Bitcoin User Loses $70,500 in Exorbitant Transaction Fee

In a recent incident, a Bitcoin user inadvertently paid an exorbitant transaction fee of nearly 0.75 BTC, equivalent to approximately $70,500. The transaction, which occurred around 30 minutes after midnight UTC on April 8, was the second attempt at performing a replace-by-fee (RBF) transaction. The initial transaction aimed to send 0.48 BTC ($37,770) with 0.2 BTC of change ($16,357).

Anmol Jain, vice president of investigations at a crypto forensics firm, noted that the original transaction featured a “default or conservative” fee. The first RBF attempt doubled the fee and altered the output address. Both transactions are now awaiting confirmation that will never come, as the much higher fee RBF transaction took precedence with the same output as the second RBF transaction. This suggests an attempt to bump the fee to ensure the RBF is processed rather than the original transaction.

The incident appears to be a panic-induced error, with the user likely rushing to prevent the original transaction from being included in a block and becoming final. Jain suggested several potential explanations for the error. One possibility is that the user intended to set a fee of 30.5692 sat but, due to haste or a typo, ended up using 305,692 sat. The second RBF transaction also included an additional unspent transaction output (UTXO) containing nearly 0.75 BTC, which was mistakenly included as part of the fee. This could be due to the user failing to update the change address or misjudging the transaction’s structure.

Another possibility is that the user confused a fee in absolute terms with one set in satoshi per virtual byte (transaction size) or that an automated script behind the transaction contained a bug. The wallet could allow setting a fee in satoshis, leading to a scenario where the fee is set too low, triggering a warning and an overcorrection. For example, the system might read it as a 30 sat total fee, which is too low, prompting the user to type 305,000 thinking it means 30.5 sat/vB, but the wallet actually applies 305,000 sats/vB, resulting in an insanely high fee.

RBF is a widely misunderstood and controversial feature of Bitcoin. Transactions are considered non-final until they are included in a block, with further confirmation by more blocks in the same chain. Transactions in the mempool are at the mercy of miners, who are expected to be profit-driven. Bitcoin developers foresaw that with multiple conflicting Bitcoin transactions, the financial incentive would be to process the one paying the higher fee. There is no easy way to prevent miners from including the transaction that was sent first, and it is not straightforward to establish which transaction was submitted first due to the decentralized nature of the network. Consequently, the RBF feature allows users to edit unconfirmed transactions by submitting an alternative transaction with a higher fee.

This feature has led to controversies in the past, with some claiming that RBFs allow for Bitcoin double-spends. In contrast, other cryptocurrencies like Bitcoin Cash have removed the feature, claiming that unconfirmed transactions sent on that network are final and secure to accept. However, RBF-like transactions have been confirmed to occasionally occur on Bitcoin Cash as well, as RBF is an implied property of a Bitcoin-like consensus mechanism that was formalized as a feature.