RBF feature, which remains a polarizing topic.
RBF (Replace-By-Fee) explained in 4 slides.#Bitcoin pic.twitter.com/2yOsXwIhA7
— Bitcoin Illustrated (@BTCillustrated) August 5, 2023
The RBF mechanism allows users to modify an unconfirmed transaction by submitting a new transaction with a higher fee. This theoretically replaces the previous transaction in the mempool, increasing the likelihood of quicker confirmation.
However, this flexibility can be a double-edged sword. While it is a valuable tool for expediting transactions during periods of congestion, it is also susceptible to misuse or confusion, particularly by inexperienced users or those employing faulty automated systems.
Bitcoin developers designed RBF under the assumption that miners would almost always prefer transactions with higher fees. This decentralized system makes it challenging to enforce a strictly first-come, first-served method for unconfirmed transactions.
Past experiences have shown that even seasoned users and institutions can fall victim to errors involving RBF.
A History of Costly Errors
This is not the first instance of exorbitant fees mistakenly incurred on the Bitcoin network.
In November 2023, a Bitcoin user inadvertently paid over $3.1 million in transaction fees to move 139.42 BTC, with only 55.77 BTC successfully reaching the recipient while the rest was lost as a fee.
pic.twitter.com/mAieVPi3a0
— mononaut (@mononautical) September 10, 2023
This incident was attributed to human error, likely stemming from incorrect RBF settings.
In another notable occurrence in September 2023, financial infrastructure provider Paxos mistakenly paid a $510,000 fee to transfer merely $2,000 worth of BTC, attributed to a bug during a single transfer by an experienced Bitcoin user with a history of over 120,000 transactions.
F2Pool, the miner conducting the transaction, initially held the funds while awaiting a claim.
F2Pool has sent the 19.82108632 BTC fee overpayment back to Paxos https://t.co/IB32RNq5uO
— mempool (@mempool) September 15, 2023
Paxos later confirmed the error and managed to recover the fee three days afterward.
Another dramatic incident also unfolded around the same period in 2023, where a transaction fee of $500,000 was mistakenly paid on a transfer of just $200. Although some speculated potential links to illicit activity, the consensus was that this error stemmed from a software bug in an automated payment system.
Given that Bitcoin fees typically hover around $1 to $2, this mistake led to a fee charge approximately 481,299 times greater than expected.
In all these cases, the involvement of mining pools is crucial, as whether a fee is refunded often relies on the goodwill of the miner and how credible they perceive the request to be.
The unfortunate user in the current incident has limited options for recourse unless the miner who received the fee opts to return it voluntarily. As the recipient miner has not yet made a statement, it appears that this costly error may go unrepaired.
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