What is the replacement by fee (RBF) policy?
The Bitcoin network's replace-by-fee (RBF) policy allows users to replace pending (unconfirmed) transactions with new ones with higher transaction costs.
He The RBF policy was proposed in BIP 125 and introduced as a feature in the Bitcoin protocol with the release of Bitcoin Core version 0.12.0, which was released in February 2016. This feature provides flexibility to users who want to speed up their transactions or modify the fee in reaction to limitations of network.
On November 23, 2023, a Bitcoin user made a transaction at 9:59 am UTC, paying an exceptional fee high transaction fee of $3.1 million for transferring 139.42 Bitcoin (btc). This exorbitant fee set a record as the eighth highest in Bitcoin history. To put it in perspective, the user overpaid 119,980 times the typical transaction fee. There are a couple of factors at play here:
Selecting high transaction fees
The sender may have intentionally selected a high transaction fee in an attempt to get a faster confirmation or because they miscalculated the fee.
FBR policy
Users may substitute a transaction with a higher fee for an unconfirmed transaction based on the fee substitution policy. This implies that to ensure faster confirmation, the sender may have chosen to replace the initial transaction, which may have had a high cost, with a new one with an even higher fee.
Ignorance of the sender
It is possible that the sender was not paying close attention to network circumstances or was not fully aware of the consequences of his actions. They may not have anticipated that the RBF would result in a significant increase in transaction fees.
What blockchain networks support RBF?
The RBF capability is useful when Bitcoin users want to speed up transaction confirmation or modify costs in reaction to changing network conditions.
Replace by fee is a transaction policy built into the Bitcoin network protocol and is supported by Bitcoin Core, the reference implementation of the protocol. As mentioned, due to the RBF policy, users can exchange an unconfirmed Bitcoin transaction for a new one with a higher transaction fee.
It is essential to remember that different wallets and services within the Bitcoin ecosystem may adopt RBF differently. For example, although RBF supports Bitcoin Core, not all wallets may adopt or offer this feature. To ensure that their wallet or service is compatible with the fee replacement policy, users must confirm the platform's particular features and guidelines.
Other rules of RBF include that the new transaction must maintain the same outputs as the previous one and have a higher sequence number for each input to use RBF. Additionally, the RBF only applies to transactions that have not yet been confirmed; Once a transaction is approved, it cannot be undone. However, as not all nodes and miners can support or recognize RBF transactions, their effectiveness depends on network conditions and the willingness of miners to prioritize transactions with higher fees.
Additionally, specific wallets, such as Trezor, allow users to "raise the fee" on pending and unconfirmed transactions. Additionally, Crypto.com users can use advanced transaction settings to send Ether (ETH) or another ERC-20 Tokensallowing customization of the nonce value, gas price or gas limit. This feature, available in app version 1.8.2 and higher, allows advanced users to customize transaction parameters.
Users can navigate to the advanced settings via the shipping confirmation screen, adjust the values, review the projected network fee, and continue with the transaction. The process includes confirming custom settings and authorizing the transaction with an access code and a 2FA code if enabled.
How does the fee replacement policy work?
Bitcoin users can speed up transaction confirmation by creating a new transaction with a higher fee, signaled by a unique "sequence number" which, when transmitted, can be prioritized by miners, replacing the original transaction.
The network state, miner rules, and the degree of support from participating nodes and wallets affect the effectiveness of the RBF policy. Here is a detailed explanation of how RBF works:
Initial transaction confirmation
A user initiates a Bitcoin transaction and shares it with the network. The transaction is in the mempool and is waiting to be included in a block by a miner.
Adjustment for transaction fees
The user can start a new transaction with a higher fee if they want to speed up the confirmation process or find the fee to be too low.
Fee Replacement Flag
The new transaction includes a unique "sequence number" in the transaction entry, indicating that it is intended to replace a previous transaction. This sequence number is greater than that of the original transaction.
In the context of Bitcoin, the nSequence field, originally designed for "sequence number-based replacement" or "time locking", serves two main purposes. First, for a transaction to be eligible for fee replacement, it must express its replaceability at the time of initial submission. This is achieved by setting the nSequence field (a component within each transaction) to a value less than 0xffffffe.
In hexadecimal notation, 0xffffffe represents a 32-bit unsigned integer with all bits set to 1 except the least significant bit. In decimal, this value is equivalent to 4294967294. Second, the nSequence field enables relative lock times for transaction inputs, allowing transactions to be updated after transmission, providing flexibility for adjustments and making it easier to RBF.
Broadcast replacement transaction for miners' consideration
The user transmits the replacement transaction to the bitcoin network. Miners who select transactions for block inclusion may see the replacement transaction with a higher fee. They may decide to include the replacement transaction in a block because they feel incentivized to include transactions with higher fees.
Transaction confirmation
The original transaction is replaced if the replacement transaction is included in the block. The replacement transaction will not be validated and will essentially be "removed" from the mempool.
How to enable and disable RBF?
To enable RBF on a Bitcoin wallet, users need to check support, go into settings, enable the RBF option and adjust fees, while disabling RBF involves going into settings, disabling the RBF option and making sure it is not enabled. by default.
RBF Enablement
Users must ensure that their selected wallet supports RBF before activating this feature. Wallet settings can usually be accessed in the advanced or transaction preferences section.
The user must look in the settings for an RBF option, usually "Replace by fee" or a similar term and enable this option. Users can then broadcast the transaction to the network and change the transaction fee if there are problems confirming the transaction.
Trezor Suite version 21.2.2 provides on-device support for Trezor Model T (firmware 2.3.5 and higher) and Trezor Model One (firmware 1.9.4 and higher). Users can use RBF to end the transaction or increase the fee.
RBF due to production reduction at Trezor
RBF, through production reduction, deducts the additional fee from the transfer amount instead of the account balance when the maximum amount of Bitcoin is transferred from a single account.
RBF with Trezor devices on Electrum
Users can employ RBF with Trezor devices in Electrum, allowing the original transaction to be replaced. However, this replacement is only feasible if the initial transaction was executed using Electrum with the โReplace by Rateโ option enabled, accessible via Tools > Preferences > Replace by Rate.
Disable RBF
On the other hand, the user needs to access the wallet settings to disable RBF. It should be possible to disable RBF via advanced options or transaction preferences. This option may be titled "Replace by Fee" or something similar.
To ensure that this functionality is not enabled by default on any newly made transactions in the wallet, the user must uncheck the enabled option. The documentation or support resources of the wallet under consideration should be consulted for up-to-date and accurate information on how to enable or disable RBF.
Disadvantages of the fee replacement policy
The RBF policy in Bitcoin allows for post-transaction fee adjustments, but raises concerns about double spending, user confusion, and network congestion.
RBF expresses concern about possible double spending because users can replace an unconfirmed transaction with a new one with higher fees. This risk makes it difficult for merchants or transaction recipients to decide which transactions are legitimate, which could lead to fraud and misunderstandings.
RBF can complicate the user experience because people who are unaware of how it works can inadvertently replace transactions or experience delays. Furthermore, this feature makes it more difficult for companies to predict confirmation times precisely by reducing the reliability and predictability of transactions.
The efficiency of the network as a whole may also suffer if users routinely substitute transactions with high fees. which can also cause congestion. Furthermore, the vulnerability of the RBF to misuse, which would allow unscrupulous parties to take advantage of the system for financial gain, underscores the need for its careful use and user education.
