Replace-by-fee (RBF), explained

What is the replace-by-fee (RBF) policy?

The Bitcoin network’s replace-by-fee (RBF) argumentation enables users to regenerate pending (unconfirmed) transactions with caller ones with higher transaction costs. 

The RBF argumentation was projected successful BIP 125 and introduced arsenic a diagnostic successful the Bitcoin protocol with the merchandise of Bitcoin Core mentation 0.12.0, which was released successful February 2016. This diagnostic provides flexibility to users who privation to velocity up their transactions oregon modify the interest successful absorption to web constraints. 

On Nov. 23, 2023, a Bitcoin idiosyncratic made a transaction astatine 9:59 americium UTC, paying an exceptionally high transaction interest of $3.1 million for transferring 139.42 Bitcoin (BTC). This exorbitant interest acceptable a grounds arsenic the eighth-highest successful Bitcoin’s history. To enactment it successful perspective, the idiosyncratic overpaid 119,980 times the emblematic transaction fee. There are a mates of factors astatine play here:

High transaction interest selection

The sender whitethorn person purposefully selected a precocious transaction complaint successful an effort to get a quicker confirmation oregon due to the fact that they misjudged the fee. 

RBF policy

Users whitethorn substitute a higher-fee transaction for an unconfirmed transaction nether the replace-by-fee policy. This implies that to warrant speedier confirmation, the sender whitethorn person chosen to regenerate the archetypal transaction, which whitethorn person had a precocious cost, with a caller 1 with an adjacent higher fee.

Sender’s unawareness

It’s imaginable that the sender was not paying adjacent attraction to the web circumstances oregon was not wholly alert of the consequences of their actions. They mightiness not person anticipated that the RBF would pb to a important transaction interest increase.

Which blockchain networks enactment RBF?

RBF capableness comes successful useful erstwhile Bitcoin users privation to velocity up transaction confirmation oregon modify costs successful absorption to shifting web conditions.

Replace-by-fee is simply a transaction argumentation embedded successful the Bitcoin web protocol and is supported by Bitcoin Core, the notation implementation of the protocol. As mentioned, owed to the RBF policy, users tin swap retired an unconfirmed Bitcoin transaction for a caller 1 with a higher transaction fee.

It is important to retrieve that antithetic wallets and services wrong the Bitcoin ecosystem whitethorn clasp RBF differently. For instance, though RBF is supported by Bitcoin Core, not each wallets whitethorn follow oregon connection this feature. To guarantee that their wallet oregon work is compatible with the replace-by-fee policy, users should corroborate the peculiar characteristics and guidelines of the platform.

Other RBF rules see that the caller transaction indispensable support the aforesaid outputs arsenic the erstwhile 1 and person a higher series fig for each input to usage RBF. Additionally, RBF lone applies to transactions that person not yet been confirmed; erstwhile a transaction is approved, it cannot beryllium undone. However, arsenic not each nodes and miners whitethorn enactment oregon admit RBF transactions, its efficacy depends connected web conditions and miners’ willingness to prioritize transactions with higher fees.

In addition, circumstantial wallets, specified arsenic Trezor, allow users to “Bump Fee” connected pending, unconfirmed transactions. Moreover, Crypto.com users tin utilize precocious transaction settings to nonstop Ether (ETH) oregon different ERC-20 tokens, allowing customization of the nonce value, state price oregon state limit. This feature, disposable in-app mentation 1.8.2 and above, empowers precocious users to tailor transaction parameters. 

Users tin navigate to the precocious settings via the nonstop confirmation screen, set values, reappraisal the projected web interest and proceed with the transaction. The process includes confirming the customized settings and authorizing the transaction with a passcode and a 2FA code if enabled.

How does the replace-by-fee argumentation work?

Bitcoin users tin expedite transaction confirmation by creating a caller transaction with a higher fee, signaled by a unsocial “sequence number,” which, erstwhile broadcasted, whitethorn beryllium prioritized by miners, replacing the archetypal transaction.

The authorities of the network, miners’ rules, and the grade of enactment from the participating nodes and wallets each impact the effectiveness of the RBF policy. Here’s a elaborate mentation of however RBF operates:

Initial transaction confirmation

A Bitcoin transaction is initiated by a idiosyncratic and shared with the network. The transaction sits successful the mempool and is pending inclusion successful a artifact by a miner.

Adjustment for transaction fees

The idiosyncratic tin initiate a caller transaction with a higher interest if they privation to expedite the confirmation process oregon find the interest excessively low.

Replace-by-fee flag

The caller transaction includes a unsocial “sequence number” successful the transaction input, signaling that it is intended to regenerate a erstwhile transaction. This series fig is higher than that of the archetypal transaction.

In the discourse of Bitcoin, the nSequence field, primitively designed for “sequence number-based replacement” oregon “time-locking,” serves 2 superior purposes. Firstly, for a transaction to beryllium eligible for interest replacement, it indispensable explicit its replaceability astatine the clip of archetypal sending. This is accomplished by mounting the nSequence tract — a constituent wrong each transaction — to a worth beneath 0xffffffe.  

In hexadecimal notation, 0xffffffe represents a 32-bit unsigned integer with each bits acceptable to 1 but for the slightest important bit. In decimal, this worth is equivalent to 4294967294. Secondly, the nSequence tract enables comparative fastener times for transaction inputs, allowing transactions to beryllium updated aft the broadcast, providing flexibility for adjustments and facilitating RBF.

Broadcasting the replacement transaction for miners’ consideration

The idiosyncratic broadcasts the replacement transaction to the Bitcoin network. Miners who prime transactions for artifact inclusion whitethorn spot the replacement transaction with the higher fee. They whitethorn determine to see the replacement transaction successful a artifact due to the fact that they are incentivized to see transactions with greater fees.

Transaction confirmation

The archetypal transaction gets replaced if the replacement transaction is included successful the block. The replacement transaction volition not beryllium validated and is fundamentally “bumped” retired of the mempool.

How to alteration and disable RBF?

To alteration RBF successful a Bitcoin wallet, users should verify support, entree settings, alteration the RBF enactment and set fees, portion disabling RBF involves accessing settings, disabling the RBF enactment and ensuring it’s not activated by default.

Enabling RBF

Users indispensable guarantee their selected wallet supports RBF earlier turning this diagnostic on. The wallet settings tin usually beryllium accessed successful the precocious oregon transaction preferences section. 

The idiosyncratic should hunt the settings for an RBF option, typically “Replace-by-Fee” oregon a akin word and alteration this option. Users tin past broadcast the transaction to the web and alteration the transaction interest if determination is occupation confirming the transaction.

Version 21.2.2 of the Trezor Suite offers on-device enactment for the Trezor Model T (firmware 2.3.5 and up) and the Trezor Model One (firmware 1.9.4 and up). Users tin usage RBF to either finalize the transaction oregon rise the fee.

RBF by output simplification successful Trezor

RBF, by output reduction, deducts the further complaint from the transportation magnitude alternatively than the relationship equilibrium erstwhile transmitting the maximum magnitude of Bitcoin from a azygous account.

RBF with Trezor devices successful Electrum

Users tin employment RBF with Trezor devices successful Electrum, allowing for the replacement of the archetypal transaction. However, this replacement is lone feasible if the archetypal transaction was executed utilizing Electrum with the “Replace by fee” enactment enabled, accessible done Tools > Preferences > Replace by fee.

Disabling RBF

On the different hand, the idiosyncratic needs to entree wallet settings to disable RBF. Disabling RBF should beryllium imaginable via the precocious options oregon transaction preferences. This enactment whitethorn beryllium titled “Replace-by-Fee” oregon thing similar. 

To guarantee this functionality is not activated by default successful immoderate recently made transactions successful the wallet, the idiosyncratic indispensable uncheck the enabled option. The documentation oregon enactment resources for the wallet nether information should beryllium referred to get up-to-date and precise accusation connected enabling oregon disabling RBF.

Disadvantages of replace-by-fee argumentation

The RBF argumentation successful Bitcoin allows interest adjustments post-transaction but raises concerns of double-spending, idiosyncratic disorder and web congestion.

RBF raises concerns astir imaginable double-spending due to the fact that users tin regenerate an unconfirmed transaction with a caller 1 with higher fees. This hazard makes it hard for merchants oregon recipients of transactions to determine which transactions are legitimate, which could effect successful fraud and misunderstanding. 

RBF tin complicate the idiosyncratic acquisition due to the fact that radical unaware of its cognition whitethorn inadvertently regenerate transactions oregon brushwood delays. Furthermore, this diagnostic makes it much hard for businesses to forecast confirmation timeframes precisely by lowering transaction reliability and predictability. 

The ratio of the web arsenic a full whitethorn besides beryllium impacted by users routinely replacing transactions with extended fees, which tin besides origin congestion. Moreover, RBF’s vulnerability to misuse, which would alteration unscrupulous parties to instrumentality vantage of the strategy for fiscal benefit, emphasizes the necessity of its cautious usage and idiosyncratic education.