Tuesday, October 26, 2021

Unconfirmed Bitcoin Transactions May Present New Opportunities for Fraud

Unconfirmed Bitcoin Transactions May Present New Opportunities for Fraud

Bitcoin’s large pool of unconfirmed transactions could present extra opportunities for scammers, say users. Deliberately setting low miner fees increases the chances a transaction will be stuck for days, or rejected completely.

Also read: Bitcoin Price Set to Break $2600 As Historic Rally Continues

Reddit user /u/HonestAndRaw posted a screenshot conversation with a “friend” who claimed he’d lost funds due to a transaction that never confirmed.

The exact details of the transaction are unknown, and HonestAndRaw claimed their friend was a new bitcoin user and didn’t wish to disclose. “But something tells me it was cash,” they wrote.

As one responder to the post pointed out, the friend may have been a victim of the “RBF scam.” RBF, or “replace-by-fee,” is a controversial Bitcoin feature that allows a user to change the transaction fee after sending but before a confirmation, to increase its chances of miners confirming it sooner.

An RBF scammer would first send one transaction with no or a very low fee. Then, he would send the same transaction to another address with a higher fee. Miners would confirm the larger-fee transaction, thus invalidating the initial one — and its recipient would lose the funds.

Note: not all miners support replace-by-fee, but many do. But RBF trickery may not even be necessary with so many transactions waiting.

Deliberately Stalled Transactions?

However with Bitcoin’s pool of transactions waiting to be confirmed (the “mempool”) reaching massive proportions, a sender could send a transaction with a deliberately low fee, in the hope it would never be confirmed.

William Tang, CTO of Bitcoin data and trading app provider BitKan, told Bitsonline:

“Network congestion is more serious at present, so mining pools may reject transactions with no handling fees. Even low fees may be rejected, or left waiting for long times to be processed.”

Transactions that stay unconfirmed for multiple days are generally rejected and funds returned to the sender. However they may also confirm, meaning the trick does not guarantee results — but some may choose to take the gamble.

Frequent critics of the 1MB transaction block limit, such as entrepreneur Roger Ver, point to the likelihood of transactions being “stuck” in limbo as the bitcoin price increases. High price generally means more transactions, with more spending their bitcoin and more new users joining in.

Most mobile wallets allow users to set a fee, typically something like Low/Economy, Normal, and High Priority. “Low” is around 0.0001 BTC, approximately 17 cents at press time. However, most wallets and online advice cautions against using this fee amount. 0.0004 BTC, or 70 cents, is recommended.

Blockchain transactions mempool
Data source: Blockchain.info

88+ Megabytes of Waiting Transactions

Jaxx fees transactions
transaction fee choices on the JAXX wallet

Blockchain.info data shows that from around May 4, the Bitcoin mempool size has skyrocketed in parallel with the price.

Blockchain’s charts show the average currently at 88.37 MB. Considering Bitcoin’s transaction blocks can handle only 1MB at a time, that’s a lot to clear out.

In-person cash/bitcoin traders should always be cautious, as there have been several reports of scams and robberies over the years. Dealing with complete strangers always carries risk.

Someone trading bitcoin for large amounts of cash in-person is well advised to wait for at least one confirmation (possibly more). Depending on the traders’ situation, that may not always be practical, especially if transactions are taking hours to confirm.

OTC trading apps like BitKan have a degree of know-your-customer requirements and there is also an escrow service to make sure both parties receive funds. However some still prefer complete anonymity and trade using an everyday bitcoin wallet and paper cash.

Anyone who prefers to trade in this manner is advised to be extra cautious in times of high congestion — and high prices.

Do you think this is something to be concerned about? Let’s hear your thoughts.


Images via Jaxx, Blockchain, Pixabay

Disclosure: BitKan is a strategic partner of Bitsonline.

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