Replace-by-fee (RBF), explained

What’s the replace-by-fee (RBF) coverage?

The Bitcoin community’s replace-by-fee (RBF) coverage permits customers to switch pending (unconfirmed) transactions with new ones with increased transaction prices. 

The RBF coverage was proposed in BIP 125 and launched as a function within the Bitcoin protocol with the discharge of Bitcoin Core model 0.12.0, which was launched in February 2016. This function offers flexibility to customers who want to velocity up their transactions or modify the price in response to community constraints. 

On Nov. 23, 2023, a Bitcoin consumer made a transaction at 9:59 am UTC, paying an exceptionally excessive transaction price of $3.1 million for transferring 139.42 Bitcoin (BTC). This exorbitant price set a file because the eighth-highest in Bitcoin’s historical past. To place it in perspective, the consumer overpaid 119,980 occasions the standard transaction price. There are a few elements at play right here:

Excessive transaction price choice

The sender could have purposefully chosen a excessive transaction cost in an try to get a faster affirmation or as a result of they misjudged the price. 

RBF coverage

Customers could substitute a higher-fee transaction for an unconfirmed transaction below the replace-by-fee coverage. This suggests that to ensure speedier affirmation, the sender could have chosen to switch the preliminary transaction, which can have had a excessive value, with a brand new one with a good increased price.

Sender’s unawareness

It’s doable that the sender was not paying shut consideration to the community circumstances or was not wholly conscious of the implications of their actions. They may not have anticipated that the RBF would result in a major transaction price enhance.

Which blockchain networks assist RBF?

RBF functionality is useful when Bitcoin customers need to velocity up transaction affirmation or modify prices in response to shifting community situations.

Substitute-by-fee is a transaction coverage embedded within the Bitcoin community protocol and is supported by Bitcoin Core, the reference implementation of the protocol. As talked about, because of the RBF coverage, customers can swap out an unconfirmed Bitcoin transaction for a brand new one with a better transaction price.

It’s essential to do not forget that completely different wallets and providers inside the Bitcoin ecosystem could embrace RBF in a different way. As an illustration, though RBF is supported by Bitcoin Core, not all wallets could undertake or provide this function. To make sure that their pockets or service is appropriate with the replace-by-fee coverage, customers ought to verify the actual traits and pointers of the platform.

Different RBF guidelines embody that the brand new transaction should keep the identical outputs because the earlier one and have a better sequence quantity for every enter to make use of RBF. Moreover, RBF solely applies to transactions that haven’t but been confirmed; as soon as a transaction is authorized, it can’t be undone. Nevertheless, as not all nodes and miners could assist or acknowledge RBF transactions, its efficacy is determined by community situations and miners’ willingness to prioritize transactions with increased charges.

As well as, particular wallets, akin to Trezor, enable customers to “Bump Payment” on pending, unconfirmed transactions. Furthermore, Crypto.com customers can make the most of superior transaction settings to ship Ether (ETH) or different ERC-20 tokens, permitting customization of the nonce worth, fuel value or fuel restrict. This function, accessible in-app model 1.8.2 and above, empowers superior customers to tailor transaction parameters. 

Customers can navigate to the superior settings by way of the ship affirmation display, regulate values, evaluation the projected community price and proceed with the transaction. The method contains confirming the personalized settings and authorizing the transaction with a passcode and a 2FA code if enabled.

How does the replace-by-fee coverage work?

Bitcoin customers can expedite transaction affirmation by creating a brand new transaction with a better price, signaled by a novel “sequence quantity,” which, when broadcasted, could also be prioritized by miners, changing the unique transaction.

The state of the community, miners’ guidelines, and the diploma of assist from the taking part nodes and wallets all have an effect on the effectiveness of the RBF coverage. Right here’s an in depth rationalization of how RBF operates:

Preliminary transaction affirmation

A Bitcoin transaction is initiated by a consumer and shared with the community. The transaction sits within the mempool and is pending inclusion in a block by a miner.

Adjustment for transaction charges

The consumer can provoke a brand new transaction with a better price in the event that they need to expedite the affirmation course of or discover the price too low.

Substitute-by-fee flag

The brand new transaction features a distinctive “sequence quantity” within the transaction enter, signaling that it’s meant to switch a earlier transaction. This sequence quantity is increased than that of the unique transaction.

Within the context of Bitcoin, the nSequence discipline, initially designed for “sequence number-based substitute” or “time-locking,” serves two main functions. Firstly, for a transaction to be eligible for price substitute, it should specific its replaceability on the time of preliminary sending. That is completed by setting the nSequence discipline — a part inside every transaction — to a price beneath 0xffffffe.  

In hexadecimal notation, 0xffffffe represents a 32-bit unsigned integer with all bits set to 1 aside from the least vital bit. In decimal, this worth is equal to 4294967294. Secondly, the nSequence discipline permits relative lock occasions for transaction inputs, permitting transactions to be up to date after the published, offering flexibility for changes and facilitating RBF.

Broadcasting the substitute transaction for miners’ consideration

The consumer broadcasts the substitute transaction to the Bitcoin community. Miners who choose transactions for block inclusion might even see the substitute transaction with the upper price. They might determine to incorporate the substitute transaction in a block as a result of they’re incentivized to incorporate transactions with higher charges.

Transaction affirmation

The unique transaction will get changed if the substitute transaction is included within the block. The substitute transaction won’t be validated and is basically “bumped” out of the mempool.

Methods to allow and disable RBF?

To allow RBF in a Bitcoin pockets, customers ought to confirm assist, entry settings, allow the RBF possibility and regulate charges, whereas disabling RBF includes accessing settings, disabling the RBF possibility and guaranteeing it’s not activated by default.

Enabling RBF

Customers should guarantee their chosen pockets helps RBF earlier than turning this function on. The pockets settings can normally be accessed within the superior or transaction preferences part. 

The consumer ought to search the settings for an RBF possibility, sometimes “Substitute-by-Payment” or an analogous time period and allow this selection. Customers can then broadcast the transaction to the community and alter the transaction price if there may be hassle confirming the transaction.

Model 21.2.2 of the Trezor Suite provides on-device assist for the Trezor Mannequin T (firmware 2.3.5 and up) and the Trezor Mannequin One (firmware 1.9.four and up). Customers can use RBF to both finalize the transaction or increase the price.

RBF by output discount in Trezor

RBF, by output discount, deducts the extra cost from the switch quantity relatively than the account stability when transmitting the utmost quantity of Bitcoin from a single account.

RBF with Trezor units in Electrum

Customers can make use of RBF with Trezor units in Electrum, permitting for the substitute of the unique transaction. Nevertheless, this substitute is barely possible if the preliminary transaction was executed utilizing Electrum with the “Substitute by price” possibility enabled, accessible via Instruments > Preferences > Substitute by price.

Disabling RBF

However, the consumer must entry pockets settings to disable RBF. Disabling RBF must be doable by way of the superior choices or transaction preferences. This selection could also be titled “Substitute-by-Payment” or one thing related. 

To make sure this performance will not be activated by default in any newly made transactions within the pockets, the consumer should uncheck the enabled possibility. The documentation or assist sources for the pockets into consideration must be referred to acquire up-to-date and exact info on enabling or disabling RBF.

Disadvantages of replace-by-fee coverage

The RBF coverage in Bitcoin permits price changes post-transaction however raises issues of double-spending, consumer confusion and community congestion.

RBF raises issues about doable double-spending as a result of customers can substitute an unconfirmed transaction with a brand new one with increased charges. This threat makes it troublesome for retailers or recipients of transactions to determine which transactions are legit, which might lead to fraud and misunderstanding. 

RBF can complicate the consumer expertise as a result of individuals unaware of its operation could inadvertently substitute transactions or encounter delays. Moreover, this function makes it harder for companies to forecast affirmation timeframes exactly by reducing transaction reliability and predictability. 

The effectivity of the community as a complete may additionally be impacted by customers routinely changing transactions with in depth charges, which may additionally trigger congestion. Furthermore, RBF’s vulnerability to misuse, which might allow unscrupulous events to make the most of the system for monetary profit, emphasizes the need of its cautious use and consumer training.